Tax Accounting Method:
a.    Note: when someone does when someone dies you have three taxpayers:
1.    the deceased
2.    the estate
3.    the widow/heirs
ii.    the second pillar of tax accounting, the permissible methods of tax accounting, is conceptually more difficult than the annual accounting concept.
1.    446(a):  allows taxpayers to compute taxable income by the method of accounting they regularly use in keeping their books, with the 446(b) qualification that the method must clearly reflect income.
2.    446(c) enumerates the permissible methods of accounting:
a.    cash method
b.    accrual method, or
c.    other methods approved by the code
i.    such as installment reporting and long-term contracts
iii.    Cash method taxpayer report income in the taxable year in which the actually or constructively receive an item of income in the form of cash (or its equivalent), property or services.
1.    Actual Receipt:  poses few interpretive problems; it requires the physical acquisition and unrestricted use of the item.
2.    Constructive receipt is more complex b/c it does not require physical acquisition.
a.    Generally, income is constructively received in the year in which an item is credited, set apart, or otherwise made available to the taxpayer.  This keeps taxpayers from deferring and turning their backs on constructive income.
3.    Cash Equivalency Doctrine:  requires that promissory notes or other contractual obligations received as consideration by cash method taxpayer must be analyzed to determine whether they have a readily ascertainable FMV.
a.    Obligations with a readily obtainable FMV are included in a cash method taxpayer’s GI, those who don’t are not generally recorded do not include.
4.    the rules governing an accrual method requires that income be reported in the year in which
a.    all events have occurred that fix the right to receive the income &
b.    the amount of such income can be determine with reasonable accuracy
iv.    Ascher Aside:
1.    See Horning Case,  Horning did not receive the vette until he drove it away
2.    When you make the decision to not get the check, that makes it constructive
3.    Even if you cannot deposit the check, it is constructive receipt
4.    1.451-2(a):  see the first sentence, Ascher says super important:  Basically if you could have gotten it, then its included in you GI
5.    1.446-1(c)(2): used if you are using inventory, tax accountants seem to feel this is more accurate.
6.    1.446-1(c)(ii):  the all events test, all the events have occurred which make you entitled to the income
a.    example:  you get $1 when you climb a pole, when you get to the top, GI.
7.    1.446-1(c)(ii):  also, you must have amount certainty, same thing with deductions; you can get things when you are owed/incurred them
a.    not when they are paid.  The accrual method is not as important for this class
8.    Constructive Reciept is very important.
v.    Relief Provision:
a.    put in place to alleviate an extra heavy tax year
2.    §453: installment reporting, it may be used in deferred payment sales of property in lieu of either the cash or accrual methods.
a.    The operative measure is 453(c); which permits a taxpayer to defer income by prorating payments as they are received in order to recover a portion as basis and to report the remainder as income.
3.    Open transaction reporting method:
a.    Judicially created
b.    May apply to either cash or accrual method taxpayers, except when the consideration received has no readily ascertainable FMV.
i.    example:  contracts and claims to receive indefinite amounts of income such as a percentage of future earnings
c.    when open transaction reporting applies , the transaction is held “open” until the taxpayer first recovers their basis in the property sold and then reports income when and if receipts exceed the B in the property sold and then reports income when and if receipts exceed the basis in the property transferred.  T/f open transaction reporting permits the deferral of income until basis has been completely recovered.  In contrast, installment method reporting permits the deferral of income and the pro rata recovery of basis as payments are received.