Trip Garage, Inc. $(459$ Ellis Avenue, Harrisburg, PA $17111),$ is an accrual basis taxpayer that repairs automobiles. In late December $2023,$

the company repaired Samuel Mosley's car and charged him $$1,000.$ Samuel did not think the problem had been fixed, so he refused to

pay; as a result, Trip refused to release the automobile.

In early January $2024,$ Trip made a few adjustments under the hood; Trip then convinced Samuel that the automobile was working

properly. At that time, Samuel agreed to pay only $$900$ because he did not have the use of the car for a week. Trip said "fine," accepted the

$$900,$ and released the automobile to Samuel.

An IRS agent thinks Trip, as an accrual basis taxpayer, should report $$1,000$ of income in $2023,$ when the work was done, and then deduct

a $$100$ loss in $2024.$ Complete the memo to Susan Apple, the treasurer of Trip, with your recommended treatment for the disputed income.

TO:

FROM:

SUBJECT:

DATE:

Susan Apple

Bill Swan

Dispute over Recording of Income by Trip Garage, Inc.

May $1,2024$

I am responding to the questions you raised regarding the timing of the reporting of income by Trip Garage, Inc., for repairing

Samuel Mosley's car. The key issue is whether the Garage should $(1)$ accrue the $$1,000$ of income in $2023$ and take a $$100$ loss

deduction in $2024($the IRS view$)$ or $(2)$ report the $

in $2024($Trip$\text{'}$s preferred approach$).$

An accrual basis taxpayer is required to recognize income when $(1)$ all the events have

$$ to establish the

taxpayer's right to receive the income, and $(2)$ the amount of the income

be determined with reasonable accuracy.

In Trip's case, it

$$ appear that all the events to fix the rights to the income had occurred in $2023.$ The customer

d

$$ accept the work by the end of the year. Thus, the transaction should be held open in $2023,$ and

no income $$ and related costs should be reported until $2024.$