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Trip Garage, Inc. ( 4 5 9 Ellis Avenue, Harrisburg, PA 1 7 1 1 1 ) , is an accrual basis taxpayer that repairs
Trip Garage, Inc. Ellis Avenue, Harrisburg, PA is an accrual basis taxpayer that repairs automobiles. In late December
the company repaired Samuel Mosley's car and charged him $ 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 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 $ because he did not have the use of the car for a week. Trip said "fine," accepted the
$ and released the automobile to Samuel.
An IRS agent thinks Trip, as an accrual basis taxpayer, should report $ of income in when the work was done, and then deduct
a $ loss in 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
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 accrue the $ of income in and take a $ loss
deduction in the IRS view or report the $
in Trips preferred approach
An accrual basis taxpayer is required to recognize income when all the events have
to establish the
taxpayer's right to receive the income, and 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 The customer
d
accept the work by the end of the year. Thus, the transaction should be held open in and
no income and related costs should be reported until
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