Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2021, the company repaired Samuel Mosley's car and charged him $1,000. Samuel did not think the problem had been fixed and refused to pay; as a result, Trip refused to release the automobile. In early January 2022, Trip made a few adjustments and 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 2021, when the work was done, and then deduct a $100 loss in 2022. Complete the memo to Susan Apple, the treasurer of Trip, with the recommended treatment for the disputed income.

TO:	Susan Apple
FROM:	Bill Swan
SUBJECT:	Dispute Over Recording of Income by Trip Garage, Inc.
DATE:	May 1, 2022
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 2021 and take a $100 loss deduction in 2022 (the IRS view) or (2) report the $fill in the blank 1 in 2022 (Trip'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 incomebe determined with reasonable accuracy. In Trip's case, itappear that all the events to fix the rights to the income had occurred in 2021. The customeraccept the work by the end of the year. Thus, the transaction should be held open in 2021 andand related costs should be reported until 2022.