When Gross Income is Accrued

Taxpayer is a securities firm which uses the accrual method of accounting. Taxpayer executes stock trades and performs settlement functions. Settlement functions include recording the sale and confirming it with the customer. Trades made on December 28, 20X5, until the end of the month are not settled until January of 20X6. Taxpayer made $1,000,000 of net commissions from these trades in late December. Since the security is not credited to the customers account until settlement date, taxpayer wants to declare the income on the settlement dates in 20X6. Taxpayer does not receive the money until January 20X6. Advise the taxpayer.

ISSUE:

Whether an accrual basis securities firm has gross income under sec. 451(a) on the trading date or the next year on the settlement date when all the work is performed, payment is due, and money received?