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Harry Potter and the Tax Accounting Myths

Posted: 9 Jan 2001  

Leo F. Nolan II

Government of the United States of America - Internal Revenue Service (IRS)


In "Can the Cash Method of Accounting Clearly Reflect Income?" Tax Notes, Feb. 24, 1997, p. 1063, and Mar. 3, 1997, p. 1175, the author described when the Commissioner of Internal Revenue may require cash-method taxpayers, including construction contractors, to use inventory and accrual methods of accounting for the materials they furnish with their services. In "Zen and the Cash Method," Tax Notes, June 26, 2000, p. 1771, the author criticized a new line of cases holding that the materials furnished by construction contractors and some other service providers are not merchandise subject to the inventory regulations. In this third and final article on issues associated with the clear-reflection-of-income standard under section 446(b), the author re-examines two issues mentioned in the previous articles: The commissioner's "broad discretion" to determine whether a taxpayer's method clearly reflects income and the taxpayer's ability to use the "substantial-identity-of-results test" as a "shield" when the commissioner is exercising that discretion.

JEL Classification: M4

Suggested Citation

Nolan, Leo F., Harry Potter and the Tax Accounting Myths. Tax Notes, January 2001. Available at SSRN:

Leo F. Nolan II (Contact Author)

Government of the United States of America - Internal Revenue Service (IRS) ( email )

1111 Constitution Avenue, NW
Office of Chief Counsel
Washington, DC 20224
United States

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