T.C. Memo. 1996-413

UNITED STATES TAX COURT

FRANK'S CASING CREW AND RENTAL TOOLS, INC., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 25058-93, 1327-95. Filed September 16, 1996.

P is an "oil field contractor" that sells oil

pipes, leases equipment used in oil fields, and

provides crews necessary to operate the leased

equipment. P's contracts with its customers generally

provide that payment is due when P sends the customer

an invoice that includes all supporting documentation

(i.e., job tickets, equipment tickets, and third party

charges). On a number of occasions during the relevant

years, P did not invoice a customer until after yearend

because it had not yet received a third party's

invoice. In those cases, P did not accrue the related

income until the year during which it invoiced the

customer, even though its contract with the customer

was fully performed by the close of the previous year. 

Held: It was not an abuse of discretion for respondent

to conclude that income from the yearend contracts was

accruable for the years in which performance of the

contracts was completed.

Stanley B. Blackstone, for petitioner.
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1 Petitioner subsequently amended its 1988 and 1989 tax

returns.

Susan S. Canavello, for respondent. 

MEMORANDUM FINDINGS OF FACT AND OPINION

LARO, Judge: Frank's Casing Crew and Rental Tools, Inc.,

petitioned the Court to redetermine respondent's determination of

income tax deficiencies of $182,660, $164,150, and $46,461 in its

taxable years ended August 31, 1989, 1990, and 1991,

respectively. Following concessions by respondent, we must

decide whether respondent committed an abuse of discretion in

changing petitioner's method of accounting for income from

certain of its contracts. We hold for respondent. Unless

otherwise stated, section references are to the Internal Revenue

Code in effect for the years in issue. Rule references are to

the Tax Court Rules of Practice and Procedure. Dollar amounts

are rounded to the nearest dollar.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. 

The stipulations and attached exhibits are incorporated herein by

this reference. Petitioner was incorporated on October 8, 1956,

under the laws of the State of Louisiana. It filed 1988, 1989,

and 1990 Forms 1120, U.S. Corporation Income Tax Return, using an

accrual method and a fiscal year ended August 31.1 It had its
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principal office in Lafayette Parish, Louisiana, when it

petitioned the Court.

Petitioner is an "oil field contractor" that sells oil

pipes, leases equipment used in oil fields, and provides crews

necessary to operate the leased equipment. Petitioner's

customers are mainly large oil companies, and many of these

customers transport the leased equipment from petitioner's

location to the job site. In some cases, petitioner transports

the leased equipment itself, or it rents equipment from third

parties in order to transport the leased equipment to the job

site. Petitioner incurs expenses transporting the leased

equipment to the sites.

Petitioner enters into written contracts with its customers.

These contracts are usually provided by the customers, and the

terms of each contract vary from customer to customer. A term

that tends to be uniform throughout the contracts is that a

customer's payment is due when petitioner sends the customer an

invoice that includes all supporting documentation (e.g., job

tickets, equipment tickets, and third party charges). On a

number of occasions during the relevant years, petitioner did not

invoice a customer until after the year of completion of its

performance of the contract because it had not yet received a

third party's invoice. In those cases, petitioner postponed

accrual of the related income until the year of invoice. In the

case of pipe sales that occurred before yearend, but were not
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invoiced until after yearend because of lack of documentation,

petitioner followed a similar pattern. Petitioner's use of the

invoicing date to control the accrual of income resulted in a

deferral of the following amounts of gross receipts for sales and

services that were completed during its taxable years ending in

1988, 1989, and 1990 but billed in the respective succeeding

taxable years:

 Taxable year ended Amount

 Aug. 31, 1988 $846,897

 Aug. 31, 1989 553,623

 Aug. 31, 1990 927,451

Petitioner accrues various expenses at yearend.

OPINION

Respondent determined that petitioner's method of accounting

erroneously deferred recognizing income from sales and services

billed after the year in which they were completed. Respondent

argues that this method was inconsistent with the all events test

for the accrual of income. Respondent argues that petitioner

acquired a fixed right to receive income for these goods and

services once it completed performance. Petitioner argues that

its right to receive income from these yearend sales and services

was not fixed in the year that the goods were delivered or the

services rendered, given that it could not invoice its customers

until the following year. Petitioner argues that respondent

abused her discretion in not accepting its method of accounting,

which in petitioner's view results in only "minor deviations"
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from a strict application of an accrual method. Petitioner

argues that respondent cannot challenge its method of accounting

for yearend sales and services because it has used this method

consistently in prior years that were audited by respondent

without relevant change.

Turning first to the parties' dispute over the all events

test, a taxpayer recognizes income under an accrual method when

all events have occurred that fix the right to receive the

income, and the amount thereof can be determined with reasonable

accuracy. Secs. 1.446-1(c)(1)(ii), 1.451-1(a), Income Tax Regs.;

see also United States v. Anderson, 269 U.S. 422 (1926);

Hallmark Cards, Inc. v. Commissioner, 90 T.C. 26, 32 (1988). 

It is the right to receive an item of income, rather than its

actual receipt, that controls when the item is includable in the

gross income of an accrual method taxpayer. When the right to

receive a set amount of income becomes fixed, the income

ordinarily accrues. Spring City Foundry Co. v. Commissioner,

292 U.S. 182, 184 (1934); Resale Mobile Homes, Inc. v.

Commissioner, 91 T.C. 1085, 1093 (1988), affd. 965 F.2d 818 (10th

Cir. 1992).

Petitioner claims that its right to receive income on a

yearend sale or service is not fixed for purposes of the all

events test until it sends the fully documented invoice to its

customer. It was not an abuse of discretion for respondent to

reach the opposite conclusion. By the end of each year in issue,
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2 While we have previously upheld deferred billing practices

of certain taxpayers, those taxpayers generally operated in a

heavily regulated industry or were able to establish wide

acceptance within their industry of such an accounting practice. 

See, e.g., Orange & Rockland Utils., Inc. v. Commissioner,

86 T.C. 199 (1986); Public Serv. Co. of New Hampshire v.

petitioner had completed its performance with respect to the

sales and services. The parties do not dispute the amount of

income earned by petitioner for these goods and services. We

conclude that respondent committed no abuse of discretion in

determining that the all events test had been met. Petitioner

must accrue income from the goods and services in the taxable

year in which performance occurs, and it cannot wait until the

year in which it invoices its customer. Although petitioner may

not have physically possessed all of the documentation necessary

to invoice its customers for the sales and services in the year

of performance, petitioner's preparation and sending of the

invoices were ministerial acts that did not postpone accrual of

the income otherwise earned. See Continental Tie & Lumber Co. v.

United States, 286 U.S. 290 (1932); Dally v. Commissioner, 227

F.2d 724 (9th Cir. 1955), affg. 20 T.C. 894 (1953); Frost Lumber

Indus. v. Commissioner, 128 F.2d 693 (5th Cir. 1942), revg. 44

B.T.A. 1249 (1941); Orange & Rockland Utils., Inc. v.

Commissioner, 86 T.C. 199, 214 (1986). For purposes of the

all-events test, completion of petitioner's performance on the

contracts fixed its right to receive payment for the goods and

services, regardless of petitioner's invoicing practice.2
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Commissioner, 78 T.C. 445 (1982); Hospital Corp. of America &

Subs. v. Commissioner, T.C. Memo. 1996-105. In the instant case,

petitioner has presented no evidence to establish that its

invoicing practice is regulated or widely accepted in the oil

field industry.

3 Petitioner also relies on Jerry Lipps, Inc. v.

Commissioner, T.C. Memo. 1990-293. We do not read that case to

compel a result different than we reach herein.

Petitioner relies primarily on Decision, Inc. v.

Commissioner, 47 T.C. 58 (1966), for a contrary result.3 We find

petitioner's reliance misplaced. In Decision, Inc. v.

Commissioner, supra, the taxpayer's contracts provided that

orders placed in 1963 would be billed on January 1, 1964. The

Court held that the arrival of the 1964 billing date was

necessary to fix the right to income, and that therefore the

income did not accrue during 1963. In contrast with the present

case, performance of the taxpayer's contracts in that case was

not completed until February of 1964, after the billing date. We

conclude that Decision, Inc. is distinguishable on that basis.

Petitioner also argues that respondent is barred from

arguing that its method of accounting for the sales and services

is inappropriate, given the fact that she did not challenge this

method during prior audits. We disagree. Respondent's

acquiescence in an accounting practice in prior years does not

prevent an adjustment in later years. Meneguzzo v. Commissioner,

43 T.C. 824, 836 (1965); Massaglia v. Commissioner, 33 T.C. 379,

386-387 (1959), affd. 286 F.2d 258 (10th Cir. 1961). Although
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4 In particular, we note that we have rejected petitioner's

argument concerning an abuse of discretion. Simply stated,

respondent's determination is within the broad discretion that

she is afforded with respect to matters of tax accounting. See,

e.g., Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533

(1979); Commissioner v. Joseph E. Seagram & Sons, Inc., 394 F.2d

738, 743 (2d Cir. 1968), revg. 46 T.C. 698 (1966); Thomas v.

Commissioner, 92 T.C. 206, 220 (1989).

respondent's acquiescence in prior audits to a taxpayer's

accounting method may be considered in determining whether she is

justified in changing that method currently, Public Serv. Co. v.

Commissioner, 78 T.C. 445, 456 (1982), we reject petitioner's

attempt to prevent respondent from changing its erroneous method

of accounting under the facts herein. See Ezo Prods. Co. v.

Commissioner, 37 T.C. 385, 391 (1961); see also Thomas v.

Commissioner, 92 T.C. 206, 225-226 (1989). We hold for

respondent. In so holding, we have considered all of

petitioner's arguments for a contrary holding and, to the extent

not addressed above, find them to be irrelevant or without

merit.4

To reflect concessions, 

 Decisions will be entered

 under Rule 155.