* This order and judgment is not binding precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. The court

generally disfavors the citation of orders and judgments; nevertheless, an order

and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3. 

F I L E D

United States Court of Appeals

Tenth Circuit

OCT 23 1998

PATRICK FISHER

Clerk

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

CORDE FINANCE CORPORATION,

Petitioner-Appellant,

v.

COMMISSIONER OF INTERNAL

REVENUE,

Respondent-Appellee.

No. 97-9015

Appeal from U.S. Tax Court

(T.C. No. 27258-93)

ORDER AND JUDGMENT *

Before PORFILIO , KELLY , and HENRY , Circuit Judges.

After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1.9. The case is therefore

ordered submitted without oral argument.
1 The notice of deficiency also set forth a fraud penalty under 26 U.S.C.

§ 6663(a). Petitioner does not dispute the Tax Court’s determination that it is

required to pay the fraud penalty. 

-2-

Respondent Commissioner of Internal Revenue issued a statutory notice of

deficiency to petitioner Cordes Finance Corp., setting forth a deficiency in income

taxes for 1990 and a substantial understatement penalty under 26 U.S.C.

§ 6662(a). 1 In calculating the deficiency, respondent changed petitioner’s method

of accounting for interest income and, incident thereto, made certain adjustments

to petitioner’s 1990 income tax return. Petitioner filed a petition in Tax Court

disputing the deficiency and penalty. The Tax Court issued a memorandum

findings of fact and opinion in favor of respondent and later entered a decision

setting forth the amount of the deficiency and understatement penalty. Petitioner

appealed. We have jurisdiction to consider this appeal, see 26 U.S.C.

§ 7482(a)(1), and we affirm. 

Petitioner first argues that the Tax Court erred in requiring it to change

from one erroneous method of accounting to another erroneous method of

accounting. According to petitioner, the change in accounting methods did not

accurately reflect income because respondent improperly included deferred

interest, which had not been received or realized, as income in 1990. 

As petitioner concedes, the Commissioner has broad discretion to determine

the propriety of a taxpayer’s method of accounting, see Morrissey v. IRS (In re
-3-

EWC, Inc.) , 114 F.3d 1071, 1073 (10th Cir. 1997), and to require the taxpayer to

change its method of accounting if the method employed does not clearly reflect

income, see 26 U.S.C. § 446(b); Ralston Dev. Corp. v. United States , 937 F.2d

510, 514 (10th Cir. 1991). “The Commissioner’s discretion to prescribe a method

that clearly reflects income cannot be disturbed unless it is clearly unlawful or

plainly arbitrary.” Dayton Hudson Corp. v. Commissioner , 153 F.3d 660, 664

(8th Cir. 1998) (citing Thor Power Tool Co. v. Commissioner , 439 U.S. 522,

532-33 (1979)). 

Respondent did not prescribe a method of accounting that was clearly

unlawful or plainly arbitrary. The only change in petitioner’s method of

accounting required petitioner to report its interest income on the accrual method. 

Petitioner does not take issue with this change. The inclusion of the deferred

interest in income in 1990 was not a change in the method of accounting. Rather,

it was a one-time adjustment to include as income the discrepancy between the

deferred interest amounts shown on petitioner’s balance sheet and on its ledger

cards. See 26 C.F.R. § 1.446-1(e)(2)(ii)(b). Thus, we conclude respondent did

not abuse her discretion in changing petitioner’s method of accounting and the

Tax Court did not err in upholding the change.

Petitioner next argues that the Tax Court erred in requiring it to include the

deferred interest in its income for 1990. Contrary to respondent’s determination
-4-

that the discrepancy between the amount of deferred interest shown on

petitioner’s balance sheet and that shown on its ledger cards represented interest

that petitioner had failed to report as income, petitioner contends the deferred

interest had not been realized at the end of 1990. 

The Tax Court found that petitioner did not meet its burden of proof and

failed to rebut respondent’s determination or to explain the discrepancy. We

review the Tax Court’s factual findings under a clearly erroneous standard. See

Erickson v. Commissioner , 937 F.2d 1548, 1555 (10th Cir. 1991). Our review of

the record discloses no clear error. See Adolph Coors Co. v. Commissioner , 519

F.2d 1280, 1284 (10th Cir. 1975). Petitioner failed to support this argument with

any specific facts or legal authority. See id. Accordingly, we conclude the Tax

Court did not err in requiring petitioner to include the deferred interest in its

income for 1990. 

Lastly, petitioner argues that the Tax Court erred in imposing an

accuracy-related penalty under § 6662(a) for the substantial understatement of

income. Petitioner does not dispute that it substantially understated its 1990

income tax liability. Rather, it maintains that it has reasonable cause to avoid the

penalty because it relied on the same accounting firm for thirty years for tax

advice and return preparation. 
-5-

The Tax Court determined that petitioner failed to prove that its

accountants had advised it to report its income under an erroneous method of

accounting or that the errors in the 1990 income tax return resulted from advice of

its accountants. Accordingly, the Tax Court concluded that petitioner failed to

show reasonable cause to avoid the penalty. Upon review of the record, we

conclude the Tax Court’s determination was not clearly erroneous. See Adolph

Coors Co. , 519 F.2d at 1284. 

The decision of the United States Tax Court is AFFIRMED. 

Entered for the Court

John C. Porfilio

Circuit Judge