Thus, the timing of gain recognition will generally be the same under both the current and the prior federal regulations, but the character, source, and other attributes of the income items may differ. The matching rule focuses on the related buyer's intercompany items to determine the timing of income recognition for the seller. For each consolidated return year, the seller is required to recognize its intercompany income to the extent of the difference between the income, deduction, or loss the buyer recognizes on a separate entity basis and the items the buyer would have recognized if the seller and buyer were divisions of a single corporation. Corporations S and B are included in the consolidated federal return of an affiliated group. S drills water wells.
B operates a cattle ranch.
Under its separate entity method of accounting, S would take the income and expenses into account in 1996. Under the acceleration rule, the intercompany items are taken into income immediately before it first becomes impossible to produce the single corporation effect.