SECTION 2. BACKGROUND

.01 Section 451 of the Internal Revenue Code provides that the amount of any item of gross income is recognized in the taxable year the taxpayer receives the item unless, under the method of accounting used in computing taxable income, the income is properly recognized in a different period. Section 1.451–1(a) of the Income Tax Regulations provides that, under an accrual method of accounting, income is includible in gross income when all the

January 31, 2011 441 2011–5 I.R.B.

returned goods as the payment of a cash refund and sale of a gift card. A taxpayer may use this method whether or not it is the taxpayer’s policy to provide a cash refund for returned goods.

.06 In general, a taxpayer must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Sections 446(e) and 1.446–1(e)(2)(i). Section 1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures stating the limitations, terms, and conditions of the Commissioner’s consent to change a method of accounting. Section 481(a) generally requires adjustments to prevent duplication or omission of amounts when a taxpayer changes a method of accounting.