Question

Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2014, the company repaired Samuel Mosley's car and charged him $1,000. Samuel did not think the problem had been fixed, so he refused to pay; thus, Trip refused to release the automobile.
In early January 2015, Trip made a few adjustments under the hood; Trip then convinced Samuel that the automobile was working properly. At that time, Samuel agreed to pay only $900 because he did not have the use of the car for a week. Trip said "fine," accepted the $900, and released the automobile to Samuel.
An IRS agent thinks Trip, as an accrual basis taxpayer, should report $1,000 of income in 2014, when the work was done, and then deduct a $100 business loss in 2015.
Prepare a memo to Susan Apple, the treasurer of Trip, with your recommended treatment for the disputed income.


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  • CreatedMay 25, 2015
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