2022 – 04/13 U.S. businesses must generally follow strict rules in how they report income and expenses. One key rule is the matching principle, which requires that income and related expenses be reported in the same period. Even when a business strictly adheres to “generally accepted accounting principles” (GAAP), the IRS might challenge it. In one case, the IRS believed that the way a retirement community treated deferred fees (upfront payments from residents) didn’t properly reflect its income. The U.S. Tax Court rejected the IRS finding. The court pointed out that when GAAP is followed consistently over time, a business “will ordinarily be regarded as clearly reflecting income.” (TC Memo 2022-31)

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