Dean R. Shore and Wilma v. Shore v. Commissioner of Internal Revenue

Taxpayers appeal from a decision of the Tax Court, 69 T.C. 689 , assessing a deficiency of $53,903 against them for the year 1970. "The Tax Court determined that the individual taxpayers “ceased to engage in a trade or business” within the meaning of Revenue Procedure 70-16 when they incorporated their proprietorship pursuant to § 351 of the Internal Revenue Code. The taxpayers were therefore required to accelerate certain income adjustments that they otherwise would have been entitled to spread forward through succeeding years. We agree with the Tax Court’s interpretation of the Revenue Procedure and affirm.

I.

Taxpayers, husband and wife, owned and operated an accoustical and insulation business as a sole proprietorship. They used a cash receipt and disbursement method of accounting. In 1968, in accordance with § 481 of the Internal Revenue Code and Rev.Proc. 67-10, 1967- 1 C.B. 585 , they changed to an accrual system. As a result of that change, the sole proprietorship realized a net increase of income under § 481 of $142,994.43. Under Rev.Proc. 67-10 and § 481(c) of the Code , taxpayers were entitled to spread this net increase in income over a ten-year period, reporting…