This Note suggests an approach under the current Code and current legal doctrine that would enable the Commissioner to disallow accrual accounting when manipulated to avoid taxation. At the outset, the Note defines and illustrates tax avoidance through accounting manipulation. The Note then considers within the framework of judicial review of agency action the source and nature of the Commissioner's discretion to reject accounting methods. This analysis demonstrates the validity of the Commissioner's action whenever it is based on legally relevant factors. The Note then develops the emerging content of the “clearly reflect income” language as the source of the legally relevant factors, and concludes that the relationship between the notion of “income” and taxation according to ability to pay supports the Commissioner's rejection of an accounting method manipulated to avoid normal payment of tax.
Karl S. Coplan, Protecting the Public Fisc: Fighting Accrual Abuse with Section 446 Discretion, 83 Colum. L. Rev. 378 (1983), available at http://digitalcommons.pace.edu/lawfaculty/363/.