The virtue of the cash method is that it is easy. It does not always present an accurate picture of the taxpayer’s economic well-being. It can also be highly manipulable. If a taxpayer wants to increase his/her deductions, taxpayer simply prepays deductible expenses – perhaps years in advance.
- Section 461(g) addresses prepayment of interest.
- Don’t forget that § 263 (capitalization) covers intangibles that will help to produce income past the end of the current tax year. See Reg. § 1.263(a)-4(c)(1) (list of intangibles – includes insurance contract and lease).
If a taxpayer does not want to pay income tax on income, all taxpayer must do is defer its receipt. Various rules address these points.