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Proposing A Single, Simpler Test For Cash Equivalency, Fred B. Brown

All Faculty Scholarship

Under the cash method of accounting, generally taxpayers include income items that are received in the form of cash, checks, and property, in the year in which they are received. Under the cash equivalency doctrine, a promise to pay an amount in the future, even though it is a property right, generally will be included upon receipt only if the promise to pay constitutes a cash equivalent.

Whether an obligation is a cash equivalent is generally determined based on common law standards developed by the courts with some assistance from the Service. As a consequence, the current approach to cash …