Key implications of Tax Court decision in Lattice Semiconductor

Washington National Tax Services

The Tax Court's recent decision in Lattice Semiconductor Corp, T.C. Memo. 2011-100, addressing IRS denial of Lattice's request to change its method of accounting for prepaid expenses under the "12-month rule," reflects a continuance of the deference given by the court to the IRS in matters pertaining to accounting methods.

In its opinion, the Tax Court skirted the issue of whether Lattice could deduct prepaid expenses under the 12-month rule for the tax year immediately prior to the tax year that the IRS formally changed its position and allowed all taxpayers to do so. The court further limited the scope of its analysis by not addressing Lattice's assertion that the IRS acted arbitrarily in instituting an automatic rejection policy, that is, that the IRS improperly failed to evaluate Lattice's accounting method change request under "traditional application procedures and developing case law." Rather, the court restricted its analysis to whether the IRS acted within its proper discretion in denying Lattice's accounting method change request.



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