THE SALE AS A TEST OF INCOME REALIZATION.

The allocation of income with respect to periods of time is of fundamental importance in both accounting and taxation. Under the accrual basis of accounting the sale is looked upon as one of the best evidences of realized income. However, the determination for Federal income-tax purposes of the time when income is realized from a sale gives rise to such questions, as: a) Is income realized when a contract of sale is entered into by the parties? b) Is there income to the seller when legal title passes? In this paper the time of income realization will be examined with reference to dispositions of personal and real property. The study is based upon reported cases of the Federal Courts and the Board of Tax Appeals. Although the subject of deferred payment sales will be discussed generally, a consideration of installment sales is excluded. In as much as the legal principles applied to sales of personalty in determining passage of title differ from those applicable to transfers of title to realty, the two types of transactions sales will be considered separately.