The cash method of accounting for income tax purposes
I.is allowed for interest received from Series EE savings bonds.
II.requires a taxpayer who receives services from another taxpayer in exchange for property to include the value of the services in income.
III.is allowed for taxpayers who receive interest income from the issuance of original issue discount securities with a term of more than one year.

Question

The cash method of accounting for income tax purposes
I.is allowed for interest received from Series EE savings bonds.
II.requires a taxpayer who receives services from another taxpayer in exchange for property to include the value of the services in income.
III.is allowed for taxpayers who receive interest income from the issuance of original issue discount securities with a term of more than one year.
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Quizplus · Accepted Answer

Under the cash method of accounting for income tax purposes, taxpayers report income when it is actually or constructively received. Statement I is correct because taxpayers can defer reporting interest from Series EE savings bonds until redemption or final maturity, which aligns with the cash method principles. Statement II is also correct because if a taxpayer receives services in exchange for property, the fair market value of those services is considered income at the time of the exchange, consistent with the cash method's emphasis on actual or constructive receipt of income. Statement III is incorrect because the original issue discount (OID) on securities with a term of more than one year typically requires accrual of interest income over the life of the security, which does not align with the cash method's principles of recognizing income when received.

The Cash Method of Accounting for Income Tax Purposes