Rev. Rul. 75-324

Advice has been requested whether, under the circumstances described below, a taxpayer is precluded from electing the income averaging provisions of sections 1301 through 1305 of the Internal Revenue Code of 1954.

The taxpayer, an unmarried individual, computed his taxable income under the cash receipts and disbursements method of accounting for the taxable years 1970 and 1971. For the taxable year 1972 the taxpayer requested and received permission to change to the accrual method of accounting. For his taxable year 1974, the taxpayer elected to average his income.

Section 1301 of the Code provides that if an eligible individual has averageable income for the computation year, and if the amount of such income exceeds $3,000, then the tax imposed by section 1 for the computation year that is attributable to averageable income shall be five times the increase in tax under section 1 that would result from adding 20 percent of such income to 120 percent of average base period income.

Section 1302(c)(1) of the Code defines the computation year as the taxable year for which the taxpayer chooses the benefits of income averaging. Section 1302(c)(3) defines a base period year as any of the four taxable years immediately preceding the computation year. Section 1.1302-2(b)(2) of the Income Tax Regulations provides, in part, that the base period income for each base period year must be determined in a manner consistent with the return of the computation year.

There is no provision in sections 1301 through 1305 of the Code or the regulations thereunder that requires that a taxpayer must have used the same method of accounting in each of his base period years as he used in his computation year in order to qualify for income averaging. The "consistent manner" requirement in section 1.1302-2(b)(2) of the regulations expressly pertains to taxpayers who during base period years filed different types of returns (that is, joint or separate) or changed their marital status.

Accordingly, in the instant case, the taxpayer may elect to use the income averaging provisions of sections 1301 through 1305 of the Code, provided he otherwise qualifies for the benefits of income averaging.