Mingo v. Commissioner, 773 F.3d 629

In 2002 Mrs. Lori Mingo received a promissory note from IBM worth $832,090 in exchange for her PwC partnership interest; $126,240 of that amount was attributable to partnership unrealized receivables.
Petitioners reported the sale on their 2002 return using the installment method (Form 6252) and recognized only interest income in 2002–2006.
In 2007 petitioners converted the note into IBM stock and reported gains on their 2007 return.
The Commissioner issued a 2003 notice of deficiency (May 23, 2007) asserting the $126,240 attributable to unrealized receivables was ordinary income not eligible for installment reporting, and changed petitioner’s accounting method under I.R.C. § 446, making a § 481(a) adjustment to 2003 to include the omitted 2002 income.
Tax Court upheld the Commissioner: unrealized receivables are ordinary income ineligible for installment reporting, petitioner’s method did not clearly reflect income, and a § 481(a) adjustment to 2003 to account for the omitted 2002 income was proper.
The appellate court affirmed those holdings.

Issue	Mingo's Argument	Commissioner’s Argument	Held
Whether unrealized partnership receivables may be reported under the installment method	Mingo treated the entire sale (including unrealized receivables) as an installment sale	Unrealized receivables are ordinary income under §751 and cannot be reported using the installment method	Unrealized receivables are ordinary income and not eligible for installment reporting
Whether Commissioner could change accounting method in 2003 to account for 2002 omission given the statute of limitations for 2002 had run	Mingo argued §481(a) should not permit adjustment for amounts she reported (as installment) in a closed year; relied on Home Concrete’s interpretation of “omit”	§446 grants Commissioner discretion to require a method that clearly reflects income; §481(a) adjustments in the year of accounting change can correct omissions from closed years	Commissioner permissibly changed the method in 2003 and made a §481(a) adjustment to include the omitted 2002 income in 2003

Graff v. Chevrolet Co., 343 F.2d 568 (5th Cir. 1965) (Commissioner may require reporting in open year to correct income omitted in closed years after change in accounting method)
Comm’r v. Welch, 345 F.2d 939 (5th Cir. 1965) (discussing scope of §481(a) adjustments and absence of statute-of-limitations bar)
Rankin v. Comm’r, 138 F.3d 1286 (9th Cir. 1998) (§481 not limited by statute of limitations for closed years)
United States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836 (2012) (defining “omit” for purposes of §6501(e)(1)(A))
Comm’r v. Brookshire Bros. Holding, Inc., 320 F.3d 507 (5th Cir. 2003) (standard of review for Tax Court appeals)