Choice "c" is correct. Under the accrual basis of accounting, when you include an amount in gross income on the basis of a reasonable estimate, and you later determine the exact amount, the difference (if any) is taken into account in the tax year in which the determination is made. Therefore, in this case, the additional $2,000 is included in Brun's Year 2 income.

Choice "d" is incorrect. There is no requirement to file an amended return as a result of an inaccurate but reasonable estimate of income in a prior year.

Choice "a" is incorrect. There is no requirement to notify the IRS.

Choice "b" is incorrect. The additional $2,000 must be included in income in Year 2. The 25% rule cited pertains to unintentional underreporting of income and its effect on the statute of limitations, increasing it from 3 to 6 years.