- 23 -
that should have been capitalized under section 263A. Our
holding sustains respondent’s position that the corporation must
use capitalization principles, beginning in 1992, to account for
the expenditures of developing its trees. Unless a section 481
adjustment is made, the amounts already deducted for the 1991
year as development costs of the 1989 and 1991 trees would in
effect be deductible a second time, in 1992 and later years, if
not through depreciation, then as accumulated costs set off
against the proceeds realized from the sale of fruit grown on
these trees.
Petitioner does not question respondent’s authority to make
the adjustment under section 481 but argues that there has not
been a change in the accounting method that would make section
481 available to respondent. Without section 481, petitioner
contends that respondent is time barred from adjusting the 1992
taxable year. Accordingly, we must decide whether respondent, by
requiring the corporation to capitalize such costs under section
263A for 1992 and future years, has changed the corporation’s
method of accounting for such costs.
Respondent relies on the definition for change of accounting
method contained in Rev. Proc. 92-20, 1992-1 C.B. 688, as
follows:
Section 1.446-1(e)(2)(ii)(a) of the regulations
provides that a change in method of accounting includes
a change in the overall plan of accounting for gross
income or deductions, or a change in the treatment of
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011