John and Louisa A. Hodel - Page 10

               In applying the doctrine of election to the instant case, we           
          find that both requirements are met.  First, petitioners had a              
          choice to either deduct or capitalize the preproductive expenses            
          attributable to the nursery.  Second, petitioners claimed the               
          expenses as current deductions on their 1986 through 1990                   
          returns, and, in so doing, committed an overt act that manifested           
          their choice to the IRS.                                                    
               Petitioners argue that they made the decision to deduct the            
          preproductive expenses based on gross income figures as reflected           
          on their original returns, prior to the adjustments that were               
          made to their income by respondent during the audit.  In other              
          words, petitioners argue that their election was based on a                 
          mistake of fact, and, had they been aware of respondent's                   
          adjustments at the time of filing their returns, they would have            
          elected to treat certain expenditures differently.                          
               "Courts have recognized that a material mistake of fact may            
          vitiate the binding nature of an election."  Grynberg v.                    
          Commissioner, supra at 261 (citing Roy H. Parks Broadcasting,               
          Inc. v. Commissioner, supra at 1134).  Situations in which a                
          material mistake of fact may allow a taxpayer to revoke an                  
          election are:  (1) The amended return was filed prior to the date           
          prescribed for filing a return; (2) the treatment of the                    
          contested items in the amended return was not inconsistent with             
          his treatment of that item in his original return; or (3) the               
          treatment of the item on the original return was improper and the           

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