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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