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discretion in requiring petitioner to segregate, account for, and
report Contract 2034 in four annualized segments. Petitioner
does not dispute that the standard is one of abuse of discretion.
On brief, however, respondent couches the issue as follows:
[W]hether * * * petitioner's regular method of
accounting is being improperly applied by petitioner to
treat Contract 2034 as a single agreement where the
regulation expressly mandates the treatment of Contract
2034 as several agreements so as to prevent the
unreasonable deferral of recognition of income. * * *
A method of accounting will only be deemed to result in
a clear reflection of income where it approximates the
true economic impact of the taxpayer's transactions
during the accounting period. Ford Motor Co. v.
Commissioner, 71 F.3d 209, 215-216 (6th Cir. 1995).
[Emphasis added.]
Respondent has, to some extent, mischaracterized the focus
of this case. There is no issue concerning whether petitioner
improperly applied the completed contract method.8 In that same
vein, petitioner did not structure Contract 2034 to maximize any
deferral inherent in the completed contact method. The question
here is not whether petitioner manipulated the completed contract
method or attempted to abuse the methodology by its particular
use. Broadly, the question is whether petitioner has shown there
was an abuse of discretion by respondent, measured by the
regulatory standards for severance.
8 This is not a question of whether four separate contracts
were improperly aggregated by petitioner. In the context of this
case, we are considering a 4-year contract that respondent
determined should be severed into four reportable parts.
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