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commission in basis on the grounds that InTex, as a cash basis S
corporation, had not paid the commission.
Section 461(a) provides the general rule that "The amount of
any deduction or credit * * * shall be taken for the taxable year
which is the proper taxable year under the method of accounting
used in computing taxable income." For the cash basis method:
allowable deductions shall, as a general rule, be taken
into account for the taxable year in which paid. * *
*. If an expenditure results in the creation of an
asset having a useful life which extends substantially
beyond the close of the taxable year, such an
expenditure may not be deductible, or may be deductible
only in part, for the taxable year in which made.
* * * [Sec. 1.461-1(a), Income Tax Regs.]
Capital expenditures are not deductible. Sec. 263(a); Woodward
v. Commissioner, 397 U.S. 572, 574-575 (1970). Instead, an
adjustment to basis "shall in all cases be made * * * for
expenditures * * * properly chargeable to capital account". Sec.
1016(a)(1).
Federal income tax is computed on the basis of an annual
accounting. Burnet v. Sanford & Brooks Co., 282 U.S. 359 (1931).
Expenses paid in one year cannot be used by a cash basis taxpayer
to offset gain realized in an earlier year; the taxpayer,
however, may be entitled to a loss in the year in which the
expenses are paid. Schneider v. Commissioner, 65 T.C. 18, 31
(1975); Vaira v. Commissioner, 52 T.C. 986, 1003 (1969), revd.
and remanded on another issue 444 F.2d 770 (3d Cir. 1971);
Pittman v. Commissioner, 14 T.C. 449 (1950); Harchester Realty
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