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method. Furthermore, although respondent's adjustments were
based on the amounts reflected on petitioner's balance sheets,
respondent's counsel would not stipulate the accuracy of those
amounts.
In Keneipp v. United States, 184 F.2d 263, 268 (D.C. Cir.
1950), the court addressed the Commissioner's power to allocate
items of income and stated:
We perceive no basis upon which the allocation
made by the Commissioner of the condemnation award
among the several pieces of property can be
sustained. * * * The Government's allocation is thus
completely erroneous on its face. The District Court
held that since there was a lump-sum award the
Commissioner of Internal Revenue had power to make
whatever allocation he pleased. The Commissioner has
no such arbitrary power. He has wide latitude in the
ascertainment of the fact as to what were the amounts
awarded on account of the several tracts and several
pieces of property. But his ascertainment must be
within the realm of the ascertainment of a fact. He
has no unilateral power to allocate as he pleases,
and thus to create income as he pleases, where no
income, or a different amount of income, exists. His
own published rule is that such an apportionment must
be upon the comparative values as of the date of the
sale.
We think that the reasoning of the U.S. Court of Appeals
for the D.C. Circuit in the Keneipp case is equally applicable
in the case at hand. We do not think there is any legitimate
basis for the method imposed upon petitioner. In this case,
the facts clearly show that the method of accounting employed
by respondent was not authorized or warranted by any provision
of the Internal Revenue Code or the regulations. Merely
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