38
(costs the taxpayer incurred in constructing signs with respect
to which it was the lessor) as current deductions.25 Despite
this error, the taxpayer requested that we approve its accounting
method on the grounds that its method "clearly reflected income
over a period of years, and that such practices had been
consistently used over a long period of time." Id. at 1333. In
holding that the taxpayer's improper characterization of capital
expenditures failed to reflect income clearly, we stated:
As a result of its use of an improper method, E & N's
taxable income would be seriously understated in a year
when many new signs were constructed for lease, and
just as seriously overstated in a year when very few
signs were constructed, with the result of making the
corporation's financial fortunes appear to be sinking
when in fact it was enjoying great success, and rising
when in fact its business was seriously diminished.
* * * "Income must be reflected with as much accuracy
as recognized methods of accounting permit." Fort
Howard Paper Co. [v. Commissioner], 49 T.C. 275, 284
(1967); see also Caldwell v. Commissioner, 202 F.2d
112, 115 [(2d Cir. 1953)], affirming on this issue a
Memorandum Opinion of this Court. That E & N's
accounting method with respect to the treatment of the
cost of the leased signs fell short of this requirement
is obvious. [Electric & Neon, Inc. v. Commissioner,
supra at 1333.]
25The taxpayer in Electric & Neon, Inc. v. Commissioner, 56
T.C. 1324 (1971), affd. without published opinion 496 F.2d 876
(5th Cir. 1974), treated the entire costs of constructing the
signs it subsequently leased, including materials, supplies,
labor, freight, supervisory salary, workman's compensation
insurance, payroll taxes, licenses, and miscellaneous job costs,
as a current expense for Federal income tax purposes. Id. at
1326. Generally, the signs the taxpayer constructed had useful
lives substantially beyond the taxable year of construction and
the usual term for the original lease of these signs was 5 years.
Id. at 1332-1333.
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