- 33 -
appropriate, provided that respondent makes the necessary
determinations. Compare J.P. Sheahan Associates, Inc. v.
Commissioner, T.C. Memo. 1992-239, with Thompson Elec., Inc. v.
Commissioner, T.C. Memo. 1995-292, which present different
findings of fact regarding yearend materials and supplies.
As Gertzman states at 6-30:
The rationale behind this provision [the sec. 162-
3 regulation] seems clear. Many taxpayers do not
maintain financial accounting records of consumption
and do not take physical inventories of the supplies on
hand at the beginning and end of the year for business
purposes. In these cases, it would be inconsistent
with the book conformity requirement of Section 446(a),
impractical, and unduly burdensome to require that they
undertake such record-keeping responsibilities or make
such physical counts solely for tax purposes. However,
to protect the Treasury against taxpayers who might
avoid undertaking these activities solely for the
purpose of obtaining a tax benefit, two protections are
afforded. First, the supplies must be incidental and,
second, the taxable income so computed must be
reflected clearly * * * [citation omitted.]
The regulation appears to be not much more than an
illustration of the rule that expenditures that result in assets
having a life beyond the end of the year must be capitalized.
See sec. 263; INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992).
Without attempting to predict the outcome of a hypothetical, see
Gulf Oil Corp. v. Commissioner, 89 T.C. 1010, 1044 (1987)
(Chabot, J., concurring), affd. on other grounds 914 F.2d 396 (3d
Cir. 1990), it suffices to note that the section 162 regulation
authorizes the Commissioner in appropriate cases to treat
supplies on hand at yearend as deferred expenses.
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