- 5 - Thus, any attempt by respondent to require a change in this tax accounting method constitutes, in petitioner’s view, an abuse of discretion. Conversely, respondent contends that, since a greater percentage of the costs at issue is allocable to 1994 than to 1993, the expenditures for licenses and insurance do result in benefits to petitioner extending substantially beyond the taxable year. Therefore, respondent asserts that the costs must be capitalized and amortized. In addition, respondent argues that the distortion in taxable income caused by petitioner’s method of tax accounting is sufficiently material to require a change in methods in order to clearly reflect income. We agree with respondent that petitioner, as an accrual method taxpayer, is entitled to deduct expenses which are more than incidental and allocable to future tax years only in the taxable periods to which they relate. General Rules As a threshold premise, section 446(a) states the general rule: “Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books.” The corollary to this rule, with respect to the timing of deductions, is set forth in section 461(a) and reads: “The amount of any deduction or credit allowed by this subtitle shall be taken for the taxable year which is thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011