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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 the
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