USFreightways Corporation - Page 14




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          taxpayer must prorate insurance expenses, and no taxpayer                   
          utilizing such a method has been afforded the treatment that                
          petitioner here requests.                                                   
               As a result, consistency with case law negates the                     
          possibility of a 1-year rule with respect to the accrual basis              
          taxpayer.  It follows that petitioner’s deductions were improper            
          under the rules governing deductions and capitalization.                    
          Clear Reflection of Income Rules                                            
               Section 446(b) provides: “If no method of accounting has               
          been regularly used by the taxpayer, or if the method used does             
          not clearly reflect income, the computation of taxable income               
          shall be made under such method as, in the opinion of the                   
          Secretary, does clearly reflect income.”  However, petitioner               
          acknowledges on brief that “The capitalization rules stand on               
          their own as does the clear reflection of income provision of               
          I.R.C. section 446(b).”  Hence, because petitioner’s treatment of           
          license and insurance costs violated sections 162 and 263, we               
          need not reach the issue of whether petitioner’s method of tax              
          accounting also failed to clearly reflect income.  The related              
          evidentiary objection raised by petitioner, contesting the                  
          admissibility of financial data for years subsequent to 1993, is            
          likewise rendered moot.  The challenged figures were offered only           
          on the question of clear reflection.  Although petitioner asserts           
          that respondent abused his discretion in changing an accounting             






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Last modified: May 25, 2011