FPL Group, Inc. - Page 13




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          I.   Method of Accounting                                                   
               Section 446(a) provides that “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 term “method of accounting” includes both the “over-all                 
          method of accounting” and “the accounting treatment of any item.”           
          Sec. 1.446-1(a)(1), Income Tax Regs.  A method of accounting                
          includes “the consistent treatment of a recurring, material item,           
          whether that treatment be correct or incorrect.”  H.F. Campbell             
          Co. v. Commissioner, 53 T.C. 439, 447 (1969), affd. 443 F.2d 965            
          (6th Cir. 1971).  A taxpayer changes its method of accounting               
          when it changes either the “overall plan of accounting for gross            
          income or deductions” or “the treatment of any material item used           
          in such overall plan.”  Sec. 1.446-1(e)(2)(ii)(a), Income Tax               
          Regs.  A “material item” is “any item which involves the proper             
          time for the inclusion of the item in income or the taking of a             
          deduction.”  Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500,             
          510 (1989); sec. 1.446-1(e)(2)(ii)(a), Income Tax Regs.  A change           
          in accounting method may be effected only after consent is                  
          obtained from the Secretary.  See sec. 446(e).                              
               “The primary effect of characterizing a payment as either a            
          business expense or a capital expenditure concerns the timing of            
          the taxpayer’s cost recovery: While business expenses are                   
          currently deductible, a capital expenditure usually is amortized            






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Last modified: May 25, 2011