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The regulatory rules provided the guidelines for determining
Florida Power’s characterization of expenditures for regulatory
accounting and financial reporting purposes. Petitioner
consciously chose to use consistently the same characterization
for tax purposes that Florida Power did for regulatory and
financial purposes.
Petitioner argues that it used the amounts Florida Power
reported for regulatory purposes as a “reasonable approximation”
for tax purposes rather than reviewing its work orders to
determine which expenditures to capitalize and which to expense.
Petitioner has made no allegations that it alerted respondent to
the fact that it was reporting only approximations and expected
to recharacterize expenditures years later. Section 1.446-
1(a)(4), Income Tax Regs., provides that the taxpayer’s
accounting records must be maintained in such a manner as to
enable him to file a correct return of his taxable income for
each taxable year. One of the essential features that the
taxpayer must consider in maintaining such records is:
Expenditures made during the year shall be properly
classified as between capital and expense. For
example, expenditures for such items as plant and
equipment, which have a useful life extending
substantially beyond the taxable year, shall be charged
to a capital account and not to an expense account.
[Electric & Neon, Inc. v. Commissioner, 56 T.C. 1324,
1332 (1971), affd. 496 F.2d 876 (5th Cir. 1974)
(quoting sec. 1.446-1(a)(4)(ii), Income Tax Regs.).]
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