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The FERC and FPSC rules provided a regulatory accounting
system which afforded petitioner with a characterization method
based on basic accounting principles that generally require the
capitalization of expenditures for larger items of property
having long-term lives and the expensing of relatively smaller
expenditures for minor items needed for repairs. We note “that
the ‘decisive distinctions’ between current expenses and capital
expenditures ‘are those of degree and not of kind,’ and * * *
each case ‘turns on its special facts’”. INDOPCO, Inc. v.
Commissioner, 503 U.S. at 86 (citation omitted). Petitioner’s
attempt to change retroactively from a consistent and logical
method of capitalizing the expenditures in issue to expensing
them involves the question of proper timing and thus is a
material item. See Southern Pac. Transp. Co. v. Commissioner, 75
T.C. at 683; sec. 1.446-1(e)(2)(ii)(a) and (b), Income Tax Regs.
This attempt to recharacterize the expenditures in issue is to be
treated as a change in method of accounting. See Southern Pac.
Transp. Co. v. Commissioner, supra; sec. 1.446-1(e)(2)(ii)(a) and
(b), Income Tax Regs.
Petitioner argues that it made certain adjustments related
to Florida Power on its Schedules M-1 for the years in issue and
that such adjustments establish that petitioner’s method of
accounting was not simply to follow regulatory and financial
accounting for tax reporting purposes. A Schedule M-1 is a
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