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recharacterize this item. The Schedule M-1 adjustment for the
storm reserve does not affect petitioner’s consistent treatment
of characterizing the expenditures in issue based on regulatory
rules and guidelines. Petitioner has not alleged that there were
Schedule M-1 adjustments for any other items for 1992.
C. Audit Adjustments
Petitioner argues that respondent’s allowance of additional
repair expense deductions on audit supports its position that
later recharacterizations were part of its method of accounting.
Petitioner contends that the facts that it amended its 1992
return and that respondent allowed additional repair expenses on
audit establish that petitioner’s method of accounting was not to
follow regulatory rules and guidelines when characterizing the
expenditures in issue for tax purposes. Petitioner argues that
these adjustments support its position that its accounting
practice was to use regulatory characterizations as a “reasonable
approximation” and then make adjustments when errors were
discovered.
Respondent disputes that the failure to raise the change in
method of accounting issue in any way prevents the current
disallowance of petitioner’s attempted recharacterization.
Respondent argues that the audit adjustments were simply part of
an overall settlement of the claim and that those actions do not
establish the method of accounting that petitioner is claiming.
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