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choice to deduct rather than capitalize the production costs was
a change in the accounting method.
Respondent explains that the corporation, under section
263A, had capitalized (not deducted)12 its citrus grove
production costs for its taxable years ended September 30, 1989
and 1990. Beginning in 199113 and in later years, the
corporation began deducting its production costs for the 1989 and
1991 trees. Respondent contends that the corporation changed its
method of accounting for costs of citrus production in its 1991
taxable year. Under respondent’s change in the accounting method
contention, respondent would be entitled to rely on section 481
to make an adjustment(s) to prevent a distortion of taxable
income. See sec. 481; Graff Chevrolet Co. v. Campbell, 343 F.2d
568, 572 (5th Cir. 1965); W.S. Badcock Corp. v. Commissioner, 59
T.C. 272 (1972), revd. on other grounds 491 F.2d 1226 (5th Cir.
1974). Under section 481 respondent increases the corporation’s
1992 tax year income to adjust for the 1991 tax year deductions
12 Petitioner argues that it did not capitalize the 1989 and
1990 costs for the 1989 trees, but that it deferred deducting
them until it could be determined whether they met the 2-year
test of sec. 263A(d)(1)(A)(ii). Petitioner’s characterization of
the corporation’s actions as deferring the deductions as opposed
to choosing to capitalize, however, is a distinction without a
difference. In the context of this case and the subject statute,
the failure to deduct is necessarily the equivalent of a choice
to capitalize.
13 In 1991, the corporation deducted the costs for its 1989,
1990, and 1991 taxable years.
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