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placed in service, directly contravenes the rule in section
1.167(a)-10(b), Income Tax Regs., which allows only a
“proportionate part of one year’s depreciation” in the first and
last years of a period of service. We have so held in similar
circumstances where the taxpayer sought to claim a full year’s
depreciation for assets placed in service at any time during the
first 5 months of the taxable year. See Clairmont v.
Commissioner, supra at 1136.
Petitioners cite no authority for their method of
amortization, other than to claim that, by precisely matching the
recognition of the deferred insurance expense with the
recognition of the deferred income permitted in Rev. Proc. 92-98,
supra, for their EWA’s, they have effected a clear reflection of
income, which respondent may not disturb. However, a method of
accounting that is “plainly inconsistent” with valid regulations
does not clearly reflect income within the meaning of section
446(b). Thor Power Tool Co. v. Commissioner, 439 U.S. at 533;
see Van Raden v. Commissioner, 71 T.C. 1083, 1105 (1979), affd.
650 F.2d 1046 (9th Cir. 1981).
4. Whether Petitioners Purchased Insurance
Petitioners also argue that the agreement they entered with
Western General did not constitute insurance-–specifically, that
petitioners’ liability to Western General did not arise out of
the provision of insurance and therefore the payments to Western
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