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After concessions,1 the issues for decision are:
1. Whether petitioner, an accrual-basis taxpayer, may
expense in 1995 and 1996 the cost of assets that each cost less
than $500 and that have a useful life of more than one year, or
whether petitioner must capitalize the cost of those assets. We
hold that it must capitalize those costs.
2. Whether petitioner is liable for the accuracy-related
penalty for substantial understatement of income under section
6662(a) for 1995 and 1996. We hold that it is not.
Section references are to the Internal Revenue Code in
effect during the years in issue, and Rule references are to the
Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioner
Petitioner is a Medicare-certified home health care
agency whose principal place of business was in Birmingham,
Alabama, when it filed the petition in this case. Petitioner
uses the accrual method of accounting.
1 Respondent concedes that the 1996 adjustment for office
expenses should be $247,413 rather than $259,062. Due to a
mathematical error in the notice of deficiency, the 1995 computer
expenses adjustment should be $104,806 rather than $101,806.
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