Alacare Home Health Services, Inc. - Page 2




                                        - 2 -                                         
               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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