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substantially beyond the taxable year must be capitalized. See
sec. 263(a)(1); Otis v. Commissioner, 73 T.C. 671, 674 (1980),
affd. without published opinion 665 F.2d 1053 (9th Cir. 1981);
sec. 1.263(a)-2(a), Income Tax Regs.
Section 446 provides in pertinent part:
SEC. 446(a). General Rule.--Taxable income shall
be computed under the method of accounting on the basis
of which the taxpayer regularly computes his income in
keeping his books.
(b) Exceptions.--If no method of accounting has
been regularly used by the taxpayer, or if the method
used does not clearly reflect income, the computation
of taxable income shall be made under such method as,
in the opinion of the Secretary, does clearly reflect
income.
2. Petitioner’s Position
Petitioner relies on Cincinnati, New Orleans & Tex. Pac. Ry.
Co. v. United States, 191 Ct. Cl. 572, 424 F.2d 563, 569 (1970);
and Union Pac. R.R. Co. v. United States, 208 Ct. Cl. 1, 524 F.2d
1343 (1975). The taxpayers in Cincinnati and Union Pacific were
required by the Interstate Commerce Commission (ICC) to expense
purchases of certain property costing less than $500 (i.e., the
minimum rule expenses). See Cincinnati, New Orleans & Tex. Pac.
Ry. Co. v. United States, supra at 565; Union Pac. R.R. Co. v.
United States, supra at 1347. The Court of Claims held in both
cases that the taxpayer may deduct a de minimis amount of
expenses for low-cost capital assets having a useful life greater
than 1 year if the accounting method established by the ICC
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