- 7 -
clearly reflects income. See Cincinnati, New Orleans & Tex. Pac.
Ry. Co. v. United States, supra at 567-578; Union Pac. R.R. Co.
v. United States, supra at 1347-1348. The Court of Claims in
Cincinnati relied on our prior rejection of the Commissioner’s
contention that section 263 is dispositive without considering
section 446:
We reject as without merit respondent’s contention
that section 263 of the Code is in and of itself
dispositive of the issue before us. By requiring the
capitalization of amounts “paid out for new buildings
or for permanent improvements or betterments made to
increase the value of any property,” such section begs
the very question we are asked to answer. We are
satisfied that, under the circumstances involved
herein, sections 263 and 446 are inextricably
intertwined.
Cincinnati, New Orleans & Tex. Pac. Ry. Co. v. United States,
supra at 568-569 (quoting Fort Howard Paper Co. v. Commissioner,
49 T.C. 275, 283-284 (1967)). The Court of Claims in Cincinnati
also said that “The determinative question, therefore, is not
what is the useful life of the asset in question, although that
inquiry is relevant, but does the method of accounting employed
clearly reflect income.” Id. at 568. The court noted that the
disputed items were a minute fraction of the taxpayer’s net
income, yearly operating expenses, and yearly depreciation
deduction. See id. at 571. The court concluded that the ICC’s
minimum expensing rule was in accordance with generally accepted
accounting principles, see id. at 569-570, and that the
taxpayer’s financial statements clearly reflected income, see id.
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