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1 The ratio of the taxpayer’s expenses for disallowed minimum rule
items to its net taxable income was considered in Cincinnati, New Orleans &
Tex. Pac. Ry. Co. v. United States, 424 F.2d at 571.
2 The ratio of the taxpayer’s expenses for disallowed minimum rule
items to its yearly operating expenses was considered in Cincinnati, New
Orleans & Tex. Pac. Ry. Co. v. United States, 424 F.2d at 571, and Union Pac.
R.R. Co. v. United States, 524 F.2d at 1348.
3 The ratio of the taxpayer’s expenses for disallowed minimum rule
items to its total investment account was considered in Union Pac. R.R. Co. v.
United States, 524 F.2d at 1348.
4 The ratio of the taxpayer’s expenses for disallowed minimum rule
items to its yearly depreciation expenses was considered in Cincinnati, New
Orleans & Tex. Pac. Ry. Co. v. United States, 424 F.2d at 571.
4. Whether Petitioner’s Method of Accounting Clearly
Reflects Income
As discussed next, we conclude that the Cincinnati and Union
Pacific cases do not establish that petitioner’s expensing of
capital items costing less than $500 results in a clear
reflection of its income. See, e.g., Knight-Ridder Newspapers,
Inc. v. United States, 743 F.2d 781, 791-793 (11th Cir. 1984)
(Court used mathematical analysis to decide that the taxpayer’s
accounting method did not clearly reflect income).
First, the above chart shows that the ratios of disputed
items to various measures of petitioner’s size are substantially
larger than in Cincinnati and Union Pacific. For example, in
Cincinnati, the taxpayer’s disputed items were less than one
percent of the taxpayer’s net income in the 3 years at issue,
see Cincinnati, New Orleans & Tex. Pac. Ry. Co. v. United States,
424 F.2d at 571; in the instant case, the disputed items were 165
percent of petitioner’s 1995 taxable income and 83.5 percent of
its 1996 taxable income. In Cincinnati, the taxpayer’s disputed
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