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V. Clear Reflection of Income
A. Introduction
By characterizing the printing, telephone, computer, rent,
and utilities costs here in question as overhead, petitioner and
the majority do no more than identify that allocation is
required. In concluding that such costs need not be capitalized,
the majority accepts without question ACC’s allocation, which
allocates the costs to ACC’s postacquisition and servicing
activities (for which an immediate deduction is available). The
majority fails to apply any criteria to its acceptance of ACC’s
allocation. Notwithstanding that such allocation may be
acceptable (even required) for financial accounting purposes, see
majority op. p. 12 note 9, it still involves a method of
accounting. For Federal income tax purposes, the term “method of
accounting” “includes not only the over-all method of accounting
of the taxpayer but also the accounting treatment of any item.”
Sec. 1.446-1(a)(1), Income Tax Regs.; see also sec 1.446-
1(e)(2)(ii)(a), Income Tax Regs. (a change in method of
accounting includes any change in the treatment of any “material
item”: “A material item is any item which involves the proper
time for the inclusion of the item in income or the taking of a
deduction.” (Emphasis added.)). A taxpayer’s method of
accounting must clearly reflect income or the Secretary may
require the computation of taxable income under a method of
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