David J. Lychuk and Mary K. Lychuk, et al. - Page 95




                                       - 92 -                                         
          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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