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accounting that does clearly reflect income. See sec. 446(b).
Notwithstanding the majority’s disclaimer that it is not passing
on whether ACC’s method of accounting clearly reflected its
income, see majority op. p. 69 note 37, that is precisely what it
is doing.
B. Clear Reflection and Section 263
We have previously addressed the interplay between the
clear-reflection standard and the requirements of section 263.
In Fort Howard Paper Co. v. Commissioner, 49 T.C. 275 (1967), the
core issue was how to treat overhead in determining the cost of
self-constructed assets. We rejected the Commissioner’s
principal argument that section 263 draws a clear line between
deductible expenses and capital expenditures. We stated that
consideration necessarily had to be given to whether the
taxpayer’s treatment of the overhead in question clearly
reflected income:
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. A contrary view would encase the general
provisions of section 263 with an inflexibility and
sterility neither mandated to carry out the intent of
Congress nor required for the effective discharge of
respondent’s revenue-collecting responsibilities.
Accordingly, we turn to a determination as to whether
petitioner’s method of accounting ‘clearly reflects
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