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related to those activities, and the Supreme Court cases would be
no bar to capitalization. The question here is not whether the
overhead directly or indirectly relates to ACC’s credit analysis
activities; the question is whether ACC has proven that its
method of accounting clearly reflects its income. It has not.
D. Majority’s Reasoning
Once the majority’s approach is stripped of the erroneous
notion that overhead can, without allocation, be identified to an
individual costing unit (e.g, a capital expenditure), what
remains is an approach that says that, for Federal income tax
purposes, overhead need not be allocated to a costing unit when,
if that costing unit were eliminated, the overhead would still be
incurred. Immediately, that approach raises analytic
difficulties. What if the overhead is incurred on account of two
costing units (one a capital expenditure and one not), and the
overhead would be incurred in the same amount if either (but not
both) were eliminated? Why is the default rule that the overhead
is allocated in total to the noncapital expenditure? Looked at
from a different perspective, what if there is not a linear
relationship between the taxpayer’s business activities and
overhead? The relationship may be step-wise, so that the
taxpayer’s business activities would have to increase by some
quantum before rent, for instance, would increase. Assume, for
example, that office space may only be rented in blocks of
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