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The record of this case contains the separate Federal
income tax returns of Cordero that were included with, and
incorporated in, petitioner’s consolidated Federal income
tax returns for taxable years 1982 through 1986. On each
of those returns, Cordero stated that it used the accrual
method of accounting. On its separate returns for 1982,
1983, 1984, and 1985, Cordero reported the costs incurred
in removing overburden at the Gillette mine as part of
the deductions claimed for salaries and wages, repairs,
depreciation, employee benefit programs, and “other
deductions”, without identifying the portion of the
deduction that was incurred for the removal of overburden.
Similarly, on its separate return for 1986, Cordero
included its overburden removal costs in cost of goods
sold without identifying the portion thereof that was
incurred for the removal of overburden.
Thus, for tax reporting purposes, Cordero treated
overburden removal costs as deductions on its returns for
1982 through and including 1985, and it treated them as
an offset of gross income on its return for 1986.
Furthermore, Cordero reported the overburden removal costs
at the Gillette mine as the costs were incurred, except for
the portion of those costs allocated to ending inventory.
Cordero did not defer for tax reporting purposes the
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