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regulatory, financial, and tax reporting purposes.” FPL Group,
Inc. & Subs. v. Commissioner, 115 T.C. at 570.
It is undisputed that respondent’s examination of the repair
versus capital expenses issue involved application of the
standards set forth in section 1.162-4, Income Tax Regs. That
regulation sets forth the general legal standards for deducting
repair expenses.3 Petitioner characterizes this regulation as
the “method of accounting” that respondent used during the
examination. Respondent disagrees with petitioner’s argument
that section 1.162-4, Income Tax Regs., constitutes a “method of
accounting”.
We do not accept petitioner’s characterization of section
1.162-4, Income Tax Regs., as a “method of accounting”
distinguishable from petitioner’s method of using the FERC/FPSC
regulatory standards. Petitioner has stated that it used the
3 Sec. 1.162-4, Income Tax Regs., provides:
� 1.162-4. Repairs.--The cost of incidental
repairs which neither materially add to the value of
the property nor appreciably prolong its life, but keep
it in an ordinarily efficient operating condition, may
be deducted as an expense, provided the cost of
acquisition or production or the gain or loss basis of
the taxpayer’s plant, equipment, or other property, as
the case may be, is not increased by the amount of such
expenditures. Repairs in the nature of replacements,
to the extent that they arrest deterioration and
appreciably prolong the life of the property, shall
either be capitalized and depreciated in accordance
with section 167 or charged against the depreciation
reserve if such an account is kept.
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