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characterization method based on basic accounting
principles that generally require the capitalization of
expenditures for larger items of property having long-
term lives and the expensing of relatively smaller
expenditures for minor items needed for repairs. * * *
Petitioner’s attempt to change retroactively from a
consistent and logical method of capitalizing the
expenditures in issue to expensing them involves the
question of proper timing and thus is a material item.
* * * [FPL Group, Inc. & Subs. v. Commissioner, supra
at 566.]
As we have previously stated, section 1.162-4, Income Tax
Regs., sets forth legal standards for distinguishing between
expenditures that must be capitalized and those that can be
currently deducted. The method by which a taxpayer attempts to
comply with these legal standards for purposes of preparing its
returns is what should be properly described as the taxpayer’s
method of accounting. Petitioner used the FERC/FPSC regulatory
method of accounting to prepare its returns in order to achieve
the classification required by section 1.162-4, Income Tax Regs.
Petitioner now wants to use a different method. That different
method would be to reexamine the facts underlying individual
expenditures in an attempt to claim additional deductions for
repairs. It is this change that respondent declined to approve.
We find no abuse of discretion in respondent’s refusal.
Petitioner also argues that respondent abused his discretion
in denying its protective request because there is “no valid
basis” for requiring petitioner to use a method of accounting
that is contrary to section 1.162-4, Income Tax Regs. As
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