- 66 -
justification for it. Petitioners have met their burden of
proof. Therefore, we hold that Qwest’s incremental cost
allocation method is a reasonable allocation method for purposes
of sections 1.263A-1(e)(3)(i) and 1.451-3(d)(6)(ii), Income Tax
Regs.
IV. Clear Reflection of Income and Respondent’s Average Cost
Allocation Method
Respondent argues that under section 446(b), respondent may
change Qwest’s method of accounting to an average cost allocation
method. Respondent’s sole basis for this position is that,
because Qwest’s incremental cost allocation method fails to meet
the reasonableness requirement of section 1.263A-1(f)(4) and
(g)(3), Income Tax Regs., Qwest’s method of accounting does not
clearly reflect income.
Under section 446(a), a taxpayer may compute its taxable
income under the method of accounting it regularly uses to
compute its income in keeping its books. However, section 446(b)
vests the Commissioner with broad discretion to change the
taxpayer’s method of accounting if he determines that the
taxpayer’s particular method of accounting fails to clearly
reflect income. Thor Power Tool Co. v. Commissioner, 439 U.S.
522, 532 (1979); Brown v. Helvering, 291 U.S. 193, 203 (1934);
Bank One Corp. v. Commissioner, 120 T.C. 174, 287-288 (2003);
Ansley-Sheppard-Burgess Co. v. Commissioner, 104 T.C. 367, 370
(1995); see also sec. 1.446-1(a)(2), Income Tax Regs.
Page: Previous 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 NextLast modified: May 25, 2011