UNITED STATES TAX COURT



             SAM H. PATTON, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 16428-99.                     Filed April 13, 2001.



     For 1995, P elected, under sec. 179, I.R.C., to
expense a depreciable asset. R examined P’s 1995
Federal income tax return and reclassified as
depreciable three assets that P had originally
classified as “materials and supplies”. Following R’s
reclassification, P sought R’s consent to expense the
three reclassified assets under sec. 179, I.R.C. P was
unable to revoke (modify or change) his election
without R’s consent. R refused to give P consent to
revoke (modify) his original election.
     Held: R’s refusal to consent, considering the
facts in this case, was not an abuse of discretion.



Hugh T. Echols, Sr., for petitioner.

Gordon P. Sanz, for respondent.
                                 - 2 -

                               OPINION1

       GERBER, Judge:   Respondent determined a deficiency in

petitioner’s 1995 Federal income tax of $26,526, a penalty

pursuant to section 6662(a)2 of $5,305, and a late-filing

addition to tax pursuant to section 6651(a)(1) of $5,305.       After

concessions,3 the issue remaining for our consideration is

whether respondent abused his discretion in refusing to grant

consent to petitioner to revoke (modify or change) his 1995

election to expense depreciable business assets under section

179.

Background

       Sam H. Patton (petitioner) resided in Houston, Texas, on

October 22, 1999, the date his petition was filed.    Petitioner

was self-employed as a welder during the 1995 calendar year.

Petitioner timely filed his 1995 Federal income tax return (1995

return) and reported a business loss in the amount of $36,271 and



       1
       This case was submitted fully stipulated under Rule 122 of
this Court’s Rules of Practice and Procedure.
       2
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable periods under
consideration, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
       3
       Petitioner concedes that he is liable for the accuracy-
related penalty pursuant to sec. 6662(a) for the 1995 taxable
year. Respondent concedes that petitioner is not liable for an
addition to tax pursuant to sec. 6651(a)(1) for the 1995 taxable
year. Several other agreements and concessions made by the
parties in the stipulation of facts are accepted and should be
reflected in the final disposition of this case.
                                     - 3 -

a total loss of $38,829.      As part of the 1995 return, petitioner

elected to expense a plasma torch under section 179 in the amount

of $4,100.     At the time petitioner filed his 1995 return, he was

unable to deduct the $4,100 section 179 expense because of the

reported business loss.

     In connection with the examination of petitioner’s 1995

return, respondent reconstructed petitioner’s income by means of

a bank deposit analysis.      The analysis resulted in respondent’s

determination that petitioner failed to report $135,638 of gross

receipts from the welding business on Schedule C.           Petitioner

reduced income by classifying as “materials and supplies” the

following items:     (1) Miller 450 amp reach; (2) extended reach

feeder; and (3) Webb turning roller.         Respondent determined that

these were capital assets that should have been depreciated as

tangible business property as follows:

                            Elected     Date placed    Cost recovery
        Item                  cost      into service      period

(1) Miller 450 amp reach    $7,500       Feb. 1995       5 years
(2) Extended reach feeder    3,200       Aug. 1995       7 years
(3) Webb turning roller      2,700       Apr. 1995       5 years

     As a result of respondent’s determinations, petitioner’s

welding business would have a profit in excess of $17,500 instead

of a loss.     Petitioner sought respondent’s consent to revoke,

amend, or modify his section 179 election so as to expense the

three assets respondent determined were depreciable.           Respondent

denied petitioner’s request to modify his original section 179
                                - 4 -

election to include the three assets that were recharacterized as

depreciable.

Discussion

     Petitioner made a section 179 election, in conjunction with

his original 1995 return, to expense the cost of a depreciable

business asset.    The expense could not be utilized in the 1995

year because the asset was used in a business activity that

reported a loss for the 1995 year.      See sec. 179(b)(3)(A).   After

examination, respondent reclassified three assets as depreciable

business assets and made other adjustments, which collectively

resulted in 1995 taxable income for petitioner’s business.       For

the 1995 tax year, petitioner had classified the three assets as

“materials” or “supplies” and reduced income by their cost.      In

response to respondent’s determination, petitioner sought

respondent’s consent to modify his original section 179 election

by adding the three reclassified depreciable business assets.

With respondent’s consent, petitioner would be able to offset the

profit determined by respondent.    Respondent declined

petitioner’s request for consent to revoke or modify the original

election.    Petitioner contends that it was respondent’s

reclassification of the assets that triggered the availability or

possibility of treating them as section 179 expenses and that he

should be entitled to add those assets to his election.
                                - 5 -

     Section 179(a) generally allows a taxpayer to elect to treat

the cost of section 179 property as a current expense in the year

the property is placed in service, within certain dollar

limitations.4   See sec. 179(b).    The election must specify the

items of section 179 property to which the election applies and

the portion of the cost of each item which is to be taken into

account under section 179(a).      See sec. 179(c)(1)(A); sec. 1.179-

5(a)(1) and (2), Income Tax Regs.     Moreover, a section 179

election must be made on the taxpayer’s first income tax return

(whether or not the return is timely) or on an amended return

filed within the time prescribed by law (including extensions)

for filing the original return for such year.     See Genck v.

Commissioner, T.C. Memo. 1998-105; sec. 179(c)(1)(B); sec 1.179-

5(a), Income Tax Regs.   An election made under section 179 and

any specifications contained in such election may not be revoked

(modified or changed) without the Secretary’s consent.     See sec.

179(c)(2); King v. Commissioner, T.C. Memo. 1990-548.

     Petitioner argues that respondent’s refusal to consent to

petitioner’s request to revoke or modify his election so as to

include the recharacterized assets is contrary to the spirit of



     4
       The parties agree that the assets would have qualified as
sec. 179 property if petitioner had made an election with respect
to them on his original 1995 return. The parties also agree that
petitioner had sufficient income from the welding business to
have deducted $17,500, the maximum amount allowable under sec.
179 for the 1995 tax year.
                                - 6 -

section 179.   Petitioner also argues that his failure to amend

his return and make the election with respect to the three assets

was due to circumstances beyond his control; i.e., petitioner was

not aware that the three assets would qualify under section 179

until respondent had reclassified them as depreciable business

assets.   Petitioner contends that respondent’s denial is, in

these circumstances, inequitable.   Respondent argues that

petitioner is bound by his original section 179 expense election

and limited to $4,100 as shown on petitioner’s original 1995

Federal income tax return.   We agree with respondent.

     Petitioner perceives that his dilemma was caused by

respondent’s actions and by timing.     Petitioner points out that

it was respondent’s determination, after the period within which

petitioner could make a timely election, that necessitated

petitioner’s request for consent to revoke.    Petitioner, in

arguing that it is inequitable for respondent to deny the request

for revocation (addition of the three assets), in essence,

questions whether respondent’s refusal was an abuse of

discretion.    This is the first instance where we have considered

whether respondent’s refusal to grant a consent to revoke an

election under section 179 was an abuse of discretion.

     Section 179(c)(2) provides that “Any election made under

this section, and any specification contained in any such

election, may not be revoked except with the consent of the
                                 - 7 -

Secretary.”   The abuse of discretion question in the section 179

setting is similar to the questions that arise under section

446(e), which also requires a taxpayer to obtain the Secretary’s

consent before changing a method of accounting.   Under both

sections a formal request is to be made for consent to

revoke/change an election/method of accounting.   See sec. 1.179-

5(b), Income Tax Regs.

     Respondent is required to follow the statute and abide by

regulations reasonably based on the statute, and failure to do so

will amount to an abuse of discretion.   Cf. Lansons, Inc. v.

Commissioner, 

, 776 (5th Cir. 1980), affg. 

(1978); Buzzetta Constr. Corp. v. Commissioner, 

,

647 (1989).   In reviewing the Commissioner’s discretionary

administrative acts we are not empowered to substitute our

judgment for that of the Commissioner.   “The exercise of

discretionary power will not be disturbed unless the Commissioner

has abused his discretion, i.e., his determination is

unreasonable, arbitrary, or capricious.”    Buzzetta Constr. Corp.

v. Commissioner, supra at 648.    The question of abuse of

discretion is factual, and the burden of showing abuse is greater

than a mere preponderance of evidence.   See Estate of Gardner v.

Commissioner, 

, 1000 (1984); Oakton Distribs., Inc. v.

Commissioner, 

, 188 (1979).
                                - 8 -

     Petitioner contends that respondent was unreasonable in not

giving consent because, as petitioner further contends,

respondent was the catalyst for petitioner’s need to modify

(revoke) his section 179 election.      Petitioner’s

characterization, however, ignores significant factual

predicates.    First, petitioner, in reporting for his 1995 tax

years, classified the three assets as materials and supplies so

as to reduce income by the assets’ cost in the year of

acquisition.    For the 1995 year, petitioner reported a loss in

the business activity in which the assets were used.

Accordingly, petitioner could not, under section 179, expense

rather than depreciate those assets.      See sec. 179(b)(3).     That

appears to be the reason why petitioner attempted to classify and

report depreciable assets as “materials” or “supplies” and to

reduce income by the entire cost of the asset.      Petitioner does

not argue that respondent’s classification of the three assets as

depreciable property was incorrect or in error.        Instead,

petitioner wants to “capitalize” on his initial misclassification

by reducing taxable income caused by the unreported receipts

discovered by respondent.    In this setting, we do not see

respondent as precipitating petitioner’s request for consent to

revoke.   Instead it was petitioner’s mischaracterization that

precipitated the need for change.
                                - 9 -

     Finally, neither the statute nor the regulations permit

petitioner to revoke (modify) his original election without the

Secretary’s consent.   In that regard, petitioner does not argue

and has not shown that the Secretary’s regulations are

unreasonable or that they do not comport with congressional

intent.    Section 1.179-5(b), Income Tax Regs., provides that the

Commissioner’s consent to revoke an election “will be granted

only in extraordinary circumstances.”      Legally and factually,

petitioner accepts that his attempt to change the election is

untimely.   We are cognizant of the fact that petitioner’s

circumstances are of his own making.      His need to revoke (modify)

his section 179 election only arose after respondent uncovered

petitioner’s failure to report all of his income and his

misclassification of the very assets for which section 179

treatment is sought.   Accordingly, we hold that respondent did

not abuse his discretion in refusing to consent to petitioner’s

request to revoke (modify) the 1995 election under section 179.

     To reflect the foregoing and due to concessions by the

parties,

                                        Decision will be entered

                                under Rule 155.