A taxpayer with an existing business generally can establish return-signing positions to characterize the growth of its business as occurring either through an expansion of the existing business or the start of a new business. The selected character then determines the manner by which the taxpayer recovers costs associated with the growth. This article explores how the taxpayer's initial choice to characterize business growth as an expansion or start-up could become binding on the taxpayer and Internal Revenue Service (IRS) under accounting method rules and/or the doctrine of election, which would permit a recharacterization only to avoid income distortion. The article concludes that those tax accounting concepts could unjustifiably make the initial characterization binding, irrespective of its accuracy, due to the difficulty of showing that a particular characterization causes income distortion.

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