In this month’s Accounting Methods Spotlight, taxpayers are given timely insight into how the 'tax benefit rule' may create state tax benefits. In addition, this month's issue provides updates on a range of federal income tax matters including application of the ‘next day rule’ to transaction costs, whether certain incentive payments are includible in gross income, and whether proceeds of a negligence suit are a return of capital. Also included are recent court decisions addressing the application of Rev. Proc. 2004-34 to tuition payments, whether advanced litigation expenses are subject to a change in method of accounting, whether certain settlement payments are deductible, and whether an abandoned purchase option was subject to ordinary loss treatment.