Richard D. Hudson and Betty L. Hudson - Page 6

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          843, 848 (6th Cir. 1986), affg. on this issue Akers v.                      
          Commissioner, T.C. Memo. 1984-208, revd. on another issue 482               
          U.S. 117 (1987).                                                            
               The Commissioner is given broad discretion to require a                
          taxpayer to comply with tax accounting regulations.  For example,           
          the Commissioner can require that a taxpayer use an accrual                 
          method to report his or her purchases and sales of inventory.               
          See, e.g., Knight-Ridder Newspapers, Inc. v. United States,                 
          743 F.2d 781, 791 (11th Cir. 1984);  Wilkinson-Beane, Inc. v.               
          Commissioner, supra at 355; see also Caldwell v. Commissioner,              
          202 F.2d 112 (2d Cir. 1953), affg. a Memorandum Opinion of this             
          Court dated June 29, 1951.  The regulations under sections                  
          446 and 471 provide detailed rules governing the costing and                
          computation of inventories.  The regulations provide that a                 
          taxpayer must keep inventories in computing his or her taxable              
          income whenever the production, purchase, or sale of merchandise            
          is an income-producing factor.  Secs. 1.446-1(a)(4)(i); 1.471-1,            
          Income Tax Regs.  We consider the facts and circumstances of each           
          case in deciding whether the purchase or sale of goods is an                
          income-producing factor.  Honeywell, Inc. v. Commissioner, T.C.             
          Memo. 1992-453, affd. without published opinion 27 F.3d 571 (8th            
          Cir. 1994); Wilkinson-Beane, Inc. v. Commissioner, T.C. Memo.               
          1969-79.  The facts and circumstances of the instant case support           
          the conclusion that petitioner's sale of diamonds and other gems            
          was an income-producing factor in his business.  See Knight-                

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