T.C. Memo. 1997-260
UNITED STATES TAX COURT
DAYTON HUDSON CORPORATION AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21217-91. Filed June 11, 1997.
P operated department stores. P used “cycle
counting” to conduct physical inventories of
merchandise throughout the year. P maintained book
inventory records from which inventory closing balances
could be determined at yearend. P estimated losses
from shrinkage factors (e.g., theft and errors in
billing) occurring from the time of the last physical
count of inventory to yearend and made an accrual of
the estimate. P calculated shrinkage accruals as a
percentage of sales.
Held: P's systems of maintaining book inventories
do not clearly reflect income. They are, thus, not
sound within the meaning of sec. 1.471-2(d), Income Tax
Regs.
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