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that maintained a particular department. In conducting physical
inventories, Dayton's used its own employees, and, at times,
those employees were assisted by outside personnel. The physical
inventories of the departments were performed at various times
throughout the year, and, during the year in issue, they were
performed as early as February 1983 and as late as January 1984.
After a physical inventory was taken, the perpetual inventory
system would be adjusted as necessary, and, generally, Dayton's
adjusted the department accrual rate for the balance of the
taxable year to reflect the most recent shrinkage experience.
C. Proposed Deficiencies With Respect to Dayton's
In the notice of deficiency, respondent disallowed shrinkage
accruals for 1984. The LIFO cost adjustment was $2,440,127,
which reflected a disallowance of shrinkage at retail for the
post-physical inventory periods in the amount of $4,625,877.
Dayton's had sales for 1984 in the amount of $415,467,423.
During the periods between the dates of the physical inventories
of the departments of Dayton's and the end of 1984, sales for
Dayton's were $254,488,635, or 61.3 percent of all sales for
1984.
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