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5. Dr. Seago's Criticism of Respondent's Method
Dr. Seago states that the shortcomings of respondent's
method are that (1) the loss for the taxable year is dependent on
the date of the physical inventories and (2) losses actually
attributable to a prior taxable year are included in the loss for
the current year and losses attributable to the current taxable
year are deducted in the following taxable year. Dr. Seago
asserts that respondent's method contains a systematic bias
towards understating losses when sales are increasing.
F. Respondent's Expert Testimony
1. Introduction
Respondent presents the testimony of two experts, Dennis J.
Gaffney, Ph.D., a professor of accounting at the University of
Toledo, and David W. LaRue, Ph.D., an associate professor of
commerce at the University of Virginia.
2. Dr. Gaffney
Dr. Gaffney was requested to render an opinion as to whether
the Divisions' shrinkage methods were appropriate for financial
accounting and reporting purposes and, if so, the degree of error
in estimating shrinkage that could be tolerated for those
purposes. Although Dr. Gaffney's opinions on those issues are
not relevant with respect to the issue of clear reflection of
income for tax purposes, we believe that Dr. Gaffney's comparison
of Target's verified and accrued shrinkage in retail sales
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