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attributes and dissimilar pool attributes among pools.
Respondent’s proposed adjustments will not eliminate the flaws
perceived by Dr. LaRue. It appears that only the practice of
yearend physical inventories at all stores or departments could
eliminate such errors. That, however, would not be practical,
nor is it required by the regulations. See sec. 1.471-2(d),
Income Tax Regs. In sum, we consider Dr. LaRue's objection as an
inherent component of all estimates of yearend shrinkage.
2. Dr. Seago
As a preliminary matter, Dr. Seago, in his report and in his
testimony at trial, made clear that his opinions regarding clear
reflection of income were made in the context of financial
accounting principles and not tax accounting principles. In
addition, Dr. Seago, at trial, acknowledged that he had not
reviewed directly any taxpayer's method of accounting for
inventory shrinkage other than the Divisions' shrinkage methods.
Although we consider Dr. Seago's concessions in evaluating the
weight of his testimony, this Court will focus on the substance
of his analyses.
We first consider Dr. Seago's shrinkage accrual accuracy
analysis. Under the cycle method of counting used by the
Divisions, yearend inventories are not ordinarily taken, and,
thus, whether the Divisions’ shrinkage methods clearly reflect
income is not a fact that petitioner can prove simply by
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