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differences between methods at the aggregate level. See Kroger
Co. & Subs. v. Commissioner, T.C. Memo. 1997-2 (accepting the
taxpayer's presentation of an aggregate analysis, which compared
the taxpayer's method with the Commissioner's method based on an
allocation of cross-year inventory shrinkage as a function of
time; this Court found the aggregate analysis dispositive of
whether there was an abuse of discretion by the Commissioner).
Taxable year shrinkage estimates derived by a taxpayer's
shrinkage method and by the Commissioner's method must be
subjected to the same indexes and cost complements when
converting from retail to cost, and, thus, relative differences
between two methods at the aggregate level may be significant.
This Court, however, agrees with Dr. LaRue when aggregate
data is used for other purposes. In particular, we have
difficulty accepting the significance of Dr. Seago's 10-year
correlation analysis, which found a strong correlation between
sales and shrinkage for Target during the years 1979 through
1988, and which underlies Dr. Seago's shrinkage accrual accuracy
analysis. At the most basic level, it appears that changes in
the Divisions’ LIFO pool attributes from year to year,
differences in attributes among pools, and discontinuities in the
timing of physical inventories from year to year combine to
produce sales and shrinkage figures that represent different
variables from year to year. We understand correlation, for
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