- 48 -
present purposes, as a measure of the degree to which two
variable, but consistently constituted, quantities tend to change
with respect to each other and not as a measure of the degree to
which two inconsistently constituted quantities change with
respect to each other. Essentially, Dr. Seago has not persuaded
this Court that the strong correlation between sales and
shrinkage derived from the 10-year correlation analysis is the
product of the true relationship between sales and shrinkage and
not the product of the confluence of varying LIFO pool
attributes. Dr. Seago has failed to explain that apparently
fundamental flaw in the 10-year correlation analysis. That is
not to say that we would never accept statistical analyses
demonstrating a correlation between sales and shrinkage; that is
only to say that Dr. Seago, in this case, has simply failed to
prove the significance of the correlation derived from the
10-year correlation analysis.9 Dr. Seago recognizes that an
9 It should be noted that, in Kroger Co. & Subs. v.
Commissioner, T.C. Memo. 1997-2, we stated:
Although we accept Dr. Bates' opinion as to the
correlation between sales and shrinkage at the business
level, and we are impressed by Dr. Bates' sales-based
accuracy analysis, we are hesitant to rest our
conclusion as to the accuracy of the retailers'
shrinkage method on a correlation whose significance we
may not fully appreciate. * * *
Similarly, in this case, although we accept Dr. Seago's opinion
that the data he examined in the 10-year correlation analysis
revealed a strong correlation, Dr. Seago has not demonstrated the
(continued...)
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