- 53 -
Lastly, Dr. Seago criticizes respondent's method as
containing a systematic bias towards understating losses when
sales are increasing. The validity of that assertion also relies
on a strong correlation between sales and shrinkage. Although
respondent's method is merely another method of estimating losses
from shrinkage factors for the taxable year, see supra section
VI.D., Dr. Seago's unproven assertion, however, does not convince
us that respondent's method does not clearly reflect income.
H. Is Respondent's Determination That the Divisions'
Shrinkage Methods Do Not Clearly Reflect Income and That
Respondent's Method Does Clearly Reflect Income an Abuse
of Discretion?
Petitioner has a heavy burden to prove that respondent's
determination that Target's shrinkage method and Dayton's
shrinkage method do not clearly reflect income and that
respondent's method does clearly reflect income is an abuse of
discretion. See supra sec. VI.B. We find no such abuse of
discretion here. But cf. Kroger Co. & Subs. v. Commissioner,
T.C. Memo. 1997-2 (finding an abuse of discretion); Wal-Mart
Stores, Inc. v. Commissioner, T.C. Memo. 1997-1 (same).
Petitioner relies on the testimony of Dr. Seago who asserts
that both Target's shrinkage method and Dayton's shrinkage method
produce reasonably accurate shrinkage accruals and that those
methods clearly reflect income. Dr. Seago also asserts that
respondent's method does not clearly reflect income. The
critical assumption upon which all of Dr. Seago's conclusions
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