- 54 -
rely is the existence of a strong correlation between sales and
shrinkage derived from the 10-year correlation analysis. We
cannot take the inferential leap that is required to accept that
assumption. In light of respondent's broad discretion to
determine clear reflection of income, this Court cannot accept
the significance of Dr. Seago's 10-year correlation analysis
because we cannot overlook the fact that aggregate sales and
shrinkage data at the Target-wide level consist of sales and
shrinkage figures from numerous LIFO pools, which each have
different pool attributes that vary from year to year. In
addition, we are not persuaded by any of the other evidence
presented by petitioner in this case. Therefore, respondent's
determination that the Divisions' shrinkage methods do not
clearly reflect income and that respondent's method does clearly
reflect income is not an abuse of discretion.
VII. Conclusion
The Divisions' systems of maintaining book inventories do
not clearly reflect income. They are, thus, not sound within the
meaning of section 1.471-2(d), Income Tax Regs. To reflect the
foregoing,
Decision will be entered
for respondent.
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