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OPINION
The principal issue for decision is whether it was an abuse
of respondent's discretion to require petitioner to change from
the cash method of accounting to the accrual method of
accounting.3 Subsumed in this issue is the question of whether
petitioner should be required to use inventories for tax
purposes.4
3 Sec. 446 provides in pertinent part:
SEC. 446(a). General Rule.--Taxable income shall be
computed under the method of accounting on the basis of
which the taxpayer regularly computes his income in keeping
his books.
(b) Exceptions.--If no method of accounting has been
regularly used by the taxpayer, or if the method used does
not clearly reflect income, the computation of taxable
income shall be made under such method as, in the opinion of
the Secretary, does clearly reflect income.
(c) Permissible Methods.--Subject to the provisions of
subsections (a) and (b), a taxpayer may compute taxable
income under any of the following methods of accounting--
(1) the cash receipts and disbursements method;
(2) an accrual method;
(3) any other method permitted by this chapter; or
(4) any combination of the foregoing methods permitted
under regulations prescribed by the Secretary.
4 Sec. 471 provides in pertinent part:
SEC. 471(a). General Rule.--Whenever in the
opinion of the Secretary the use of inventories is
necessary in order clearly to determine the income of
(continued...)
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Last modified: May 25, 2011