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years at issue. Respondent determined that petitioner had
inventories and therefore was required to use the accrual method
of accounting. We have found that petitioner has no merchandise
inventories; however, our finding does not preclude the
possibility that petitioner may be required to use the method of
accounting selected by respondent in order to clearly reflect
income.
The issue we must decide is whether respondent's
determination that petitioner must report its income on the
accrual method of accounting constitutes an abuse of discretion.
The Commissioner is granted broad discretion in determining
whether a taxpayer's use of an accounting method clearly reflects
income. Sec. 446(b); United States v. Catto, 384 U.S. 102, 114 &
n.22 (1966), rehearing denied 384 U.S. 981 (1966); Commissioner
v. Hansen, 360 U.S. 446, 468 & n.12 (1959); Lucas v. American
Code Co., 280 U.S. 445, 449 (1930). No method of accounting is
acceptable unless, in the opinion of the Commissioner, it clearly
reflects income. Sec. 1.446-1(a)(2), Income Tax Regs. Thus, a
prerequisite to the Commissioner's requirement that a taxpayer
change its present method of accounting is a determination that
the method used by the taxpayer does not clearly reflect income.
Sec. 446(b); Hallmark Cards, Inc. v. Commissioner, 90 T.C. 26, 31
(1988).
Whether an abuse of discretion has occurred depends on
whether the Commissioner's determination is without sound basis
in fact or law. Ansley-Sheppard-Burgess Co. v. Commissioner, 104
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