The Kroger Company and Subsidiaries - Page 2

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                      Frederick H. Robinson, Craig D. Miller, Patricia M.                            
                  Lacey, and Gary R. Vogel, for petitioner.                                           
                       Reid M. Huey, Nancy B. Herbert, Robert J. Kastl,                               
                  Jennifer H. Decker, James E. Kagy, Timothy S. Sinnott, and                          
                  Richard G. Goldman, for respondent.                                                 


                           MEMORANDUM FINDINGS OF FACT AND OPINION                                    
                  HALPERN, Judge:  Respondent has determined deficiencies in                          
            petitioner’s Federal income tax liabilities for the years 1984,                           
            1985, and 1986 in the amounts of $7,152,527, $1,772,936, and                              
            $1,668,392, respectively.  The parties have reached agreement on                          
            certain issues, and the only issue remaining for our                                      
            consideration is the soundness of certain of petitioner’s                                 
            accounting systems that allow for the accrual of an estimate of                           
            losses from shrinkage factors (e.g., theft and errors in billing)                         
            in determining book inventories.                                                          
                  Unless otherwise noted, all section references are to the                           
            Internal Revenue Code in effect for the years in issue, and all                           
            Rule references are to the Tax Court Rules of Practice and                                
            Procedure.                                                                                
                                         FINDINGS OF FACT                                             
                  Some facts have been stipulated and are so found.  The                              
            stipulations of fact filed by the parties and the accompanying                            
            exhibits are incorporated herein by this reference.  The parties                          
            have made approximately 450 separate stipulations of fact,                                




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