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demonstrate either that his method of accounting clearly reflects
income or that the Commissioner's method does not clearly reflect
income. See Asphalt Products Co. v. Commissioner, supra at 847.
C. Retailers' Shrinkage Method
The retailers maintained book inventory records from which
yearend inventories could be determined. Losses for the taxable
year occasioned by shrinkage factors (taxable year shrinkage)
were reflected in the retailers’ book inventory records under a
method (the retailers’ shrinkage method) involving three
variables: (1) shrinkage verified by physical inventories during
the taxable year, (2) shrinkage accrual for the taxable year, and
(3) shrinkage accrual for the prior year. The retailers
calculated shrinkage accruals as a percentage of sales.
Shrinkage accrual rates for each department within a KMA and for
Florida Choice were based on a combination of factors including
experience with shrinkage factors, store sizes, merchandising
techniques, regional differences, and recent shrinkage trends.
Rates for Superx were primarily based on historical shrinkage
experience and recent shrinkage trends at the company level.
Prior year shrinkage accrual was subtracted from the amount of
shrinkage determined by the first physical inventory of the
taxable year; that adjustment purported to calibrate shrinkage
figures so as to provide an estimate of taxable year shrinkage.
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