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the aggregate, claimed on account of shrinkage factors are within
5 percent of sales-based taxable year shrinkage.
Dr. Bates performed a similar analysis to determine the
accuracy of respondent’s method of accounting for losses from
shrinkage factors. He concluded that respondent’s method is less
accurate than the retailers’ shrinkage method and is subject to a
greater range of error.
Dr. Bates performed a second accuracy analysis, which was
independent of the correlation between sales and shrinkage and
apportioned actual shrinkage evenly over each inventory cycle
without regard to sales or any factor other than the passage of
time (i.e., a time-based allocation). For each of the retailers,
he found a level of accuracy similar to what he found using a
sales-based allocation. Applying a time-based allocation to
respondent’s method, he again concluded that respondent’s method
is less accurate than the retailers’ shrinkage method and is
subject to a greater range of error.
Dr. Bates has persuaded us that, assuming either a sales-
based or time-based allocation of losses from shrinkage factors,
the retailers’ shrinkage method is more accurate than
respondent’s method, and we so find.
J. Consistency of Retailers’ Inventory Practices
As stated in section IV, supra, section 1.471-2(b), Income
Tax Regs., makes consistency of application from year to year an
important and explicit element in determining whether the
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