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inventory practices of a taxpayer clearly reflect income.
Respondent argues that there are certain technical flaws in the
retailers' shrinkage accrual practices. We assume that
respondent wishes us to conclude that those flaws make the
practices inconsistent and, thus, inaccurate. Respondent cites
the failure of the Michigan KMA to accrue shrinkage for the
grocery or drug/general merchandise departments for the period
1984 through 1987 despite the general corporate policy of
shrinkage accrual. Respondent also cites the fact that one KMA
did not follow the standard procedure that, when a store was
transferred from one KMA to another, it was to use a combination
of the two KMAs' shrinkage accrual rates during the year of
transfer. One KMA permitted the stores transferred to its area
to continue to use the prior KMA's shrinkage rate during the year
of the transfer. We have considered those and other incidents
cited by respondent, and we cannot conclude that the retailers’
inventory practices were applied inconsistently from year to
year. Each of the retailers adopted accounting practices that
were to be applied uniformly and consistently. The scope of the
retailers' operations was enormous. The KFS division alone
operated between 1,000 and 1,500 supermarkets, with annual sales
in excess of $11 billion. Given the scope of the retailers’
operations, and the minor flaws cited by respondent, we believe
that there was consistency of application in inventory practices
from year to year, and we so find.
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