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definition of “merchandise” to include land, whether raw or
cooked.
In Thomas v. Commissioner, 92 T.C. 206, 220 (1989), we
stated that “If a taxpayer’s method of accounting does not
clearly reflect income, then the taxpayer’s taxable income is to
be computed under a method of accounting that respondent chooses
that does clearly reflect the taxpayer’s income”. Also, section
446(b) provides that “if the method used [by the taxpayer] does
not clearly reflect income, the computation of taxable income
shall be made under such method as, in the opinion of the
Secretary, does clearly reflect income.” Thus, it is clear not
only that respondent may disallow Mary Catherine’s use of the
inventory method, including the LCM method of valuing ending
inventory, but also that respondent may select a method of
accounting for Mary Catherine that clearly reflects income. This
respondent has done by computing Mary Catherine’s income (losses)
using the capitalization of expenses method.
Issue 2. Section 6662(a) Accuracy-Related Penalty
Respondent has conceded that petitioners are not liable for
the section 6662(a) accuracy-related penalty under section
6662(b)(2) for substantial understatement of tax liability.
Therefore, the only issue remaining for decision is whether
petitioners are liable for the accuracy-related penalty for the
years 1984, 1986 through 1989, and 1991 for negligence or
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