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therefore the accrual method of accounting, because petitioner
derives a substantial portion of its income from the sale of
merchandise, maintains work-in-process at yearend, maintains a
physical inventory at its business premises, and uses the accrual
method of accounting for its books and records.
Petitioner asserts that it has no inventory, because it
never takes title in, or physical possession of, the materials it
acquires for its jobs, and thus is not required to adopt an
inventory method of accounting. Petitioner further argues that
even if we find that it does take title in the materials
acquired, it does not have to adopt an inventory method of
accounting because the sale of merchandise is not an income-
producing factor in its business. Finally, in reliance on
Knight-Ridder Newspapers, Inc. v. United States, 743 F.2d 781
(11th Cir. 1984), petitioner contends that even if the sale of
merchandise is an income-producing factor, section 1.471-1,
Income Tax Regs., does not apply because there are no substantial
fluctuations in petitioner's inventory, nor does petitioner
maintain a substantial amount of inventory at its warehouse.
The principal issue for decision is whether it was an abuse
of respondent's discretion to require petitioner to change from
the cash method, which petitioner uses for income tax reporting
purposes, to an accrual method. Subsumed in this issue is the
question of whether petitioner should be required to use
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