- 25 -
The same result obtains if we examine the differences in
gross receipts computed under the accrual method and the cash
method. For fiscal year 1990 petitioner's gross receipts under
the cash method of accounting were $2,115,291. Petitioner's
gross receipts under the accrual method of accounting would be
$2,465,060. Thus, petitioner's gross receipts under the accrual
method increased by $349,769. Petitioner's use of the cash
method does not produce results that are substantially identical
to the computation of either taxable income or gross receipts
under the accrual method. Thus, we hold that respondent did not
commit an abuse of discretion in precluding petitioner from
continuing to use the cash method of accounting for income tax
reporting purposes.9
9 Petitioner, in reliance on Knight-Ridder Newspapers, Inc. v.
United States, 743 F.2d 781 (11th Cir. 1984), asserts that it is
not required to use the accrual method, because it does not
maintain inventory at its warehouse. In Knight-Ridder, the Court
of Appeals for the Eleventh Circuit stated that "if either the
absolute level of the inventory account or its fluctuation during
the year would be substantial, then the taxpayer must use
inventories if it meets the other requirements of sec. 1.471-1,
[Income Tax Regs]." Id. at 791 In addition to the $701,320 cost
of petitioner's material purchases during the year in issue,
petitioner maintained a warehouse with materials valued somewhere
between $10,000 to $20,000. We find that such inventory is
substantial in comparison to petitioner's reported taxable income
of $54,128. We note, that petitioner's books and records were
insufficient to establish whether there was a substantial
fluctuation in its inventory account during the year in issue,
however, because we have found that petitioner maintains
substantial inventory at its warehouse we need not address the
fluctuation issue.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011