Wal-Mart Stores, Inc. and Subsidiaries - Page 1

                                  T.C. Memo. 1997-1                                   

                               UNITED STATES TAX COURT                                

               WAL-MART STORES, INC. AND SUBSIDIARIES, Petitioners v.                 
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 27022-93.                 Filed January 2, 1997.            

                    Ps operate retail department stores and clubs.                    
               Ps' accounting records set forth each store/club's                     
               inventory, and Ps count each store/club's inventory                    
               during the year to verify the records' accuracy.  In                   
               order to reflect the "shrinkage" of inventory at                       
               yearend caused by theft, breakage, and clerical errors                 
               occurring after a count, Ps estimate this shrinkage                    
               based on gross sales.  Ps' inclusion of the estimates                  
               in costs of goods sold reduces their gross income.                     
                    Held:  Ps' method of estimating inventory                         
               shrinkage at yearend is permissible because the method:                
               (1) Conforms as nearly as may be to the best accounting                
               practice in the trade or business and (2) clearly                      
               reflects income.                                                       

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