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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