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determined that petitioners' ending inventories as reported
understated their taxable income by the following amounts:2
Taxable Year Understatement
1983 $24,276,994
1984 7,837,122
1985 20,394,840
1986 1,196,045
The shrinkage disallowed by respondent relates to the period
of time referred to by the parties as the "stub period". In
general, the stub period is the time between the date of the last
physical inventory prior to the taxable yearend and the taxable
yearend. In some cases, Wal-Mart took a physical inventory in
January and booked the inventory in February of the next year.
In those cases, the stub period is the time between the date of
the physical inventory immediately prior to the January physical
inventory and the taxable yearend. In other cases, Wal-Mart
booked two consecutive January inventories in February. In those
cases, the stub period is the time between the first January
inventory and the taxable yearend following the second January
inventory. In the case of a new store for which a physical
inventory was not taken before the taxable yearend, the stub
period is the period beginning with the date of the store opening
and ending with the taxable yearend.
2 Respondent also determined that part of these
understatements stemmed from petitioners' miscalculation of a
cost complement. The parties have settled their disagreements
with respect to this calculation, and it is not at issue herein.
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