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Commissioner, 439 U.S. 522, 531-532 (1979); Dayton Hudson Corp. &
Subs. v. Commissioner, supra; sec. 1.471-2(a)(1) and (2), Income
Tax Regs. We analyze these prongs seriatim, and we set forth our
analysis below. Before doing so, however, we pause to summarize
the qualifications of the experts.
During the cases in chief, petitioners called two
witnesses whom the Court recognized as experts, and respondent
called three. We are given broad discretion to evaluate the
cogency of each expert's analysis and to weigh it accordingly.
See Trans City Life Ins. Co. v. Commissioner, 106 T.C. 274, 301
(1996). We must evaluate and weigh each expert's opinion in
8(...continued)
Whenever, in the opinion of the Secretary the use of
inventories is necessary in order clearly to determine
the income of any taxpayer, inventories shall be taken
by such taxpayer on such basis as the Secretary may
prescribe as conforming as nearly as may be to the best
accounting practice in the trade or business and as
most clearly reflecting the income.
The Commissioner has prescribed rules under sec. 471(a) for
taxpayers like petitioners that employ a perpetual inventory
system. In pertinent part, sec. 1.471-2(d), Income Tax Regs.,
provides:
Where the taxpayer maintains book inventories in
accordance with a sound accounting system in which the
respective inventory accounts are charged with the
actual cost of the goods purchased or produced and
credited with the value of goods used, transferred, or
sold, calculated upon the basis of the actual cost of
the goods acquired during the taxable year (including
the inventory at the beginning of the year), the net
value as shown by such inventory accounts will be
deemed to be the cost of the goods on hand. The
balances shown by such book inventories should be
verified by physical inventories at reasonable
intervals and adjusted to conform therewith.
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