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accounting method used by a taxpayer clearly reflects income.
Commissioner v. Hansen, 360 U.S. 446, 467 (1959); Ansley-
Sheppard-Burgess Co. v. Commissioner, 104 T.C. 367, 370 (1995).
The Commissioner, however, cannot require a taxpayer to change
his method of accounting unless the Commissioner makes a
determination that the accounting method used by the taxpayer
does not clearly reflect income. See sec. 446(b); Asphalt Prods.
Co. v. Commissioner, 796 F.2d 843, 848 (6th Cir. 1986), affg. in
part, revg. in part and remanding Akers v. Commissioner, T.C.
Memo. 1984-208, revd. on another issue 482 U.S. 117 (1987);
Hallmark Cards, Inc. & Subs. v. Commissioner, 90 T.C. 26, 31
(1988).
Section 1.446-1(c)(2)(i), Income Tax Regs., provides that a
taxpayer who is required to use inventories must also use the
accrual method of accounting with regard to purchases and sales.
A taxpayer who is required to use inventories, and thereby the
accrual method, violates the clear reflection of income
requirement by reporting purchases and sales under the cash
method. See Asphalt Prods. Co. v. Commissioner, supra at 848.
AEI uses the cash method of accounting. Respondent, in the
notice of deficiency, determined that AEI is required to use
inventories. Respondent's determination means that AEI's use of
6(...continued)
Secretary.
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