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taxable year. It includes payables related to operating
expenses as well as those related to cost of goods sold.
Respondent determined that adjustments were required by
section 481(a) and adjusted petitioner's taxable year ending May
31, 1991, as follows:
(1) Respondent increased petitioner's income by $250,378
for the amount of accounts receivable reflected on its balance
sheet for fiscal year ending May 31, 1990;
(2) respondent increased petitioner's income by $150,000
for the value of work in process reflected on its balance sheet
for fiscal year ending May 31, 1990; and
(3) respondent decreased petitioner's income by $98,584 for
the amount of accounts payable and wages and salaries payable
reflected on its balance sheet for fiscal year ending May 31,
1990.
Respondent made the entire section 481 adjustment to the
year of the change (taxable year ending May 31, 1991) and did
not consider the application of section 481(b). Respondent also
disallowed $21,888 in commission expenses and $6,215 that
petitioner claimed as the loss on the sale of an automobile.
As a result of the adjustments, respondent determined that
petitioner's taxable income for the taxable year ending May 31,
1991, was $415,899 rather than $50,000 as reported on the
return.
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