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Adjustments to Taxable Year Ending May 31, 1992
In the notice of deficiency, respondent also adjusted
petitioner's taxable income for the taxable year ending May 31,
1992. Respondent reduced petitioner's income by $113,875
because of the change in accounting method. Specifically,
respondent decreased petitioner's income by $54,243 to reflect a
reduction in gross receipts, decreased petitioner's income by
$41,000 to reflect the reduction in the amount of petitioner's
work in process, and decreased petitioner's income to reflect an
$18,632 increase in the cost of goods sold. Respondent also
disallowed a repair expense of $23,624 and reduced petitioner's
depreciation deduction by $2,411. As a result of the
adjustments, respondent determined that petitioner had a $37,636
net operating loss for the taxable year ending May 31, 1992,
rather than $50,000 of taxable income as reported on the return.
OPINION
I
Whether Petitioner Is Required To Change From The Cash Method of
Accounting to The Accrual Method of Accounting
Section 446(a) requires a taxpayer to compute his taxable
income under the same method of accounting by which he regularly
computes his income in keeping his books. Section 446(b),
however, provides that "if the method used [by the taxpayer]
does not clearly reflect income, the computation of taxable
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