Golden Gate Litho - Page 13

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          Inc. v. Commissioner, T.C. Memo. 1992-239; Akers v.                         
          Commissioner, T.C. Memo. 1984-208, affd. on this issue sub nom.             
          Asphalt Prods. Co. v. Commissioner, 796 F.2d 843 (6th Cir.                  
          1986), revd. on another issue 482 U.S. 117 (1987).  We find                 
          that petitioner's sale of merchandise is an income-producing                
          factor and, therefore, petitioner is required to maintain                   
          inventories.                                                                
          B.   Whether It Was an Abuse of Respondent's Discretion To                  
               Change Petitioner From the Cash Method to Respondent's                 
               Method of Accounting                                                   
               The regulations provide that, unless otherwise authorized              
          by the Commissioner, a taxpayer who is required to account for              
          inventories must use the accrual method of accounting with                  
          regard to purchases and sales.  Sec. 1.446-1(c)(2)(i), Income               
          Tax Regs.  Respondent argues that petitioner must account for               
          inventories and must use the accrual method of accounting.  In              
          this case, however, the facts show that respondent completely               
          disregarded the applicable provisions of the Internal Revenue               
          Code and regulations and made no attempt to properly value                  
          petitioner's inventory or compute petitioner's income using a               
          proper accrual method of accounting.                                        
               1.   Respondent's Method of Valuing Petitioner's Inventory             
                    Was Improper                                                      
               Rules governing the valuation of inventories are set forth             
          in regulations promulgated under section 471 and the uniform                






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