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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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