- 21 -
beginning and the end of the year should have been treated in a
consistent manner.
If the accounts payable were to be allocated between those
related to the cost of goods sold and those related to
operating costs, an allocation should also have been made for
accounts payable at the beginning of the taxable year. Then
proper adjustments could be made to the cost of goods sold and
to the deduction for operating expenses.
Additionally, since respondent treated all accounts
payable at the beginning of the year as related to the cost of
goods sold, there would have been no accounts payable at the
beginning of the year related to operating expenses.
Therefore, respondent should have increased petitioner's
deduction for operating expenses (reducing petitioner's income)
by $16,361 to reflect the increase in payables related to
operating expenses at the close of the year.
We find respondent's determinations with respect to
petitioner's accounts receivable and payable to be
unreasonable, arbitrary, and without basis in law.
3. It Was an Abuse of Respondent's Discretion To Change
Petitioner From the Cash Method to Respondent's
Improper Method of Accounting
During the 12-month examination of petitioner's records,
the agent made no attempt to properly value petitioner's
inventories or value payables and receivables under the accrual
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011