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Petitioner and EIC used the installment method to report
income in tax returns that were filed after the 1979 closing
agreement was executed. This seriously undercuts petitioner's
contention that the parties intended that the 1979 closing
agreement would require them to use the cost recovery method in
future years. See Pacific Portland Cement Co. v. Food Mach. &
Chem. Corp., 178 F.2d 541, 554 (9th Cir. 1949) (when interpreting
a contract, a court may look to the parties' actions in ascer-
taining their intent). Therefore, we find that the 1979 closing
agreement does not cover the method for reporting income during
the years at issue.
Based on the foregoing, we conclude that the attempts by
petitioner and EIC to change accounting methods by filing amended
tax returns are ineffectual. After determining that the Wangs
and EIC used an impermissible accounting method to report income,
respondent may change their method of accounting to any method
that, in respondent's opinion, clearly reflects income. Sec.
446(b). Petitioner does not argue that respondent's use of the
accrual method is "clearly unlawful" or "plainly arbitrary."
Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533 (1979)
(quoting Lucas v. American Code Co., 280 U.S. 445, 449 (1930),
and Lucas v. Structural Steel Co., 281 U.S. 264, 271 (1930)).
Accordingly, we sustain respondent's determination that peti-
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