- 18 -
factor for petitioner and because petitioner is not a farmer.
Tax liability is based on an annual system of accounting; whether
cash and accrual methods produce comparable results over a 6-year
period is not controlling. See Knight-Ridder Newspapers, Inc. v.
United States, 743 F.2d at 792-793; Lucas v. Kansas City
Structural Steel Co., 281 U.S. 264, 271 (1930).
Petitioner's reliance on Van Raden v. Commissioner, 71 T.C.
at 1095-1096, is misplaced because the years chosen for audit
were not an issue. Petitioner has failed to carry the burden of
proving that there was an abuse of discretion by respondent.
E. Conclusion
We conclude that petitioner does not qualify as a farmer for
purposes of using the cash method of accounting and that it must
use inventories. Sec. 448(b)(1); secs. 1.446-1(c)(2)(i), 1.471-
1, Income Tax Regs. We also conclude that it was not an abuse of
respondent's discretion to require petitioner to change from the
cash method of accounting to the accrual method of accounting for
the years in issue. Thus, petitioner must use the accrual method
of accounting.7
7 In light of our conclusion that petitioner must use the
accrual method of accounting because merchandise is a substantial
income-producing factor and because it is not a farmer, our
result is not affected by the fact that: (1) Petitioner
regularly used the cash method to compute its income, and (2)
accrual method documents were only for petitioner's internal
review and were not used for any significant purpose. Petitioner
contended that some of its accounts receivable were too
indefinite to be accrued. However, petitioner did not identify
those accounts.
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