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B.T. Babbitt, Inc. v. Commissioner, 32 B.T.A. 693, 696 (1935);
Fletcher v. Commissioner, T.C. Memo. 1965-273.
3. Conclusion
We conclude that petitioner may not amortize any of Cost
Less' $175,000 payment for Jasiak's oral promise not to compete
because petitioner and Jasiak did not intend to allocate any of
the payment to the promise, and petitioner has not proven that
Jasiak's promise had value.
B. Inventory Adjustment
Petitioners contend that Cost Less may reduce its ending
inventory by $10,000 for each year in issue because, according to
petitioners' estimate, Cost Less' inventory software overstated
its ending inventory by that amount.
We have long held that a taxpayer may adjust inventories to
correctly reflect income. Elm City Nursery Co. v. Commissioner,
6 B.T.A. 89 (1927); Baumann Rubber Co. v. Commissioner, 4 B.T.A.
671 (1926). Petitioners do not explain how they computed the
$10,000 amount. Petitioners appear to defend the $10,000 amount
because the consumer price index (CPI) increased .185 percent on
all items from January 1, 1988, to December 31, 1991.
However, they did not show (1) how many of the 75,000 parts had
price increases in any year; (2) how many parts remained in
inventory at the end of the year for which the computer program
increased costs; (3) the amount of price increases; (4) what
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