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We decide this issue in the context of whether it was an
abuse of respondent’s discretion to exercise his authority under
section 446 and require petitioner to change from the cash method
to a hybrid method.2 Presented is the question of whether
petitioner should be required to keep inventories for tax
purposes under section 471. Respondent determined that
petitioner’s chemotherapy drugs were merchandise that was an
income-producing factor, that petitioner therefore was required
2 Sec. 446 provides in pertinent part:
SEC. 446. GENERAL RULE FOR METHODS OF ACCOUNTING.
(a) General Rule.--Taxable income shall be
computed under the method of accounting on the basis of
which the taxpayer regularly computes his income in
keeping his books.
(b) Exceptions.--If no method of accounting has
been regularly used by the taxpayer, or if the method
used does not clearly reflect income, the computation
of taxable income shall be made under such method as,
in the opinion of the Secretary, does clearly reflect
income.
(c) Permissible Methods.--Subject to the
provisions of subsections (a) and (b), a taxpayer may
compute taxable income under any of the following
methods of accounting--
(1) the cash receipts and disbursements method;
(2) an accrual method;
(3) any other method permitted by this chapter; or
(4) any combination of the foregoing
methods permitted under regulations
prescribed by the Secretary.
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Last modified: May 25, 2011