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The relevant regulations explain that "inventories at the
beginning and end of each taxable year are necessary in every
case in which the production, purchase, or sale of merchandise is
an income-producing factor." Sec. 1.471-1, Income Tax Regs.
Jurisprudence provides that a taxpayer with inventories must use
an accrual method, unless the taxpayer shows that use of another
method would produce a substantial identity of results and that
the Commissioner’s determination requiring a change is an abuse
of discretion. See Knight-Ridder Newspapers, Inc. v. United
States, 743 F.2d 781, 789, 791-793 (11th Cir. 1984);
Wilkinson-Beane, Inc. v. Commissioner, 420 F.2d 352 (1st Cir.
1970), affg. T.C. Memo. 1969-79; Ansley-Sheppard-Burgess Co. v.
Commissioner, 104 T.C. at 377; see also sec. 1.446-1(c)(2)(i),
Income Tax Regs.
Under the facts at hand, respondent may require petitioner
to utilize an inventory method of accounting only if we find each
of the following as facts: (1) Petitioner produced, purchased,
or sold merchandise, and (2) petitioner's production, purchase,
or sale of that merchandise was an income-producing factor. See
Honeywell Inc. v. Commissioner, T.C. Memo. 1992-453, affd.
without published opinion 27 F.3d 571 (8th Cir. 1994). We need
not reach the second part of this inquiry; i.e., whether the
production, purchase, or sale of merchandise is an
income-producing factor, if we are unable to find first that the
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