- 11 - 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 thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011