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HALPERN, J., dissenting:
I. Introduction
Respondent determined a deficiency in petitioner’s 1995
Federal income tax liability. That deficiency resulted from
respondent’s rejection of the cash receipts and disbursements
method of accounting (the cash method) used by petitioner to
compute taxable income and his recomputation of petitioner’s 1995
taxable income under a hybrid method of accounting. Under that
method (the hybrid method), petitioner was required to use an
accrual method to account for purchases and sales of merchandise.
Respondent recomputed petitioner’s taxable income pursuant to his
authority to require a taxpayer to use a method of accounting
that clearly reflects income, if the method used by the taxpayer
does not clearly reflect income. See sec. 446(b).
Whether a particular method of accounting clearly reflects
income is a question of fact, and the issue must be decided on a
case-by-case basis. See, e.g., Hamilton Indus., Inc. v.
Commissioner, 97 T.C. 120, 128-129 (1991). Generally, where
respondent has determined that a taxpayer’s method of accounting
does not clearly reflect income, the taxpayer must demonstrate
either that his method of accounting clearly reflects income or
that respondent’s method does not clearly reflect income. See
Asphalt Prods. Co. v. Commissioner, 796 F.2d 843, 847 (6th Cir.
1986), affg. in part and revg. in part T.C. Memo. 1984-208.
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