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Petitioner has demonstrated neither that the cash method
clearly reflected its income nor that the hybrid method does not.
Petitioner has demonstrated to the majority’s satisfaction,
however, that its business is a service business. The majority
holds: “Service income, by definition, does not include income
from the sale of goods.” Majority op. p. 26. Therefore, reasons
the majority, petitioner is not engaged in the sale of
merchandise (a word that the majority equates with the word
“goods”). Id. Since petitioner is not engaged in the sale of
merchandise, the majority concludes that respondent may not
require petitioner to use “an inventory method of accounting”.
Majority op. p. 11; see sec. 1.471-1, Income Tax Regs. Finally,
limiting its consideration to the incompatibility of the cash
method with an inventory method of accounting, see sec. 1.446-
1(c)(2)(i), Income Tax Regs., the majority finds that respondent
abused his discretion in requiring petitioner to use the hybrid
method and that petitioner may continue to report all of its
income and expenses under the cash method.
I dissent from the conclusion that petitioner is not engaged
in the sale of merchandise. I also wish to caution against undue
reliance on the majority’s conclusion that respondent abused his
discretion in requiring petitioner to use the hybrid method. As
will be explained, by his answer to the petition, respondent has
limited the issues before the Court.
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