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computation of taxable income shall be made under such method as,
in the opinion of the Secretary, does clearly reflect income.”
Sec. 446(a) and (b).
As used in section 446, the term “method of accounting”
encompasses “not only the over-all method of accounting of the
taxpayer but also the accounting treatment of any item”. Sec.
1.446-1(a)(1), Income Tax Regs. Furthermore, it has been
recognized repeatedly that this section grants the Commissioner
broad discretion, such that to defeat a proposed change
thereunder, the taxpayer must establish that the Commissioner’s
determination is “‘clearly unlawful’” or “‘plainly arbitrary’”.
Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533 (1979)
(quoting Lucas v. American Code Co., 280 U.S. 445, 449 (1930),
and Lucas v. Kansas City Structural Steel Co., 281 U.S. 264, 271
(1930)). However, if the taxpayer’s method does clearly reflect
income, the Commissioner cannot require the taxpayer to change to
a different method even if the Commissioner’s method more clearly
reflects income. See Ford Motor Co. v. Commissioner, 71 F.3d
209, 213 (6th Cir. 1995), affg. 102 T.C. 87 (1994).
In the case at bar, the only evidence in the record which
speaks to GIA’s overall method of accounting is the Schedules C
filed with petitioners’ tax returns. On each such Schedule C,
the box indicating “Accrual” was checked. We therefore have no
basis on which to conclude that GIA was other than an accrual
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