Mid Del Therapeutic Center, Inc. - Page 21

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            respondent’s argument as to why petitioners are required to use                            
            the accrual method is based solely on his position that the drugs                          
            used by petitioners are merchandise that must be inventoried.                              
            Respondent does not dispute that petitioners’ use of the cash                              
            method clearly reflects income to the extent that the drugs are                            
            not merchandise.  Because we hold that petitioners' drugs are not                          
            merchandise, it follows that petitioners are neither required to                           
            maintain inventories with respect to their drugs by section                                
            1.471-1, Income Tax Regs., nor required to use an accrual method                           
            by section 1.446-1(c)(2)(i), Income Tax Regs.  See Osteopathic                             
            Med. Oncology & Hematology, P.C. v. Commissioner, supra at 391-                            
                  We hold, therefore, that respondent abused his discretion                            
            in requiring petitioners to change from the cash method of                                 
            accounting to an accrual method.                                                           

            is the recognition that petitioners’ cash method of accounting                             
            does reflect their income clearly, albeit not as clearly as the                            
            accrual method.  Although the language used in respondent’s                                
            notices of deficiency may be nothing more than a verbal foot-                              
            fault, or an ill-phrased attempt to summarize the requirements of                          
            sec. 471(a), respondent has offered no evidence to explain why                             
            the determinations were phrased as stated in the notices.                                  
            Although the Commissioner’s determination that a taxpayer’s                                
            method of accounting does not clearly reflect its income is                                
            entitled to great deference, the Commissioner may not require a                            
            taxpayer to change from a method of accounting that clearly                                
            reflects income to another method of accounting because the                                
            Commissioner determines that the alternate method will reflect                             
            the taxpayer’s income more clearly.  See Ansley-Sheppard-Burgess                           
            Co. v. Commissioner, 104 T.C. 367, 371 (1995).                                             

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