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taxpayer to show otherwise. “[A] taxpayer “must establish that
the Commissioner’s determination was ‘clearly unlawful’ or
‘plainly arbitrary’.” Majority op. p. 14 (quoting Thor Power
Tool Co. v. Commissioner, 439 U.S. 522, 532-533 (1979)) (emphasis
added).
Respondent determined that “[petitioner’s] current method of
accounting (cash), is an improper method and * * * changed * * *
[petitioner] to an accrual method. This change has resulted in
an increase in * * * [petitioner’s] gross receipts.” Respondent
also determined, in the alternative, that “under the cash method
of accounting, * * * [petitioner’s] income is increased for
failure to properly substantiate * * * [petitioner’s] accounts
receivable.” The majority, however, limits the issue to the
question of whether the material used by petitioner in performing
its service contracts is the sale of “merchandise” for purposes
of section 1.471-1, Income Tax Regs. Majority op. p. 12. The
majority incorrectly expresses respondent’s notice determination
in the following manner: “Respondent determined that the
material petitioner used in its construction activity was
merchandise that was income producing, and, therefore, petitioner
must use the accrual method of accounting to clearly reflect its
income.” Majority op. p. 15. The majority has treated
respondent’s response to petitioner’s argument as respondent’s
determination. Respondent’s arguments on brief were in response
to petitioner’s position that it should not be placed on the
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