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Section 448 permits certain smaller businesses to use the
cash method, but it does not preclude the Commissioner from
determining, as was done here, that a taxpayer’s method does not
clearly reflect income. Section 448 was argued by petitioner on
brief to the extent that petitioner contended that it was within
the $5-million maximum limitation of that section. Respondent
made no comments in his brief concerning section 448 but instead
relied on the argument that petitioner failed to show that its
method (cash) clearly reflected income; i.e. that respondent
abused his discretion.
Respondent’s discretion to determine that petitioner’s
method does not clearly reflect income is derived from section
446 and is not obviated by section 448. Although section 448 may
enable smaller businesses to use the cash method, it also
effectively abolishes the use of the cash method for all other
taxpayers.7 Where a taxpayer is qualified under section 448,8
the cash method may be used if the taxpayer can show that the
cash method more clearly reflects income. Section 448 cannot be
treated as a complete answer to our inquiry. To do so would
ignore the statute, regulations, and our case precedent that hold
7 Congress’ enactment of sec. 448, in part, reflects its
acceptance that the cash method results in mismatching, but it
did not make its use by small taxpayers into a safe haven from
the exercise of the Commissioner’s discretion under sec. 446.
8 There has been no showing here that petitioner is in all
respects qualified under sec. 448. In addition, the parties did
not stipulate that petitioner was qualified under sec. 448.
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