- 7 - because they were purchased and designated for installation for a specific job. For the taxable year 1995, Smith Floors reported gross receipts of $1,693,669 and cost of goods sold of $1,252,445. Smith Floors computed its cost of goods sold as follows: Beginning inventory $15,000 Purchases 686,283 Cost of labor 386,135 Other Back charges $1,632 Contract labor 21,402 Freight 1,060 Payroll taxes direct labor 37,941 Small equipment 719 Supplies 98,405 Worker’s compensation 18,868 Total other 180,027 Total 1,267,445 Ending inventory (15,000) Cost of goods sold $1,252,445 OPINION Section 446(b) provides that, if a taxpayer’s method of accounting does not clearly reflect income, the taxpayer’s computation of income “shall be made under such method as, in the opinion of the Secretary, does clearly reflect income.” In connection with the foregoing, section 471(a) provides the general rule that a taxpayer is required to take inventories on such basis as the Secretary may prescribe in order to clearly determine the taxpayer’s income. Thus, the Commissioner is granted broad discretion to determine whether a taxpayer’s use ofPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011