- 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 of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011