Edward G Smith and Jan M. Smith - Page 8




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          a method of accounting clearly reflects income and, if not, to              
          direct the taxpayer to adopt an alternative method of accounting.           
          See sec. 446(b); United States v. Catto, 384 U.S. 102, 114 & n.22           
          (1966); Commissioner v. Hansen, 360 U.S. 446, 468 & n.12 (1959).            
               Section 446 imposes a heavy burden on a taxpayer disputing             
          the Commissioner’s determination on accounting matters.  See Thor           
          Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533 (1979).  We           
          review the Commissioner’s exercise of authority under section               
          446(b) for abuse of discretion.  See Ford Motor Co. v.                      
          Commissioner, 102 T.C. 87, 91 (1994), affd. 71 F.3d 209 (6th Cir.           
          1995).  The Commissioner’s determination is entitled to more than           
          the usual presumption of correctness.  See id. and cases cited              
          therein.  Whether an abuse of discretion has occurred depends               
          upon whether the Commissioner’s determination is without sound              
          basis in fact or law.  See Ansley-Sheppard-Burgess Co. v.                   
          Commissioner, 104 T.C. 367, 371 (1995).  To prevail, a taxpayer             
          must establish that the Commissioner’s determination was “clearly           
          unlawful” or “plainly arbitrary”.  Id. at 370.                              
               Section 1.471-1, Income Tax Regs., 25 Fed. Reg. 11724 (Nov.            
          26, 1960), provides that a taxpayer must use inventories “in                
          every case in which the production, purchase, or sale of                    
          merchandise is an income-producing factor.”  Section 1.446-                 
          1(c)(2)(i), Income Tax Regs., provides that a taxpayer using                
          inventories generally must use the accrual method of accounting.            






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