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OPINION
We must decide whether respondent’s determination that
petitioner’s use of the cash method of accounting did not clearly
reflect income was an abuse of respondent’s discretion. We hold
that it was.
In order to require a taxpayer to change its method of
accounting, the Commissioner must determine that the method used
by the taxpayer does not clearly reflect income. See sec.
446(b); Hallmark Cards, Inc. v. Commissioner, 90 T.C. 26, 31
(1988). While the Commissioner’s discretion is broad, see Thor
Power Tool Co. v. Commissioner, 439 U.S. 522, 532-533 (1979), it
is not absolute, see Hallmark Cards, Inc. v. Commissioner, supra,
and we find an abuse of discretion when 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).
In RACMP Enters., Inc. v. Commissioner, 114 T.C. 211 (2000),
we addressed these issues in a factual context indistinguishable
from the instant case. In that case, we provided as follows:
Whether * * * [the taxpayer] is required to report
its income on the accrual method of accounting instead
of the cash method depends on whether * * * [the
taxpayer] is in the business of selling merchandise to
customers in addition to providing service or whether
the material provided by * * * [the taxpayer] is a
supply that is incidental to the provision of the
contracted service. [Id. at 220; citations omitted.]
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