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$1,867,497. In computing its cost of goods sold, petitioner
reported $1,080,774 of “purchases”, $786,723 of “cost of labor”,
and no beginning or ending inventories. In addition to its cost
of goods sold, petitioner separately deducted its expenses
related to the filtering, gathering, and removing of the Byron
sand at the Unimin processing plant.
As of March 31, 1995, petitioner had accounts receivable of
$426,389 and accounts payable of $143,846.
In the notice of deficiency, respondent determined that
petitioner’s use of the cash method of accounting did not clearly
reflect income. Respondent, therefore, changed petitioner’s
method of accounting to the accrual method. Further, with regard
to the change in accounting method and petitioner’s concessions,
respondent made a section 481(a) adjustment and determined a
deficiency of $111,114 in petitioner’s tax liability for its 1994
taxable year.
OPINION
The principal issue for decision is whether respondent
abused his discretion by requiring petitioner to change from the
cash method to the accrual method of accounting. Subsumed in
this issue is the question of whether petitioner should be
required to use inventories for tax purposes.
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