Cross Oil Company, Inc. - Page 4




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          Petitioner’s total income (i.e., gross income less cost of goods            
          sold) that was computed under the cash method and accrual method            
          of accounting, and the differences in amounts and differences as            
          percentages, are as follows:                                                
                                                       Amount  Percentage             
               Year Ended   Cash Method Accrual MethodDifference Difference             
              June 30, 1996 $355,491     $343,704    ($11,787)   (3.4)                
              June 30, 1997  264,300      339,748      75,448    22.2                 
          Petitioner’s taxable income (i.e., total income less deductions)            
          that was computed under the cash method and accrual method of               
          accounting, and the differences in amounts, are as follows:                 
                                                           Amount                     
                  Year Ended  Cash Method Accrual Method Differenc                    
                                                             e                        
                  June 30,      $20,649       ($6,759)   ($27,408)                    
                    1996                                                              
                  June 30,      (16,340)       59,108       75,448                    
                    1997                                                              
               Following an audit, the Commissioner sent a notice of                  
          deficiency to petitioner that stated:  “It is determined the                
          accrual method of accounting more clearly reflects income than              
          your current ‘Cash Basis’ method of accounting.”                            
                                       OPINION                                        
               The issue presented is whether it was an abuse of                      
          respondent’s discretion, under section 446, to require                      
          petitioner to change from the cash method of accounting to the              
          accrual method of accounting in order to reflect clearly the                
          income of petitioner’s oil and gas business.                                






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