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million gross receipts exception of section 448. Petitioner
claims that Diehl has consistently used the cash method since its
inception and that Diehl met the $5 million gross receipts
exception for the relevant year. Second, petitioner asserts that
a taxpayer meeting the $5 million gross receipts exception may
use the cash method whenever its sale of merchandise is not an
income-producing factor. Petitioner claims that Diehl primarily
earned its income by selling intellectual property, which,
petitioner claims, is not merchandise. Petitioner claims that
Diehl’s sales of the manuals and other inventory items were not
an income-producing factor in its business because, petitioner
claims, the sales merely helped Diehl sell and market its
intellectual property. Third, petitioner asserts that Diehl
could use the cash method because its sales of the manuals and
other inventory items were insignificant as a function of its
gross receipts and that the amount of these items fluctuated
little from one yearend to the next. Petitioner claims that it
is a per se abuse of discretion when respondent’s change in
method of accounting generates adjustments to accounts receivable
and not to the amount of inventory at the beginning or end of the
year. Fourth, petitioner asserts that respondent’s determination
is an abuse of discretion because Diehl changed to an overall
accrual method 2 years after the subject year.
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Last modified: May 25, 2011