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Petitioner used this method for purposes of preparing its Federal
income tax returns for 1968 through the years in issue.
Respondent conducted audits of petitioner’s Federal income
tax returns for 1971, 1972, 1974, 1975, 1991, and 1992, and no
change or adjustment was made with respect to petitioner’s method
of deducting the cost of garments and dust control items when
placed in service. During the audit for the years in issue, an
employee of petitioner stated to the auditing agent, in the words
of the auditing agent:
they didn’t want any contract to be less than five
years, because the cost of these garments was so much,
and the materials lasted so long that they–-and they
were all made to specific order, that if you stopped
your contract, they had nothing-–they had nowhere to
put these uniforms, because it was made to each client.
* * *
Another employee stated to the auditing agent that, “with just a
little repair”, some of the mats could last more than 10 years.
Notices of Deficiency
In the notices of deficiency, respondent “determined that
* * * [petitioner] used an unallowable method to value * * *
inventory and to compute * * * Cost of Goods Sold”. The
deficiency amounts calculated by respondent reflected a
determination that the industrial garments had a useful life of
between 2 and 4 years and were 3-year class property; the clean
room garments had a useful life of between 4 and 10 years and
were 5-year class property; the dust control items, other than
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