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inventories. Petitioner argues that this issue is a “new matter”
not contained in the notice of deficiency. Our resolution of
this case does not depend on which party bears the burden of
proof. Nonetheless, for the sake of completeness, we will
address this issue.
Petitioner bears the burden of establishing that
respondent’s determinations of deficiencies, as contained in the
statutory notice of deficiency, are incorrect. See Rule 142(a);6
Welch v. Helvering, 290 U.S. 111 (1933).
The notice of deficiency states:
Schedule A-1
Explanation of Adjustments
a. Change of Accounting Method5/31/95 $1,576,300.00
5/31/96 $1,623,700.00
5/31/97 $300,000.00
The cash receipts and disbursements method of accounting you
used to keep your books and records does not clearly reflect
income; but the accrual method of accounting clearly reflects your
income. Therefore, your taxable income is increased
$1,576,300.00, $1,623,700.00 and $300,000.00 for 5/31/95, 5/31/96
and 5/31/97, respectively.
b. Cost of Sales 5/31/95 $1,862,892.00
5/31/96 ($1,862,892.00)
5/31/97 ($1,477,361.00)
Since you are being required to use the accrual method of
accounting, the values of your opening and closing inventories for
the tax year ending 5/31/95 is $0.00 and $1,862,892.00. For the
tax year ending 5/31/96, your opening and closing inventories are
$1,862,892 and $1,477,361.00. For the tax year ending 5/31/97,
your opening and closing inventories are $1,477,361.00 and
$2,419,747.
6 The examination in this case commenced before July 22,
1998. Accordingly, sec. 7491 is inapplicable. See Warbelow’s
Air Ventures, Inc. v. Commissioner, 118 T.C. 579, 582 n.8,
(2002), affd. 80 Fed. Appx. 16 (9th Cir. 2003).
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