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which is 33 percent of petitioner’s gross receipts for FYE 1997.
The business activity related to purchased wood was a
substantial income-producing factor to petitioner.
Considering the cost of the purchased wood plus the
business activities of cutting trees on land owned by unrelated
entities, the cost of the wood that petitioner purchased was 43
percent of the gross receipts for FYE 1995 ($23,099,969 +
$12,333,559), 39 percent of the gross receipts for FYE 1996
($18,079,103 + $12,136,789), and 49 percent of the gross
receipts for FYE 1997 ($28,757,169 + $13,588,715).
Considering wood that petitioner purchased from related
entities, these percentages are even higher.
Accordingly, petitioner must maintain inventories and use
the accrual method to account for purchases and sales.
Petitioner’s use of the cash method does not clearly reflect its
sales income.
IV. Other Arguments Raised by Petitioner
Petitioner claims that it is a grower and harvester of
trees. Petitioner argues that “the Code literally, explicitly,
and intentionally permits a company that ‘harvests’ timber to
use the cash method of accounting” and that respondent cannot
force petitioner to change an accounting method specifically
authorized by the Internal Revenue Code. Petitioner cites
sections 447 and 448 in support of this argument.
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