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cash method because section 448 does not bar it. “The fact that
section 448 does not preclude petitioner from using the cash
method does not authorize it if * * * the cash method does not
clearly reflect income.” Thompson Elec., Inc. v. Commissioner,
T.C. Memo. 1995-292. When a taxpayer has inventories, the
taxpayer may not use the cash method, even though so permitted
under section 448, if the cash method does not clearly reflect
its income. See id.
Indeed, the regulations under section 448 emphasize that
other sections may limit a taxpayer’s entitlement to use the
cash method.
Nothing in section 448 shall have any effect on the
application of any other provision of law that would
otherwise limit the use of the cash method, and no
inference shall be drawn from section 448 with respect
to the application of any such provision. For example,
nothing in section 448 affects * * * the requirement of
� 1.446-1(c)(2) that an accrual method be used with
regard to purchases and sales of inventory. Similarly,
nothing in section 448 affects the authority of the
Commissioner under section 446(b) to require the use of
an accounting method that clearly reflects income
* * *. For example, a taxpayer using the cash method
may be required to change to an accrual method of
accounting under section 446(b) because such method
clearly reflects that taxpayer’s income, even though
the taxpayer is not prohibited by section 448 from
using the cash method. * * * [Sec. 1.448-1T(c),
Temporary Income Tax Regs., 52 Fed. Reg. 22767 (June
12, 1987).]
We have found that petitioner must maintain inventories.
Accordingly, the cash method does not clearly reflect
petitioner’s income. Section 448 does not “literally,
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