Dayton Hudson Corporation and Subsidiaries v. Commissioner of Internal Revenue

BEAM, Circuit Judge.

This case presents the question whether the method of accounting for inventory shrinkage used by a retailer, Dajdon Hudson Corporation and Subsidiaries (Dayton Hudson); is permissible. Dayton Hudson appeals from the tax court’s decision upholding the Commissioner of Internal Revenue’s (Commissioner’s) determination of tax deficiencies. We reverse.

I. BACKGROUND

The parties have largely stipulated the facts. Dayton Hudson is a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. This ease involves the accounting methods used by two of Dayton…