Mountain State Ford Truck Sales, Inc., E.P. O'Meara, Tax Matters Person - Page 26




                                       - 26 -                                         

               The definition of the term "cost" in section 1.471-3, Income           
          Tax Regs., is virtually the same as the definition of the term              
          "cost" as it appeared in the regulations promulgated under                  
          section 203 of the Revenue Act of 1918 (1918 Act), ch. 18, 40               
          Stat. 1060, the original predecessor of section 471, which first            
          required certain taxpayers to use the inventory accounting                  
          method.  See Regs. 45, art. 1583 (1918).  The definition of the             
          term "cost" as it appeared in the regulations under the 1918 Act            
          was repromulgated in virtually the same language in the regula-             
          tions issued under all subsequent Federal tax provisions that               
          continued to require certain taxpayers to use the inventory                 
          accounting method.  The term "cost" in inventory tax accounting             
          had a settled meaning when Congress first permitted certain                 
          taxpayers to elect the LIFO method, Revenue Act of 1938, ch. 289,           
          sec. 22(d), 52 Stat. 459,11 and shortly thereafter when Congress            

               11  The regulations in effect when Congress first allowed              
          certain taxpayers to elect the LIFO method and required that the            
          goods with respect to which that method was elected be invento-             
          ried at cost, Regs. 94, art. 22(c)-3 (1936), defined the term               
          "cost" for inventory accounting purposes as follows:                        
                    Art. 22(c)-3.  Inventories at cost.--Cost means:                  
                    (1) In the case of merchandise on hand at the                     
               beginning of the taxable year, the inventory price of                  
               such goods.                                                            
                    (2) In the case of merchandise purchased since the                
               beginning of the taxable year, the invoice price less                  
               trade or other discounts, except strictly cash dis-                    
               counts approximating a fair interest rate, which may be                
               deducted or not at the option of the taxpayer, provided                
               a consistent course is followed.  To this net invoice                  
               price should be added transportation or other necessary                
                                                             (continued...)           

Page:  Previous  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  Next

Last modified: May 25, 2011