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method to qualify under section 1.472-8(e)(2)(ii)(d), Income Tax
Regs., as any other proper method which clearly reflects income,
the method must, as required by section 472(b)(2), determine the
current-year cost of items making up a pool on the basis of, or
by reference to, actual cost (or in certain instances a reason-
able approximation of such cost). Assuming arguendo that Moun-
tain State Ford had elected to use any other proper method under
section 1.472-8(e)(2)(ii)(d), Income Tax Regs., in the Form 970
that it filed with its 1980 return, which we have found it did
not, petitioner has not persuaded us that the method which
Mountain State Ford used to determine that current-year cost,
which was based on replacement cost and not actual cost, is a
proper method that clearly reflects income under that regula-
tion.15
In further support of his position that Mountain State
Ford's method of using replacement cost, and not actual cost, in
14(...continued)
aggregate actual cost of such goods (i.e., by dividing such
actual cost by the number of units on hand). Sec. 1.472-2(c),
Income Tax Regs. The aggregate actual cost is to be determined
pursuant to the inventory method used by the taxpayer under the
regulations applicable to the taxable year preceding the taxable
year for which the election of the LIFO method is made, with the
exception that restoration is to be made with respect to any
write-down to market values resulting from the pricing of former
inventories. Id.
15 In using replacement cost to determine current-year cost
under sec. 1.472-8(e)(2)(ii), Income Tax Regs., Mountain State
Ford was not attempting to, and did not, determine or approximate
the actual cost (i.e., the invoice prices) of the parts that it
purchased. It would have been sheer happenstance if the replace-
ment cost that Mountain State Ford used equaled or reasonably
approximated such actual cost.
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