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Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 532 (1979).
Sections 1.471-1 and 1.471-2, Income Tax Regs., provide general
guidance for determining the timing of inventory adjustments in
order to satisfy the requirements of section 471. Thus, as a
general matter, the seller must remove an item from inventory
when title passes to the purchaser. If the item is returned, it
is included in inventory for the year of return.
When a taxpayer elects to exclude sales revenue attributable
to an item under the section 458 election, removing the item from
inventory and deducting its cost would not be consistent with the
requirements of section 471. First, such treatment would deviate
from generally accepted accounting principles. Under these
principles, sales with right of return are accounted for by
symmetrical reductions in both the sales account and the cost of
goods sold adjustment account to reflect estimates of future
returns. See SFAS No. 48 (June 1981); Jarnagin, Financial
Accounting Standards 610-612 (16th ed. 1994); Kay & Searfoss,
Handbook of Accounting and Auditing 13-11 to 13-12 (2d ed. 1989).
Second, the mismatching of income and expense would not clearly
reflect income. Petitioners' argument requires us to assume that
Congress intended a result that would have conflicted with
section 471. Thus, it was not in reliance on general inventory
accounting principles that Congress omitted to provide for the
cost deduction that petitioners believe Congress intended. On
the other hand, if it was Congress' intention to create an
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