Hachette USA, Inc., As Successor to Hachette Publications, Inc. and Curtis Circulation Co., Subsidiary - Page 22

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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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