Hachette USA, Inc., As Successor to Hachette Publications, Inc. and Curtis Circulation Co., Subsidiary - Page 24

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          points out, one objective of the returned merchandise election              
          legislation seems to have been to reconcile the tax treatment of            
          merchandise returns with the financial accounting treatment.  The           
          need for greater consistency was discussed in the House Ways and            
          Means Committee report on H.R. 5161:                                        
                    Your committee recognizes that the tax accounting                 
               rules contain numerous variances from generally                        
               accepted accounting principles which should be the                     
               subject for legislative review so that those variances                 
               which are not appropriate may be eliminated. * * * In                  
               the meantime, your committee believes that the attempt                 
               by the Internal Revenue Service to tax the periodicals                 
               sold for display purposes could produce a significant                  
               distortion of income. * * * Thus, your committee does                  
               not believe it is appropriate to delay this legislation                
               until a general solution to accounting problems is                     
               found.  [H. Rept. 94-1354, at 3 (1976).]                               
          The approach adopted by Congress was not identical to the reserve           
          for estimated returns recognized under generally accepted                   
          accounting principles, even though its effect was intended to be            
          substantially the same.  As the House Ways and Means Committee              
          report on H.R. 3050 observed:                                               
                    The method of accounting provided for under the                   
               election differs from that used for financial reporting                
               purposes, in that the amount of reduction in gross                     
               income pursuant to the election is limited by actual                   
               returns during the merchandise return period, while                    
               under financial accounting rules, the reduction may be                 
               based on an estimate of future returns.  [H. Rept. 95-                 
               1091, at 4 (1978).]                                                    
               The Report mentions only this difference, however.                     
          Petitioners' position implies that the effect of the legislation            
          was to harmonize tax accounting with financial accounting in one            
          respect while creating a new discrepancy in another respect.  The           




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