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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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