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Sec. 1.471-1, Income Tax Regs. When inventories are required,
they must be maintained on a basis that conforms as nearly as
possible to the best accounting practice in the taxpayer's trade
or business and that most clearly reflects income. Sec. 471(a);
Fox Chevrolet, Inc. v. Commissioner, supra at 719-722.
In a merchandising business, gross income from sales means
total sales less cost of goods sold (COGS). Sec. 1.61-3(a),
Income Tax Regs. COGS for the year is determined by subtracting
the value of ending inventory from the sum of the value of
beginning inventory and the cost of purchasing or producing goods
during the year. Primo Pants Co. v. Commissioner, 78 T.C. 705,
723 (1982). As a general rule, taxpayers will want to keep
ending inventory as low as possible so that COGS, which is an
offset to gross receipts, is made as large as possible, thereby
minimizing gross income. Hamilton Indus., Inc. & Sub. v.
Commissioner, 97 T.C. 120, 129 (1991).
Section 472 permits taxpayers to value their inventories
under the LIFO method. In contrast to the FIFO method of
inventory valuation, which treats the first goods acquired as the
first goods sold, the LIFO method of inventory valuation treats
the last goods acquired as the first goods sold. Sec. 472(b);
Fox Chevrolet, Inc. v. Commissioner, supra at 722. Accordingly,
under the LIFO method, the earliest goods acquired are treated as
the goods remaining in ending inventory. Fox Chevrolet, Inc. v.
Commissioner, supra at 722. During a period of rising costs, the
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