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The regulations define “material item” as “any item which
involves the proper time for the inclusion of the item in income
or the taking of a deduction.” Sec. 1.446-1(e)(2)(ii)(a), Income
Tax Regs.12
The regulations also define certain situations in which a
change does not rise to the level of a change in method of
accounting. Specifically, section 1.446-1(e)(2)(ii)(b), Income
Tax Regs., provides:
A change in method of accounting does not include correction
of mathematical or posting errors, or errors in the
computation of tax liability * * *. Also, a change in
method of accounting does not include adjustment of any item
of income or deduction which does not involve the proper
time for the inclusion of the item of income or the taking
of a deduction. * * * A change in the method of accounting
also does not include a change in treatment resulting from a
change in underlying facts. * * *
1. Unauthorized Change After Richardson I
Respondent determined that Investments originally elected to
define its inventory units for its new car pool by model code but
12 Sec. 472 and the regulations thereunder provide more
specific guidance on when a change in method occurs in the LIFO
method of accounting. Sec. 472(e) provides that a taxpayer may
not change from the LIFO method to another method of inventory
accounting without the consent of the Commissioner. With respect
to the dollar-value method of LIFO, the regulations provide that
a taxpayer may not change its pricing method, e.g., link-chain
method, without the consent of the Commissioner. Sec. 1.472-
8(e)(1), Income Tax Regs. In addition, the regulations provide
that any change in pooling used in computing LIFO inventories
requires the consent of the Commissioner. Sec. 1.472-8(g)(1),
Income Tax Regs. Here, respondent does not argue that
Investments changed its overall method of accounting for
inventory, i.e., the dollar-value LIFO method, nor does she argue
that Investments changed its overall pricing method or the number
of pools it utilized.
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