- 31 -
(1) It must conform as nearly as may be to the best
accounting practice in the trade or business, and
(2) It must clearly reflect the income. [Sec. 1.471-
2(a), Income Tax Regs.]
Furthermore, the regulations provide that, in order to clearly
reflect income:
the inventory practice of a taxpayer should be consistent
from year to year, and greater weight is to be given to
consistency than to any particular method of inventorying or
basis of valuation * * * [Sec. 1.471-2(b), Income Tax Regs.]
In addition, the regulations addressing dollar-value LIFO
provide:
Any taxpayer may elect to determine the cost of his LIFO
inventories under the so-called “dollar-value” LIFO method,
provided such method is used consistently and clearly
reflects the income of the taxpayer * * * [Sec. 1.472-8(a),
Income Tax Regs.]
The foregoing regulations unequivocally indicate that
consistent application of a method of accounting is necessary for
the method to clearly reflect income. Sec. 446(b); secs. 1.471-
2(b), 1.472-8(a), Income Tax Regs. Accordingly, if a method of
inventory accounting is not consistently applied, this fact alone
may cause the method not to clearly reflect income. Our case law
has also recognized the significance of the consistency
requirement when examining whether a method of accounting clearly
reflects income. Fort Howard Paper Co. v. Commissioner, 49 T.C.
275, 284 (1967); Photo-Sonics, Inc. v. Commissioner, 42 T.C. 926,
935 (1964), affd. 357 F.2d 656 (9th Cir. 1966); Klein Chocolate
Co. v. Commissioner, 36 T.C. 142, 146 (1961), supplementing 32
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011