- 16 - As the regulations point out, section 471(a) establishes two distinct tests to which an inventory must conform: (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. In accordance with the authority provided by section 471(a), the Secretary has promulgated rules for taxpayers maintaining a perpetual (book entry) system of keeping inventories. In pertinent part, section 1.471-2(d), Income Tax Regs., reads as follows: Where the taxpayer maintains book inventories in accordance with a sound accounting system in which the respective inventory accounts are charged with the actual cost of the goods purchased or produced and credited with the value of goods used, transferred, or sold, calculated upon the basis of the actual cost of the goods acquired during the taxable year * * * the net value as shown by such inventory accounts will be deemed to be the cost of the goods on hand. The balances shown by such book inventories should be verified by physical inventories at reasonable intervals and adjusted to conform therewith. III. Dayton Hudson Corp. & Subs. v. Commissioner In Dayton Hudson Corp. & Subs. v. Commissioner, 101 T.C. 462 (1993), respondent determined a deficiency in the taxpayer’s Federal income tax because, in computing its yearend book (...continued) 100 Stat. 2356, designated the quoted language as sec. 471(a). Before amendment, the quoted language was the entirety of sec. 471.Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
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