- 11 -
prior to the current year, (2) the deduction resulted in a tax
benefit, (3) an event occurs in the current year that is
fundamentally inconsistent with the premises on which the deduction
was originally based, and (4) a nonrecognition provision of the
Internal Revenue Code does not prevent the inclusion in gross
income. Hillsboro Natl. Bank v. Commissioner, 460 U.S. 370, 383-
384 (1983); see Gold Kist, Inc. v. Commissioner, 110 F.3d 769, 772
(11th Cir. 1997), revg. per curiam 104 T.C. 696 (1995); Frederick
v. Commissioner, 101 T.C. 35, 41 (1993). A current event is
fundamentally inconsistent with the premises on which the deduction
was originally based when that event would have prevented the
deduction if the event had occurred in the year of the deduction.
Hillsboro Natl. Bank v. Commissioner, supra; Frederick v.
Commissioner, supra.
Respondent asserts that petitioner improperly derived a
$2,031,778 tax benefit because that amount was treated (on
petitioner's books) as a purchase and consequently petitioner's
cost of goods sold for the year ended June 30, 1990, was
overstated. Petitioner disagrees, claiming that even though its
purchases were overstated, the ASA merchandise was included in
petitioner's ending inventory and thus there was a wash.5
5 Cost of goods sold is generally determined as follows:
Beginning inventory
+ Purchases
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011