-36-
income. Consolidated’s remanufacturing business depended on a
supply of two raw materials: cores and new parts. During the
remanufacturing process, Consolidated incurred expenditures for
labor and overhead and transformed those raw materials into its
finished goods or products (viz, remanufactured automobile
parts). Thus, cores, new parts, labor, and overhead all entered
into the production of those finished goods or products.
Pursuant to section 1.471-1, Income Tax Regs., Consolidated
maintained inventories for each of the two unprocessed raw
materials that it used in its remanufacturing business, for
partly finished goods, i.e., goods in process of remanufacture
(goods in process), and for finished remanufactured goods
(finished goods).9 Virtually all of the cores included in
Consolidated’s inventories were, and we shall hereinafter refer
to them as, customer cores. See supra note 5.
Consolidated elected in the 1980 Form 970 to use the LIFO
inventory method with respect to new parts, labor, and overhead,
but not customer cores. Thus, under Consolidated's LIFO method,
Consolidated used (1) the LIFO inventory method for (a) new parts
that were included in its inventories for unprocessed new parts,
9 Although it is not altogether clear from the record, it
appears that Consolidated maintained separate unprocessed new
parts raw material inventories, unprocessed cores raw material
inventories, goods in process inventories, and finished goods
inventories in respect of the different types (e.g.,
remanufactured automobile engines) of goods or products that it
produced (viz, remanufactured automobile parts).
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