-51-
To illustrate, pursuant to the rules for establishing
natural business unit pools, a pool is to consist of all items
entering into the entire inventory investment for a natural
business unit of a business enterprise,17 unless the taxpayer
elects to use the multiple pooling method provided in section
1.472-8(b)(3), Income Tax Regs. If a business enterprise is
comprised of only one natural business unit, one pool is to be
used for "all of its inventories, including raw materials, goods
in process, and finished goods". Sec. 1.472-8(b)(1), Income Tax
Regs. If a business enterprise is composed of more than one
natural business unit, more than one pool is required. Id.
To illustrate further, a taxpayer may elect to establish
multiple pools for inventory items that are not within a natural
business unit as to which the taxpayer has adopted the natural
business unit method of pooling as provided in section 1.472-
8(b)(1), Income Tax Regs. Sec. 1.472-8(b)(3)(i)(a), Income Tax
Regs. In the event of such an election, each such pool is
ordinarily to consist of a group of inventory items that are
substantially similar, which is to be determined based on all the
17 Whether an enterprise consists of more than one natural
business unit is a matter of fact to be determined from all the
circumstances. Sec. 1.472-8(b)(2)(i), Income Tax Regs. In the
case of a manufacturer, like Consolidated, a natural business
unit "ordinarily consists of the entire productive activity of
the enterprise within one product line or within two or more
related product lines including * * * the obtaining of materials,
the processing of materials, and the selling of manufactured
* * * goods." Id.
Page: Previous 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 NextLast modified: May 25, 2011