-63-
We conclude that petitioner has not shown that respondent
abused respondent's discretion in terminating Consolidated's
election to use Consolidated's LIFO method.
Amounts at Which Customer Cores Should Be Reflected in Inventory
As permitted by section 1.471-2(c), Income Tax Regs.,
Consolidated chose to apply the LCM basis of valuation in
accounting for its customer cores under the FIFO inventory
method. In applying LCM in its returns for the years at issue,
Consolidated reflected the customer cores (1) in its finished
goods inventory at core supplier amounts and (2) in its unpro-
cessed cores raw material inventory and its goods in process
inventory at scrap value. Respondent determined that Conso-
lidated's FIFO-LCM method did not reflect the customer cores in
its inventories at the proper amounts. We must decide whether
respondent abused respondent's discretion in making that
determination. That inquiry requires us, inter alia, to
determine the cost and the market for Consolidated's customer
cores for purposes of section 471.
As we understand it, it is petitioner's position that
Consolidated's FIFO-LCM method conforms to GAAP and clearly
reflects income. Respondent disagrees. For financial reporting
purposes, Consolidated reflected its customer cores in all of its
inventories at core supplier amounts. However, for tax purposes,
Consolidated reflected customer cores in its finished goods
inventory at core supplier amounts; it reflected customer cores
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