-83-
The basis of property required to be included in
inventory is the last inventory value of such property
in the hands of the taxpayer. The requirements with
respect to the valuation of an inventory are stated in
subpart D (sections 471 and following), part II,
subchapter E, chapter 1 of the Code, and the
regulations thereunder.
We also reject petitioner's position that the aggregate
amount of the alleged excesses of the core credit amounts over
the alleged fair market values of Consolidated's customer cores
is deductible under section 162. In support of that position,
petitioner asserts:
Even if one regards the refund of the core deposit as
"payment" for the core, an artificially or unnecessarily
high payment does not change the "cost" of property under
the Code. Rather, when a taxpayer pays more than the fair
market value for the purchase of an asset and the excess
payment is for a purpose other than the acquisition of the
property or the transaction is based upon peculiar
circumstances which influence the purchaser to pay more than
fair market value, the excess amount is excluded from the
"cost" of the property. Jordan v. Commissioner, 60 T.C.
872, 879 (1973), aff'd 514 F.2d 1209 (8th Cir. 1975);
Majestic Securities Corp. v. Commissioner, 120 F.2d 12, 14-
15 (8th Cir. 1941), affirming 42 B.T.A. 698 (1940); New
Hampshire Fire Insurance Co. v. Commissioner, 2 T.C. 708,
724 (1943), aff'd, 146 F.2d 697 (1st Cir. 1945). Instead,
under such circumstances, cost is determined with reference
to the fair market value of the property received. Lemmen
v. Commissioner, 77 T.C. 1326, 1348 (1981), acq. 1983-1 C.B.
1.
As illustrated above, Respondent cannot reasonably
dispute that the core deposit for any particular
remanufactured automobile part is greatly in excess of the
fair market value of the core. In Burrell, the Tenth
Circuit found that the core deposit was purposely set higher
that [sic] the value of the core "in order to induce the
customers to return the old cores and to enable Burrell to
maintain a needed supply of cores." Burrell, 400 F.2d at
683. The same is true in the present case.
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