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could have used invoice prices in valuing its parts inventory.
Nor did it determine whether it could have created a new inven-
tory recordkeeping system that could have used invoice prices in
that inventory valuation process. Instead, Mountain State Ford
continued to use replacement cost in valuing its parts inventory
because it had used that method when Ford owned it and because
that was the method used by the heavy truck dealer industry.
In 1978, respondent conducted an examination of Mountain
State Ford's return for 1976, during which respondent requested
documents with respect to Mountain State Ford's inventories for
that year. As part of that examination, respondent did not
propose any adjustments to Mountain State Ford's method of
valuing its parts inventory.
From its incorporation in 1968 through 1979, Mountain State
Ford accounted for its parts inventory on the basis of the lower
of cost or market (LCM). Mountain State Ford submitted Form 970
(Form 970), Application to Use LIFO Inventory Method, with its
1980 return. In that form, Mountain State Ford adopted the LIFO
method of valuing its parts inventory and its new heavy trucks
inventory, effective as of the close of its taxable year ended
December 31, 1980. It adopted the same method for both financial
statement and Federal tax purposes. As pertinent here with
respect to Mountain State Ford's parts inventory,2 the Form 970
2 Mountain State Ford's election of the LIFO method with
respect to its new heavy trucks inventory is not at issue in this
case.
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