Mountain State Ford Truck Sales, Inc., E.P. O'Meara, Tax Matters Person - Page 14




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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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