- 25 -
paid or given or charged or engaged to be paid or given for
anything bought or taken in barter or for service rendered". We
conclude that the common and ordinary meaning of the word "cost"
is actual cost or the price paid for something.8
We see no reason, however, to rely in this case on dictio-
nary definitions of the word "cost" to determine the meaning of
the term "cost" in section 472(b)(2) and section 1.472-2(b),
Income Tax Regs. That is because the term "cost" is defined in
regulations under section 471, the "General Rule for Invento-
ries". Application of the definition of cost in those regula-
tions (section 1.471-3, Income Tax Regs., entitled "Inventories
at cost"), which is based on what we have concluded is the common
and ordinary meaning of the word "cost", will result in a deter-
mination of the actual cost of merchandise or goods purchased or
produced during the taxable year,9 or in certain instances an
approximation of such cost determined upon a reasonable basis
(reasonable approximation).10
8 The accounting profession generally defines the word
"cost" as used in inventory accounting "as the price paid or
consideration given to acquire an asset". Accounting Research
Bulletin No. 43, "Restatement and Revision of Accounting Research
Bulletins", ch. 4, statement 3 (June 1953).
9 As pertinent here, sec. 1.471-3(b), Income Tax Regs.,
defines the term "cost" in the case of merchandise purchased
since the beginning of the taxable year as "the invoice price".
10 Sec. 1.471-3(d), Income Tax Regs., provides in pertinent
part that in certain instances "costs may be approximated upon
such basis as may be reasonable and in conformity with
established trade practice in the particular industry."
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011