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We hold that Mountain State Ford's method of using replace-
ment cost in determining the current-year cost of its parts pool
under the dollar-value LIFO method contravenes the requirements
of section 472(b)(2), section 1.472-2(b), Income Tax Regs., and
section 1.472-8(e)(2)(ii), Income Tax Regs. We further hold
17(...continued)
In advancing the foregoing argument, petitioner fails to mention
that, in determining the cost of inventoried goods, a taxpayer
subject to the inventory accounting method is and/or was ex-
pressly made subject by sec. 1.471-3, Income Tax Regs., to
(1) sec. 1.263A-1, Income Tax Regs., on or after Jan. 1, 1994;
(2) sec. 1.263A-1T, Temporary Income Tax Regs., 52 Fed. Reg.
10060 (Mar. 30, 1987), for taxable years beginning on or after
Dec. 31, 1986, until Dec. 31, 1993; and (3) sec. 1.471-11, Income
Tax Regs., for taxable years beginning on or before Dec. 31,
1986. All of those regulations allow or allowed the use of the
standard cost method. Under that method, a taxpayer may allocate
an appropriate amount of direct and indirect costs to property
that such taxpayer produces through the use of preestablished
standard allowances, without reference to costs actually incurred
during the taxable year. See sec. 1.263A-1(f)(3)(ii)(A), Income
Tax Regs. We have held that the term "cost" in sec. 472(b)(2)
has the same meaning accorded to the term "cost" in sec. 1.471-3,
Income Tax Regs. Sec. 472(b)(2) thus permits the use of the
standard cost method in inventorying goods at cost under the LIFO
method.
In advancing his argument about the standard cost method,
petitioner also fails to mention that the regulations in effect
at different times describing the standard cost method (viz.,
sec. 1.263A-1(f)(3)(ii), Income Tax Regs., sec. 1.263A-
1T(b)(3)(iii)(D), Temporary Income Tax Regs., 52 Fed. Reg. 10065
(Mar. 30, 1987), and sec. 1.471-11(d)(3), Income Tax Regs.)
require and/or required a taxpayer to "reallocate to the goods in
ending inventory a pro rata portion" of the variance between the
predetermined estimate and actual cost unless such variance is
not "significant" in amount. If that variance is not "signifi-
cant" in amount, it does not have to be allocated to the tax-
payer's goods in ending inventory unless such an allocation is
made in the taxpayer's financial reports. See sec. 1.263A-
1(f)(3)(ii)(B), Income Tax Regs.; sec. 1.263A-1T(b)(3)(iii)(D)
(2), Temporary Income Tax Regs., supra; sec. 1.471-11(d)(3)(ii),
Income Tax Regs.
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