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invoice prices of those goods. Accordingly, section 1.471-3(b),
Income Tax Regs., has no application to this case.
2. Whether Westpac's Method of Accounting Clearly Reflects
Income
Petitioner further contends that its proposed method of
accounting for the advance trade discounts is called for by
section 1.471-2(a), Income Tax Regs. That regulation provides as
follows:
� 1.471-2. Valuation of inventories.--(a) Section
471 provides two tests to which each inventory must
conform:
(1) It must conform as nearly as may be to the
best accounting practice in the trade or business, and
(2) It must clearly reflect income.
Section 1.471-2(a), Income Tax Regs., contains two elements
stated in the conjunctive. Petitioner has established that
Westpac's method of accounting for the advance trade discounts is
consistent with Generally Accepted Accounting Principles as well
as with the best accounting practice in the grocery store
industry. Accordingly, petitioner has met the first requirement
of the regulation. Petitioner, however, cannot satisfy the
regulation's second element. Deferring the recognition of
payments actually received does not clearly reflect income,
regardless of whether the payments have been earned. See Schlude
v. Commissioner, 372 U.S. 128 (1963); American Auto. Association
v. United States, 367 U.S. 687 (1961); Automobile Club of Mich.
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