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worthlessness of a loan for the year prior to the year in which
the repossession occurred.
No facts extant at the end of May 1990, 1991, and 1992, have
been established by petitioners that would support the disputed
claimed bad debt deductions for those years.
Inventory Write-Downs
Section 471 provides that a taxpayer should use a method of
accounting for inventory as prescribed by the Secretary that
clearly reflects the taxpayer’s income.
Inventory should be recorded in a legible manner, properly
computed, summarized, and kept as part of the accounting records
of the taxpayer. Sec. 1.471-2(e), Income Tax Regs.
When respondent determines that a taxpayer’s method of
accounting for inventory under section 471 is improper, the
taxpayer has a heavy burden of proving that respondent’s
determination is plainly arbitrary and constitutes an abuse of
discretion. Thor Power Tool Co. v. Commissioner, 439 U.S. 522,
532-533 (1979).
The Secretary’s regulations provide that the lower of cost
or market is an acceptable method of accounting for inventory.
Sec. 1.471-2(c), Income Tax Regs.
Under the lower of cost or market method, as of the end of
an inventory period (e.g., as of yearend) the cost of each item
of inventory is compared to its market value, and the lower of
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