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the two is recorded as the basis of that item of inventory for
tax purposes. Sec. 1.471-4(c), Income Tax Regs. If as of
yearend the market value of inventory is lower than its cost, the
taxpayer “writes down” the basis of the inventory to the lower
market value, thereby reducing gross income. See, e.g., Thor
Power Tool Co. v. Commissioner, supra at 530.
The write-down of inventory from cost to market value based
on mere estimates is not allowable. Sec. 1.471-2(f)(1), Income
Tax Regs.
An official guide for used automobiles may be used to
ascertain the market value of used automobile inventory for
purposes of determining the lower of cost or market value.
Brooks-Massey Dodge, Inc. v. Commissioner, 60 T.C. 884, 895
(1973) (citing Rev. Rul. 67-107, 1967-1 C.B. 115).
Without objective evidence such as books and records to
substantiate that item-by-item comparisons of cost to market
value were conducted by ABC in the calculation of its yearend
inventory write-downs, we will not disturb respondent’s
determination to disallow ABC’s claimed inventory write-downs.
See Thor Power Tool Co. v. Commissioner, supra at 536; Import
Specialties, Inc. v. Commissioner, T.C. Memo. 1982-41. The
testimony of ABC’s president that at yearend he made estimates of
the value of the automobiles does not provide a basis on which
the claimed inventory write-downs can be allowed in this case.
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