-183-
mark-to-market tax accounting long before the adoption of section
475, and securities and commodities dealers (and, since the birth
of the industry, swaps dealers) have for decades maintained their
books on a mark-to-market basis for commercial and financial
purposes. See, e.g., A.R.M. 135, 5 C.B. 67 (1921), and A.R.M.
100, 3 C.B. 66 (1920), both of which permitted commodity dealers
to adopt a comprehensive mark-to-market accounting system for
their open hedge contracts. See also Rev. Rul. 74-223, 1974-1
C.B. 23 (updates and restates the conclusions of A.R.M. 135,
supra).
2. Acceptable in Practice
The use of mark-to-market accounting for taxpayers in
positions analogous to that of FNBC has been recognized for
Federal tax purposes for many years.
a. Market Valuation of Inventories
Since at least 1919, taxpayers have been permitted to value
their inventories at the lower of cost or market. T.B.R. 48, 1
C.B. 47; see also O.D. 8, 1 C.B. 56 (confirming that securities
dealers, like other taxpayers, may value their inventories at
lower of cost or market). A method of accounting is acceptable
for inventory accounting if it: (1) Conforms as nearly as may be
to the best accounting practice in the trade or business and
(2) most clearly reflects income. Sec. 471(a); sec. 1.471-
2(a)(1) and (2), Income Tax Regs.; see also Thor Power Tool Co.
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