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respondent’s determination that, in making those adjustments for
the first year in issue of each member, he was implementing a
change that he had made in the members’ methods of accounting,
which necessitated his making additional adjustments for those
years pursuant to section 481(a). Petitioners argue that
respondent’s adjustments were merely the result of his correction
of a mathematical error made by the accountant. They point out
that, pursuant to section 1.446-1(e)(2)(ii)(b), Income Tax Regs.,13
the correction of a mathematical error is explicitly excluded from
constituting a change in method of accounting. Because, they
argue, there was no change in any member’s method of accounting, no
section 481 adjustments were warranted. They concede, however,
that if section 481 adjustments were warranted, respondent has
correctly computed those adjustments. Our sole task is to
determine whether the section 481 adjustments were warranted, which
requires us to determine whether, in revaluing the members’
inventories, respondent corrected a mathematical error or changed
the members’ methods of accounting for those inventories.
Before addressing that question, we shall discuss the relevant
provisions of sections 446 and 481.
13 In citing sec. 1.446-1(e)(2)(ii)(a) and (b), Income Tax
Regs., we refer to that section as in effect before its revision
by T.D. 9105, 2001-4 C.B. 419, 423, which replaced much of the
content of that section with the substantially similar content of
sec. 1.446-1T(e)(2)(ii)(a) and (b), Temporary Income Tax Regs.,
69 Fed. Reg. 42 (Jan. 2, 2004).
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