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or basis used in the valuation of inventories * * *
Sec. 1.446-1(e)(2)(ii)(a), Income Tax Regs. The regulations also
provide certain rules of exclusion; e.g.,
A change in method of accounting does not include
correction of mathematical or posting errors, or errors
in the computation of tax liability (such as errors in
computation of the foreign tax credit, net operating
loss, percentage depletion or investment credit). Also,
a change in method of accounting does not include
adjustment of an item of income or deduction which does
not involve the proper time for the inclusion of the item
of income or the taking of a deduction. For example,
corrections of items that are deducted as interest or
salary, but which are in fact payments of dividends, and
of items that are deducted as business expenses, but
which are in fact personal expenses, are not changes in
method of accounting. * * *
Sec. 1.446-1(e)(2)(ii)(b), Income Tax Regs. The regulations give
no guidance as to the meaning of the term “mathematical error”.
B. Section 481
The distinction between a change in method of accounting and
the correction of a mathematical error is especially significant
because of section 481. “Section 481 prescribes the rules to be
followed in computing taxable income in cases where the taxable
income of the taxpayer is computed under a method of accounting
different from that under which the taxable income was previously
computed.” Sec. 1.481-1(a)(1), Income Tax Regs. For purposes of
section 481, a change in method of accounting includes a change in
the taxpayer’s overall method of accounting or a change in the
taxpayer’s treatment of a material item. See id. Section 481(a)
specifies that, in computing the taxpayer’s income for the taxable
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