- 31 -
481 may not necessarily conflict with the statute of limitations
found in section 6501, see id., it does place a premium on
distinguishing between the correction of errors (which is limited
to open years) and a change in a method of accounting (which
implicates section 481). Here, a determination that the
accountant’s error was a mathematical error would work in
petitioners’ favor. That is because, whether the adjustments
accepted by petitioners result from the correction of mathematical
errors or from accounting method changes, the adjustments result in
a decrease in each member’s LIFO reserves as of the beginning of
the member’s first year in issue, without any concomitant
recognition of gain. If the adjustments result from the correction
of mathematical errors, then the unrealized gains eliminated by the
decreases in reserves simply escape taxation. On the other hand,
if those decreases in LIFO reserves result from changes in the
members’ methods of accounting, then respondent’s section 481
adjustments will capture the unrealized gain eliminated by the
decreases in reserves.
To distinguish between error correction and an accounting
method change, we must examine both the pertinent Treasury
regulation and caselaw.
B. Section 1.446-1(e)(2), Income Tax Regs.
Section 1.446-1(a), Income Tax Regs., gives content to the
term “method of accounting”; section 1.446-1(e)(2), Income Tax
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011