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Regs., gives guidance as to what constitutes a change in a method
of accounting, and section 1.446-1(e)(2)(ii)(a), Income Tax Regs.,
provides that a change involving the method or basis used in the
valuation of inventories is a change in method of accounting. That
final provision is suggestive that respondent’s adjustments,
correcting the accountant’s consistent failure to value properly
the members’ closing inventories, constitute changes in the
members’ methods of accounting. That suggestion is reinforced by
other provisions in section 1.446-1(e)(2)(ii), Income Tax Regs.,
which give consistency and timing considerations an important, if
not determinative, role to play in determining whether an
adjustment constitutes a change in method of accounting.
As we described supra in giving the background of this case,
the accountant erred in applying the link-chain method, he did so
consistently for each member, beginning in the year the member
elected the link-chain method and ending only when respondent found
the error, the error resulted in income being under-reported for
some (most) years and over-reported for other years, and, if not
corrected, the error would not result in the permanent omission of
income by the taxpayers. The accountant’s error was an error in
allocating the cost of goods available for sale during a year
between the items sold during the year and the items on hand at the
end of the year. Generally, under a system of inventory
accounting, the value assigned to the items on hand at the end of
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