26 U.S.C. § 471

General rule for inventories

Read at: OLRCuscode.house.gov CornellLII GovInfogovinfo.gov JustiaTitle 26 CasesGoogle Scholar

(a) General rule

Whenever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.

(b) Estimates of inventory shrinkage permittedA method of determining inventories shall not be treated as failing to clearly reflect income solely because it utilizes estimates of inventory shrinkage that are confirmed by a physical count only after the last day of the taxable year if—(1) the taxpayer normally does a physical count of inventories at each location on a regular and consistent basis, and(2) the taxpayer makes proper adjustments to such inventories and to its estimating methods to the extent such estimates are greater than or less than the actual shrinkage.(c) Exemption for certain small businesses(1) In generalIn the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year—(A) subsection (a) shall not apply with respect to such taxpayer for such taxable year, and(B) the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either—(i) treats inventory as non-incidental materials and supplies, or(ii) conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable financial statement with respect to such taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures.(2) Applicable financial statement

For purposes of this subsection, the term “applicable financial statement” has the meaning given the term in section 451(b)(3).

(3) Application of gross receipts test to individuals, etc.

In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership.

(4) Coordination with section 481

Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.

(d) Cross reference

For rules relating to capitalization of direct and indirect costs of property, see section 263A.

(Aug. 16, 1954, ch. 736, 68A Stat. 159; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99–514, title VIII, § 803(b)(4), Oct. 22, 1986, 100 Stat. 2356; Pub. L. 105–34, title IX, § 961(a), Aug. 5, 1997, 111 Stat. 891; Pub. L. 115–97, title I, § 13102(c), Dec. 22, 2017, 131 Stat. 2103.)Editorial NotesAmendments

2017—Subsecs. (c), (d). Pub. L. 115–97 added subsec. (c) and redesignated former subsec. (c) as (d).

1997—Subsecs. (b), (c). Pub. L. 105–34 added subsec. (b) and redesignated former subsec. (b) as (c).

1986—Pub. L. 99–514 designated existing provisions as subsec. (a) and added subsec. (b).

1976—Pub. L. 94–455 struck out “or his delegate” after “Secretary” wherever appearing.

Statutory Notes and Related SubsidiariesEffective Date of 2017 Amendment

Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13102(e) of Pub. L. 115–97, set out as a note under section 263A of this title.

Effective Date of 1997 Amendment

Pub. L. 105–34, title IX, § 961(b)(1), Aug. 5, 1997, 111 Stat. 891, provided that: “The amendment made by this section [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [Aug. 5, 1997].”

Effective Date of 1986 Amendment

If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the amendment by Pub. L. 99–514 is applicable to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of Pub. L. 99–514) or, if applicable, section 266 of such Code, see section 7831(d)(2) of Pub. L. 101–239, set out as an Effective Date note under section 263A of this title.

Amendment by Pub. L. 99–514 applicable to costs incurred after Dec. 31, 1986, in taxable years ending after such date, except as otherwise provided, see section 803(d) of Pub. L. 99–514, set out as an Effective Date note under section 263A of this title.

Coordination With Section 481

Pub. L. 105–34, title IX, § 961(b)(2), Aug. 5, 1997, 111 Stat. 891, provided that: “In the case of any taxpayer permitted by this section [amending this section and enacting provisions set out as a note above] to change its method of accounting to a permissible method for any taxable year—“(A) such changes shall be treated as initiated by the taxpayer,“(B) such changes shall be treated as made with the consent of the Secretary of the Treasury, and“(C) the period for taking into account the adjustments under section 481 [26 U.S.C. 481] by reason of such change shall be 4 years.”

Study of Accounting Methods for Inventory; Report Not Later Than December 31, 1982

Pub. L. 97–34, title II, § 238, Aug. 13, 1981, 95 Stat. 254, directed Secretary of the Treasury to conduct a study of methods of tax accounting for inventory with a view towards development of simplified methods and to report to Congress, not later than Dec. 31, 1982, prior to repeal by Pub. L. 100–647, title VI, § 6252(a)(2), Nov. 10, 1988, 102 Stat. 3752.

Notes of Decisions

Cited in 24 cases, 1938–2020 · leading case: Knight-Ridder Newspapers, Inc. v. United States

Sort: Relevance Newest Treatment

Knight-Ridder Newspapers, Inc. v. United States (1984) ca11 · cites it 2× “26 U.S.C. § 471 . The Regulations implementing Section 471 provide: In order to reflect taxable income correctly, inventories at the beginning and end of each taxable year are necessary in every case in which the production, purchase, or sale of merchandise is an…”

St. James Sugar Cooperative, Inc., Cross v. United States of America, Cross (1981) ca5 · cites it 4× “The court concluded that under the facts of this case and the provisions of 26 U.S.C. § 471 , market not to exceed net realizable value is a permissible and accurate method of valuing ending inventory for an agricultural cooperative.”

United States v. Ingredient Technology Corporation, Formerly Known as Sucrest Corporation, and Robert M. Rapaport (1983) ca2 “26 U.S.C. § 471 provides: Whenever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as conforming as nearly as…”

Patricio Hernandez-Cordero and Maria Guadalupe Ortega De Hernandez v. United States Immigration & Naturalization Service (1987) ca5 “26 U.S.C. § 471 (1987). . 202 F.2d 112 (2d Cir.”

Thor Power Tool Company v. Commissioner of Internal Revenue (1977) ca7 “§ 471 , provides: “Whenever in the opinion of the Secretary or his delegate the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer on such basis as the Secretary or his delegate may prescribe as…”

Space Controls, Inc. v. Commissioner of Internal Revenue (1963) ca5 · cites it 2× “” 26 U.S.C.A. § 471 ; Regulation § 1.471-2.”

Fred H. McGrath & Son, Inc. v. United States (1982) nysd “26 U.S.C. § 471 . These provisions are further amplified in two Treasury Regulations.”

Homes by Ayres v. Commissioner of Internal Revenue (1986) ca9 “LIFO results in lower net income in high inflation years, such as the late 1970’s, because the recently inventoried, higher priced goods are offset against current sales.”

Transupport, Incorporated v. Commissioner of IRS (2018) ca1 “" Further, 26 U.S.C. § 471 (a) provides that "[w]henever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as…”

William L. Bonnell Co. v. Coweta County Board of Tax Assessors (2001) gactapp “See OCGA § 48-7-27 (a); 26 USCS §§ 471; 472. The purpose for the IRS allowing taxpayers like Bonnell to use LIFO was to afford relief against inventory profits generated in a rising market where cheaper inventory must be replaced with more expensive inventory, but the…”

PETERSON PRODUCE COMPANY v. United States (1962) arwd “The controlling statute, 26 U.S.C. § 471 , which pertains to the general rule for inventories, states: “Whenever in the opinion of the Secretary or his delegate the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be…”

La Crosse Footwear, Inc. And International Footwear Corporation v. United States (1999) cafc · cites it 2× “26 U.S.C. § 471 (a) (emphasis added). At the same time, 26 U.”

Show all 24 citing cases →

Annotations are extracted automatically from the opinions in the Syfert caselaw corpus and ranked by authority, recency, and treatment. Dots show Syfertize treatment of the citing case itself.