26 U.S.C. § 471
General rule for inventories
# (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 permitted
A 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 general In 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.
Source: view the official text
Cited by 41
- 26 CFR § 1.1013-1 — Property included in inventory.
- 26 CFR § 1.1236-1 — Dealers in securities.
- 26 CFR § 1.1363-2 — Recapture of LIFO benefits.
- 26 CFR § 1.165-2 — Obsolescence of nondepreciable property.
- 26 CFR § 1.165-4 — Decline in value of stock.
- 26 CFR § 1.165-5 — Worthless securities.
- 26 CFR § 1.165-6 — Farming losses.
- 26 CFR § 1.165-7 — Casualty losses.
- 26 CFR § 1.165-8 — Theft losses.
- 26 CFR § 1.166-7 — Worthless bonds issued by an individual.
- 26 CFR § 1.199A-10 — Allocation of cost of goods sold (COGS) and other deductions to domestic production gross receipts (DPGR), and other rules.
- 26 CFR § 1.263A-0 — Outline of regulations under section 263A.
Show 29 more
- 26 CFR § 1.263A-1 — Uniform capitalization of costs.
- 26 CFR § 1.263A-2 — Rules relating to property produced by the taxpayer.
- 26 CFR § 1.263A-3 — Rules relating to property acquired for resale.
- 26 CFR § 1.263A-4 — Rules for property produced in a farming business.
- 26 CFR § 1.263A-7 — Changing a method of accounting under section 263A.
- 26 CFR § 1.312-4 — Examples of adjustments provided in section 312(c).
- 26 CFR § 1.446-1 — General rule for methods of accounting.
- 26 CFR § 1.451-3 — Timing of income inclusion for taxpayers with an applicable financial statement using an accrual method of accounting.
- 26 CFR § 1.451-8 — Advance payments for goods, services, and certain other items.
- 26 CFR § 1.471-1 — Need for inventories.
- 26 CFR § 1.471-2 — Valuation of inventories.
- 26 CFR § 1.472-1 — Last-in, first-out inventories.
- 26 CFR § 1.472-6 — Change from LIFO inventory method.
- 26 CFR § 1.475(c)-1 — Definitions—dealer in securities.
- 26 CFR § 1.522-2 — Manner of taxation of cooperative associations subject to section 522.
- 26 CFR § 1.56(g)-1 — Adjusted current earnings.
- 26 CFR § 1.61-4 — Gross income of farmers.
- 26 CFR § 1.611-2 — Rules applicable to mines, oil and gas wells, and other natural deposits.
- 26 CFR § 1.631-1 — Election to consider cutting as sale or exchange.
- 26 CFR § 1.751-1 — Unrealized receivables and inventory items.
- 26 CFR § 1.936-5 — Intangible property income when an election out is made: Product, business presence, and contract manufacturing.
- 26 CFR § 1.964-1 — Determination of the earnings and profits of a foreign corporation.
- 26 CFR § 1.994-1 — Inter-company pricing rules for DISC's.
- 26 CFR § 301.6402-6 — Offset of past-due, legally enforceable debt against overpayment.
- 26 CFR § 4.954-2 — Foreign personal holding company income; taxable years beginning after December 31, 1986.
- 26 U.S.C. § 1363 — Effect of election on corporation
- 26 U.S.C. § 170 — Charitable, etc., contributions and gifts
- 26 U.S.C. § 312 — Effect on earnings and profits
- 26 U.S.C. § 472 — Last-in, first-out inventories
Nearby sections (25 sections)
- 461 · General rule for taxable year of deduction
- 462 · Repealed. June 15, 1955, ch. 143, § 1(b), 69 Stat. 134
- 463 · Repealed. Pub. L. 100–203, title X, § 10201(a), Dec. 22, 1987,…
- 464 · Limitations on deductions for certain farming expenses
- 465 · Deductions limited to amount at risk
- 466 · Repealed. Pub. L. 99–514, title VIII, § 823(a), Oct. 22, 1986,…
- 467 · Certain payments for the use of property or services
- 468 · Special rules for mining and solid waste reclamation and closing…
- 468A · Special rules for nuclear decommissioning costs
- 468B · Special rules for designated settlement funds
- 469 · Passive activity losses and credits limited
- 470 · Limitation on deductions allocable to property used by…
- 471 · General rule for inventories
- 472 · Last-in, first-out inventories
- 473 · Qualified liquidations of LIFO inventories
- 474 · Simplified dollar-value LIFO method for certain small businesses
- 475 · Mark to market accounting method for dealers in securities
- 481 · Adjustments required by changes in method of accounting
- 482 · Allocation of income and deductions among taxpayers
- 483 · Interest on certain deferred payments
- 501 · Exemption from tax on corporations, certain trusts, etc.
- 502 · Feeder organizations
- 503 · Requirements for exemption
- 504 · Status after organization ceases to qualify for exemption under…
- 505 · Additional requirements for organizations described in paragraph…