26 USC 471 - General rule for inventories

U.S Code last checked for updates: May 04, 2024

§ 471.

General rule for inventories

(a)

General rule

(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

(3)

Application of gross receipts test to individuals, etc.

(4)

Coordination with section 481

(d)

Cross reference

(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.)

cite as: 26 USC 471