These books would previously have been kept in stock but written down to reflect the fact that not all of them were expected to sell. The Thor decision caused publishers and booksellers to be much quicker to destroy stocks of poorly-selling books in order to realize a taxable loss. Such a presumption is insupportable in light of the statute, this Court's past decisions, and the differing objectives of tax and financial accounting." But the Court upheld the IRS regulations, saying, "There is no presumption that an inventory practice conformable to ' generally accepted accounting principles' is valid for tax purposes. b Check this box if there was a writedown of subnormal goods as described in Regulations section 1.471-2(c). In court, the company argued that its deduction for loss should be allowed for tax purposes because it was permitted for accounting purposes. 2 Cost of goods sold (Schedule A, line 8).
It did not permit companies to write down goods simply because they were not selling them.
However, IRS regulations accepted this " lower of cost or market" method for tax purposes only if the taxpayer could demonstrate a reduced market price, or the goods were defective or "subnormal". When it had inventories of parts in excess of production needs, the company's accounting practice was to write down those inventories, taking a loss based on management judgment. It capitalized the costs of these parts when produced. Thor manufactured equipment using multiple parts that it produced.
522 (1979), was a United States Supreme Court case in which the Court upheld IRS regulations limiting how taxpayers could write down inventory. The Commissioner did not abuse his discretion in determining that the write-down of "excess" inventory failed to reflect petitioner's 1964 income clearly, since the write-down was plainly inconsistent with the governing Regulations.Ĭhief Justice Warren E.
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