[Federal Register Volume 75, Number 242 (Friday, December 17, 2010)]
[Proposed Rules]
[Pages 78940-78944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31597]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-149335-08; RIN 1545-BI57]
Sales-Based Royalties and Vendor Allowances
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to the
capitalization and allocation of royalties that are incurred only upon
the sale of property produced or property acquired for resale (sales-
based royalties). This document also contains proposed regulations on
adjusting the cost of merchandise inventory for an allowance, discount,
or price rebate based on merchandise sales (sales-based vendor
allowances). The regulations modify the simplified production method
and the simplified resale method of allocating capitalized costs
between ending inventory and cost of goods sold. The regulations affect
taxpayers that incur capitalizable sales-based royalties and earn
sales-based vendor allowances.
DATES: Written or electronic comments and a request for a public
hearing must be received by March 17, 2011.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-149335-08), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
149335-08), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit
comments electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-149335-08).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
John Roman Faron, (202) 622-4930 (not a toll-free number); concerning
submission of comments or a request for a public hearing, Richard Hurst
at [email protected].
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to 26 CFR part 1
relating to the allocation under section 263A of the Internal Revenue
Code (Code) of certain sales-based royalties. Sales-based royalties are
royalty costs that become due only upon the sale of property. Thus, the
fact of the liability arises, and the royalty is incurred within the
meaning of section 461, only upon sale.
This document also contains proposed amendments to 26 CFR part 1
relating to the determination of cost of goods in inventory under
section 471 when a taxpayer receives a sales-based vendor allowance.
Sales-based vendor allowances are allowances, discounts, or price
rebates that a reseller receives, earns, or otherwise becomes entitled
to based on the resale of a vendor's merchandise to a third party.
Capitalization and Allocation of Sales-Based Royalties Under Section
263A
Section 263A requires taxpayers to capitalize the direct costs and
indirect costs that are properly allocable to (1) real or tangible
personal property the taxpayer produces, and (2) real property or
personal property described in section 1221(a)(1) that the taxpayer
acquires for resale. Taxpayers must allocate costs required to be
capitalized under section 263A to property produced or acquired for
resale during the taxable year using a cost allocation method described
in the regulations. A taxpayer generally determines whether the cost of
goods is included in cost of goods sold or in ending inventory using a
cost flow assumption (for example, first-in, first-out or last-in,
first-out). However, as explained later in this preamble, a taxpayer
may use a simplified method to allocate costs required to be
capitalized under section 263A between cost of goods sold and ending
inventory.
Section 1.263A-1(e)(3)(i) defines indirect costs as all costs other
than direct material costs and direct labor costs (in the case of
property produced) or acquisition costs (in the case of property
acquired for resale). Indirect costs are properly allocable to property
produced or acquired for resale when the costs directly benefit or are
incurred by reason of the performance of production or resale
activities.
Section 1.263A-1(e)(3)(ii) provides a non-exclusive list of
indirect costs that must be capitalized to the extent they are properly
allocable to property produced or property acquired for resale. These
costs include licensing and franchise costs incurred in securing the
contractual right to use a trademark, corporate plan, manufacturing
procedure, special recipe, or other similar right associated with
property produced or property acquired for resale. Section 1.263A-
1(e)(3)(ii)(U). Thus, royalty costs, including sales-based royalty
costs, incurred in securing the contractual right to use a trademark,
corporate plan, manufacturing procedure, special recipe, or other
similar right associated with property produced or property acquired
for resale, are indirect costs that are properly allocable to the
property produced or acquired for resale to the extent the costs
directly benefit or are incurred by reason of production or resale
activities. See, for example, Plastic Engineering & Technical Services,
Inc. v. Commissioner, TC Memo. 2001-324; but see Robinson Knife
Manufacturing Company, Inc. v. Commissioner, No. 09-1496-ag, 2010 WL
986532 (2d Cir. March 19, 2010).
Section 1.263A-1(f) provides various ``facts-and-circumstances''
cost allocation methods that taxpayers may use to allocate direct and
indirect costs
[[Page 78941]]
to units of property produced or acquired for resale. The facts-and-
circumstances methods allocate costs based on a relationship between
the costs incurred and the units of property produced or acquired for
resale.
In lieu of a facts-and-circumstances allocation method, taxpayers
may use the simplified methods provided in Sec. 1.263A-2(b) (the
simplified production method) or Sec. 1.263A-3(d) (the simplified
resale method) to allocate costs to eligible property produced or
eligible property acquired for resale. The simplified methods differ
from facts-and-circumstances methods in that they allocate a pool of
capitalizable costs (additional section 263A costs) between ending
inventory and cost of goods sold using a defined ratio rather than
allocating specific costs to particular goods. Additional section 263A
costs are defined in Sec. 1.263A-1(d)(3) as the costs, other than
interest, that were not capitalized under the taxpayer's method of
accounting immediately prior to the effective date of section 263A, but
that are required to be capitalized under section 263A. Under the
simplified methods, taxpayers allocate additional section 263A costs
between ending inventory and cost of goods sold using a formula that
includes all additional section 263A costs incurred during the taxable
year (including capitalizable sales-based royalties, if any).
Section 471 Inventory Rules Related to Sales-Based Vendor Allowances
Section 471 provides that inventories must be taken on the basis
the Secretary prescribes as conforming to the best accounting practice
in the trade or business and as most clearly reflecting income.
Section 1.471-2(c) permits merchants and manufacturers to value
inventories at either (1) cost, or (2) cost or market, whichever is
lower. Under Sec. 1.471-3(b), the cost of merchandise purchased by
taxpayers in general is the invoice price less trade or other
discounts.
Section 1.471-8 allows a retail merchant to use the retail
inventory method to arrive at an approximate cost of goods in ending
inventory. This cost is determined by multiplying the aggregate selling
prices of the goods in ending inventory by the ratio of (1) the cost of
the goods in beginning inventory plus the cost of goods purchased
during the year, to (2) the retail selling prices of the goods in
beginning inventory plus the retail selling prices of inventory
purchased during the year, with proper adjustments to the selling
prices for mark-ups and mark-downs. However, retail selling prices are
not adjusted for temporary mark-downs. Rev. Rul. 79-115 (1979-1 CB
185), see Sec. 601.601(d)(2).
Explanation of Provisions
1. Capitalization and Allocation of Sales-Based Royalties Under Section
263A
The proposed regulations clarify that sales-based royalties, like
other royalties, may be capitalizable to property a taxpayer produces
or acquires for resale, but also provide that sales-based royalties
required to be capitalized are allocable only to property that a
taxpayer has sold.
In Robinson Knife, the Court of Appeals for the Second Circuit held
that royalties for the right to use certain trademarks in manufacturing
kitchen tools were not allocable to the property produced because the
taxpayer's royalty payments were calculated as a percentage of net
sales and were incurred only on the sale of the product. The court
stated that the royalty costs were not incurred by reason of and did
not directly benefit the performance of production activities, and
therefore were not capitalizable under the section 263A regulations.
The court reasoned that, although the licensing agreements may have
directly benefited or been incurred by reason of production activities,
the regulations did not require the capitalization of the royalty costs
because the costs themselves did not directly benefit and were not
incurred by reason of the performance of production activities.
The proposed regulations are consistent with the court's conclusion
that, because of their relationship to sales, sales-based royalties
inherently should not be capitalized to ending inventory. Because
sales-based royalties are not incurred (within the meaning of section
461) until a unit of property is sold, sales-based royalties are more
directly related to units of property sold during the taxable year than
to unsold units. Therefore, the proposed regulations provide that
capitalizable sales-based royalties are properly allocable to units of
property produced or acquired for resale that are sold, or deemed sold,
during the taxable year.
However, Robinson Knife misconstrued the nature of costs required
to be capitalized. Royalties are the costs associated with the right to
use intellectual property such as copyrighted works or patented
inventions. If the use of those rights directly benefits or is incurred
by reason of production activities, then the cost of securing those
rights do as well. The fact that the amount of sales-based royalties is
determined by reference to the number of units of property a taxpayer
sells or is calculated as a percentage of revenue from the sale of
inventory affects when a taxpayer incurs (within the meaning of section
461) that amount, but does not change an otherwise capitalizable
production or resale cost into a non-capitalizable cost. Therefore, the
proposed regulations also clarify that an indirect cost may directly
benefit or be incurred by reason of the performance of production or
resale activities even if the costs are incurred only upon the sale of
inventory. Sales-based royalties, like other costs that directly
benefit or are incurred by reason of production or resale activities,
are capitalizable licensing and franchise costs within the meaning of
Sec. 1.263A-1(e)(3)(ii)(U).
The proposed regulations achieve a similar result to that in
Robinson Knife, but rather than determining that sales-based royalty
costs are inherently non-capitalizable, the proposed regulations
provide that otherwise capitalizable sales-based royalty costs are
properly allocable to property sold during the taxable year.
2. Sales-Based Vendor Allowances
Under Sec. 1.471-3(b), the cost of merchandise a taxpayer
purchases generally is the invoice price less trade or other discounts.
A sales-based vendor allowance is an allowance, discount, or price
rebate a taxpayer earns as a result of selling a vendor's merchandise,
typically at a temporarily reduced price. The taxpayer's right to
receive the sales-based vendor allowance depends on actual sales of the
vendor's products. The amount received directly relates to the specific
merchandise the taxpayer sells and properly is treated as a reduction
in the cost of that merchandise. Therefore, the proposed regulations
clarify that a sales-based vendor allowance is an adjustment to the
cost of the merchandise sold or deemed sold under the taxpayer's cost
flow assumption.
3. Adjusting the Cost of Goods Sold and Goods in Ending Inventory
Sales-based royalties and sales-based vendor allowances are
properly allocable to property sold during the taxable year. Therefore,
it is inappropriate to treat sales-based royalties and sales-based
vendor allowances as adjustments to the cost of goods in ending
inventory. The proposed regulations provide that sales-based royalties
and sales-based vendor allowances are allocable to the units of
property sold or deemed sold under the taxpayer's cost flow assumption
and are
[[Page 78942]]
not included in determining the inventory cost or value of goods on
hand at the end of the taxable year under any inventory method.
Because the proposed regulations expressly allocate sales-based
royalties and sales-based vendor allowances to property that has been
sold or deemed sold, the proposed regulations revise the simplified
production and simplified resale methods to remove costs such as
capitalizable sales-based royalties and cost reductions such as sales-
based vendor allowances, which are properly allocable to property that
has been sold, from the formulas used to allocate additional section
263A costs to ending inventory. Taxpayers must continue to include
capitalizable sales-based royalty costs in both the numerator and
denominator of the production cost allocation ratio under Sec. 1.263A-
1(h)(5) for purposes of determining capitalized mixed service costs
under the simplified service cost method.
The proposed regulations do not modify the retail inventory method
under Sec. 1.471-8 specifically. Section 1.471-3 and section 263A
determine the cost of purchases for purposes of the retail inventory
method, and the proposed regulations under Sec. Sec. 1.263A-1 and
1.471-3 preclude a taxpayer from including sales-based royalties and
sales-based vendor allowances in the cost of goods in the fraction used
to determine the value of ending inventory under Sec. 1.471-8.
Similarly, if the selling price markdown in a sales-based vendor
allowance arrangement is temporary, the retail selling price component
of the fraction is not adjusted.
Effective/Applicability Date
These regulations are proposed to apply for taxable years ending on
or after the date the regulations are published as final regulations in
the Federal Register.
Special Analyses
This notice of proposed rulemaking is not a significant regulatory
action as defined in Executive Order 12866. Therefore, a regulatory
assessment is not required. It also has been determined that section
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. Because the regulations do not impose a
collection of information on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of
the Code, this notice of proposed rulemaking has been submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments that are submitted
timely to the IRS. Comments may be submitted electronically or via a
signed original with eight (8) copies. The IRS and the Treasury
Department request comments on the clarity of the proposed rules and
how they can be made easier to understand. All comments will be
available for public inspection and copying.
A public hearing will be scheduled if requested in writing by any
person that timely submits comments. If a public hearing is scheduled,
notice of the date, time, and place for the hearing will be published
in the Federal Register.
Drafting Information
The principal author of these regulations is John Roman Faron of
the Office of the Associate Chief Counsel (Income Tax and Accounting).
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.263A-1 also issued under 26 U.S.C. 263A.
Section 1.263A-2 also issued under 26 U.S.C. 263A.
Section 1.263A-3 also issued under 26 U.S.C. 263A. * * *
Section 1.471-3 also issued under 26 U.S.C. 471. * * *
Par. 2. Section 1.263A-0 is amended by adding new entries for
Sec. Sec. 1.263A-1(c)(5), 1.263A-1(k), 1.263A-1(l), 1.263A-
2(b)(3)(ii)(C), 1.263A-2(e), 1.263A-2(f), 1.263A-3(d)(3)(i)(C)(3), and
1.263A-3(f) and revising the entry for Sec. Sec. 1.263A-1(e)(3)(ii) in
the table of contents to read as follows:
Sec. 1.263A-0 Outline of regulations under section 263A.
* * * * *
Sec. 1.263A-1 Uniform Capitalization of Costs.
* * * * *
(c) * * *
(5) Costs allocable only to sold property.
* * * * *
(e) * * *
(3) * * *
(ii) Types of indirect costs required to be capitalized.
* * * * *
(k) Change in method of accounting.
(1) In general.
(2) Scope limitations.
(3) Audit protection.
(4) Section 481(a) adjustment.
(5) Time for requesting change.
(l) Effective/applicability date.
Sec. 1.263A-2 Rules Relating to Property Produced by the Taxpayer.
* * * * *
(b) * * *
(3) * * *
(ii) * * *
(C) Costs allocable only to sold property.
* * * * *
(e) Change in method of accounting.
(1) In general.
(2) Scope limitations.
(3) Audit protection.
(4) Section 481(a) adjustment.
(5) Time for requesting change.
(f) Effective/applicability date.
Sec. 1.263A-3 Rules Relating to Property Acquired for Resale.
* * * * *
(d) * * *
(3) * * *
(i) * * *
(C) * * *
(3) Costs allocable only to sold property.
* * * * *
(f) Effective/applicability date.
* * * * *
Par. 3. Section 1.263A-1 is amended by:
1. Adding a new paragraph (c)(5).
2. Revising paragraph (e)(3)(i).
3. Revising the introductory text of paragraph (e)(3)(ii).
3. Redesignating paragraph (e)(3)(ii)(U) as paragraph
(e)(3)(ii)(U)(1) and adding a sentence to the end of newly-designated
paragraph (e)(3)(ii)(U)(1).
4. Adding a new paragraph (e)(3)(ii)(U)(2).
5. Revising paragraph (l).
The additions and revisions read as follows:
Sec. 1.263A-1 Uniform capitalization of costs.
* * * * *
(c) * * *
(5) Costs allocable only to sold property. Any cost that is
required
[[Page 78943]]
under this section, Sec. 1.263A-2, or Sec. 1.263A-3, to be allocated
only to property sold, or deemed to be sold under the inventory cost
flow assumption (such as first-in, first-out, last-in, first-out, or a
specific-goods method) the taxpayer uses to identify the costs in
ending inventory, must be included in cost of goods sold and is not
included in determining the inventory cost or value of goods on hand at
the end of the taxable year.
* * * * *
(e) * * *
(3) * * *
(i) In general. (A) Indirect costs are defined as all costs other
than direct material costs and direct labor costs (in the case of
property produced) or acquisition costs (in the case of property
acquired for resale). Taxpayers subject to section 263A must capitalize
all indirect costs properly allocable to property produced or property
acquired for resale. Indirect costs are properly allocable to property
produced or property acquired for resale when the costs directly
benefit or are incurred by reason of the performance of production or
resale activities. Indirect costs may directly benefit or be incurred
by reason of the performance of production or resale activities even if
the costs are calculated as a percentage of sales revenue from
inventory or are incurred only upon the sale of inventory. Indirect
costs may be allocable to both production and resale activities, as
well as to other activities that are not subject to section 263A.
Taxpayers must make a reasonable allocation of indirect costs between
production, resale, and other activities.
(B) Example. The following example illustrates the provisions of
this paragraph (e)(3)(i):
Example. (i) Taxpayer A manufactures tablecloths and other
linens. A enters into a licensing agreement with Company L under
which A may label its tablecloths with L's trademark if the
tablecloths meet certain specified quality standards. In exchange
for its right to use L's trademark, the licensing agreement requires
A to pay L a royalty of $X for each tablecloth carrying L's
trademark that A sells. The licensing agreement does not require A
to pay L any minimum or lump-sum royalties.
(ii) The licensing agreement provides A with the right to use
L's intellectual property, a trademark. The licensing agreement also
requires A to conduct its production activities according to certain
standards as a condition of exercising that right. Thus, A's right
to use L's trademark under the licensing agreement is directly
related to A's production of tablecloths. The royalties the
licensing agreement requires A to pay for using L's trademark are
the costs A incurs in exchange for these rights. Therefore, although
A incurs royalty costs only when A sells a tablecloth carrying L's
trademark, the royalty costs directly benefit production activities
and are incurred by reason of production activities within the
meaning of paragraph (e)(3)(i) of this section.
(ii) Types of indirect costs required to be capitalized. The
following are types of indirect costs that must be capitalized to the
extent they are properly allocable to property produced or property
acquired for resale:
* * * * *
(U) Licensing and franchise costs. (1) * * * These costs also
include fees, payments, and royalties otherwise described in this
paragraph (e)(3)(ii)(U) that a taxpayer incurs (within the meaning of
section 461) only upon the sale of property produced or acquired for
resale.
(2) If a taxpayer incurs (within the meaning of section 461) a fee,
payment, or royalty described in this paragraph (e)(3)(ii)(U) only upon
the sale of property produced or acquired for resale and the cost is
required to be capitalized under this paragraph (e)(3), the cost is
allocable only to the property that has been sold or, for inventory
property, deemed to be sold under the inventory cost flow assumption
(such as first-in, first-out; last-in, first-out; or a specific-goods
method) the taxpayer uses to identify the costs in ending inventory.
* * * * *
(l) Effective/applicability date. (1) Paragraphs (h)(2)(i)(D), (k),
and (l) of this section apply for taxable years ending on or after
August 2, 2005.
(2) Paragraphs (c)(5), (e)(3)(i), and (e)(3)(ii)(U) of this section
apply for taxable years ending on or after the date these regulations
are published as final regulations in the Federal Register.
Par. 4. Section 1.263A-2 is amended by:
1. Adding paragraphs (b)(3)(ii)(C) and (b)(4)(ii)(A)(4).
2. Revising paragraph (f).
The additions and revision read as follows:
Sec. 1.263A-2 Rules relating to property produced by the taxpayer.
* * * * *
(b) * * *
(3) * * *
(ii) * * *
(C) Costs allocable only to sold property. Additional section 263A
costs incurred during the taxable year, as defined in paragraph
(b)(3)(ii)(A)(1) of this section, section 471 costs incurred during the
taxable year, as defined in paragraph (b)(3)(ii)(A)(2) of this section,
and section 471 costs remaining on hand at year end, as defined in
paragraph (b)(3)(ii)(B) of this section, do not include costs
specifically described in Sec. 1.263A-1(e)(3)(ii) or cost reductions
described in Sec. 1.471-3(e) as properly allocable only to property
that has been sold or, for inventory property, deemed to be sold under
the inventory cost flow assumption (such as first-in, first-out; last-
in, first-out; or a specific-goods method) a taxpayer uses to identify
the costs in ending inventory.
* * * * *
(4) * * *
(ii) * * *
(A) * * *
(4) Additional section 263A costs incurred during the test period,
as defined in paragraph (b)(4)(ii)(A)(2) of this section and section
471 costs incurred during the test period, as defined in paragraph
(b)(4)(ii)(A)(3) of this section, do not include costs specifically
described in Sec. 1.263A-1(e)(3)(ii) or cost reductions described in
Sec. 1.471-3(e) as properly allocable only to property that has been
sold or, for inventory property, deemed to be sold under the inventory
cost flow assumption (such as first-in, first-out; last-in, first-out;
or a specific-goods method) a taxpayer uses to identify the costs in
ending inventory.
* * * * *
(f) Effective/applicability date. (1) Paragraphs (b)(2)(i)(D), (e),
and (f) of this section apply for taxable years ending on or after
August 2, 2005.
(2) Paragraphs (b)(3)(ii)(C) and (b)(4)(ii)(A)(4) of this section
apply for taxable years ending on or after the date these regulations
are published as final regulations in the Federal Register.
Par. 5. In Sec. 1.263A-3, paragraphs (d)(3)(i)(C)(3),
(d)(3)(i)(D)(3), (d)(3)(i)(E)(3), and (f) are added to read as follows:
Sec. 1.263A-3 Rules relating to property acquired for resale.
* * * * *
(d) * * *
(3) * * *
(i) * * *
(C) * * *
(3) Costs allocable only to sold property. Section 471 costs
remaining on hand at year end, as defined in paragraph (d)(3)(i)(C)(2)
of this section, do not include costs that are specifically described
in Sec. 1.263A-1(e)(3)(ii) or cost reductions described in Sec.
1.471-3(e) as properly allocable only to property that has been sold
or, for inventory property, deemed to be sold under the inventory cost
flow assumption (such as first-in, first-out; last-in, first-out; or a
specific-goods method) a taxpayer uses to identify the costs in ending
inventory.
(D) * * *
[[Page 78944]]
(3) Current year's storage and handling costs, beginning inventory,
and current year's purchases, as defined in paragraph (d)(3)(i)(D)(2)
of this section, do not include costs that are specifically described
in Sec. 1.263A-1(e)(3)(ii) or cost reductions described in Sec.
1.471-3(e) as properly allocable only to property that has been sold
or, for inventory property, deemed to be sold under the inventory cost
flow assumption (such as first-in, first-out; last-in, first-out; or a
specific-goods method) a taxpayer uses to identify the costs in ending
inventory.
(E) * * *
(3) Current year's purchasing costs and current year's purchases,
as defined in paragraph (d)(3)(i)(E)(2) of this section, do not include
costs that are specifically described in Sec. 1.263A-1(e)(3)(ii) or
cost reductions described in Sec. 1.471-3(e) as properly allocable
only to property that has been sold or, for inventory property, deemed
to be sold under the inventory cost flow assumption (such as first-in,
first-out; last-in, first-out; or a specific-goods method) a taxpayer
uses to identify the costs in ending inventory.
* * * * *
(f) Effective/applicability date. Paragraphs (d)(3)(i)(C)(3),
(d)(3)(i)(D)(3), and (d)(3)(i)(E)(3) of this section apply for taxable
years ending on or after the date these regulations are published as
final regulations in the Federal Register.
Par. 6. Section 1.471-3 is amended by:
1. Adding paragraphs (e) and (g).
2. Designating the undesignated text following paragraph (d) as
paragraph (f).
The additions read as follows:
Sec. 1.471-3 Inventories at cost.
* * * * *
(e) The amount of an allowance, discount, or price rebate a
taxpayer earns by selling specific merchandise is a reduction in the
cost (as determined under paragraph (a), (b), or (d) of this section)
of the merchandise sold or deemed to be sold under the inventory cost
flow assumption (such as first-in, first-out; last-in, first-out; or a
specific-goods method) the taxpayer uses to identify the costs in
ending inventory. This amount decreases cost of goods sold and does not
reduce the inventory cost or value of goods on hand at the end of the
taxable year.
* * * * *
(g) Effective/applicability date. Paragraph (f) of this section
applies to taxable years ending on or after the date these regulations
are published as final regulations in the Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2010-31597 Filed 12-16-10; 8:45 am]
BILLING CODE 4830-01-P