payer elected the LIFO method be inventoried "at" cost does not mean that, in determining the current-year cost of items making up a pool, it is necessary to determine the actual cost of each unit inventoried.16 Turning now to petitioner's argument about the retail method, petitioner is correct that the retail method is permitted to be used in conjunction with the dollar-value LIFO method, Hutzler Bros. Co. v. Commissioner, 8 T.C. 14 (1947); sec. 1.472-1(k), Income Tax Regs.; sec. 1.472-8(e)(1), Income Tax Regs., and that that method "does not compute the actual cost of the items in" a taxpayer's inventory. However, the actual cost reasonably approximated under the retail method, which is described in section 1.471-8, Income Tax Regs., satisfies the definition of the term "cost" in section 1.471-3(d), Income Tax Regs. Consequently, the requirement in section 472(b)(2) that goods for which a taxpayer elected the LIFO method be inventoried at "cost", which we have held has the same meaning accorded the term "cost" in section 1.471-3, Income Tax Regs., is satisfied by a retailer who elects the dollar-value LIFO method, determines a reasonable approximation of actual cost under the retail method, and, inter alia, complies with section 1.472-1(k), Income Tax Regs., and section 1.472-8(e)(1), Income Tax Regs. We reject petitioner's argument that the use of the retail method in conjunction with the dollar-value LIFO method means that Mountain State Ford's method of using replacement cost under the dollar-value LIFO method is permitted by section 472 and the regulations thereunder.17 16 Nor is it necessary to do so under the specific-goods LIFO method. See sec. 1.472-2(d), Income Tax Regs. 17 We also reject petitioner's position that the use of the standard cost method in conjunction with the dollar-value LIFO method supports his position that Mountain State Ford's method of using replacement cost under the dollar-value LIFO method is permitted under sec. 472 and the regulations thereunder. In this regard, petitioner states: taxpayers have been consistently permitted to use the standard cost method under both the full absorption method and the uniform capitalization method, in conjunction with the dollar-value LIFO method, despite the fact that standard costs are merely a predetermined estimate of the taxpayer's actual costs. Treas. Reg. §§ 1.471–11(d)(3); 1.263A–1(f)(3)(ii)(A). In advancing the foregoing argument, petitioner fails to mention that, in determining the cost of inventoried goods, a taxpayer subject to the inventory accounting method is and/or was expressly made subject by sec. 1.471-3, Income Tax Regs., to (1) sec. 1.263A-1, Income Tax Regs., on or after Jan. 1, 1994; (2) sec. 1.263A-1T, Temporary Income Tax Regs., 52 Fed. Reg. 10060 (Mar. 30, 1987), for taxable years beginning on or after Dec. 31, 1986, until Dec. 31, 1993; and (3) sec. 1.471-11, Income Tax Regs., for taxable years beginning on or before Dec. 31, 1986. All of those regulations allow or allowed the use of the standard cost method. Under that method, a taxpayer may allocate an appropriate amount of direct and indirect costs to property that such We hold that Mountain State Ford's method of using replacement cost in determining the current-year cost of its parts pool under the dollar-value LIFO method contravenes the requirements of section 472(b)(2), section 1.472-2(b), Income Tax Regs., and section 1.472-8(e)(2)(ii), Income Tax Regs. We further hold that, consequently, that method does not clearly reflect income. See Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979). Petitioner argues that if we were to find, as we have, that Mountain State Ford's method of using replacement cost in valuing its parts inventory under the LIFO method does not clearly reflect income, that method should nonetheless be sustained because respondent changed that method to an impermissible method which does not clearly reflect income. In support of his position, petitioner cites Dayton Hudson Corp. & Subs. v. Commissioner, 153 F.3d 660, 664 (8th Cir. 1998), revg. T.C. Memo. 1997-260; Harden v. Commissioner, 223 F.2d at 421; Prabel v. Commissioner, 91 T.C. 1101, 1112 (1988), affd. 882 F.2d 820 (3d Cir. 1989); and Golden Gate Litho v. Commissioner, T.C. Memo. 1998–184. Relying on those cases, petitioner argues: The respondent is unwilling to admit the consequences of the adjustment he seeks in this case. The respondent claims he "has not replaced one impermissible method with another." The respondent in his brief refuses to admit that his adjustment changes *** [Mountain State Ford's] inventory value from a dollar-value LIFO value determined using replacement costs as current-year costs to an inventory value that is in its entirety equal to current replacement costs. At trial, however, the respondent admitted that this was the case. *** it is internally inconsistent for the respondent to claim that a LIFO inventory value based on using replacement costs as current-year costs does not clearly reflect income taxpayer produces through the use of preestablished standard allowances, without reference to costs actually incurred during the taxable year. See sec. 1.263A–1(f)(3)(ii)(A), Income Tax Regs. We have held that the term "cost" in sec. 472(b)(2) has the same meaning accorded to the term "cost" in sec. 1.471-3, Income Tax Regs. Sec. 472(b)(2) thus permits the use of the standard cost method in inventorying goods at cost under the LIFO method. In advancing his argument about the standard cost method, petitioner also fails to mention that the regulations in effect at different times describing the standard cost method (viz., sec. 1.263A-1(f)(3)(ii), Income Tax Regs., sec. 1.263A-1T(b)(3)(iii)(D), Temporary Income Tax Regs., 52 Fed. Reg. 10065 (Mar. 30, 1987), and sec. 1.471-11(d)(3), Income Tax Regs.) require and/or required a taxpayer to "reallocate to the goods in ending inventory a pro rata portion" of the variance between the predetermined estimate and actual cost unless such variance is not "significant" in amount. If that variance is not "significant" in amount, it does not have to be allocated to the taxpayer's goods in ending inventory unless such an allocation is made in the taxpayer's financial reports. See sec. 1.263A-1(f)(3)(ii)(B), Income Tax Regs.; sec. 1.263A1T(b)(3)(iii)(D)(2), Temporary Income Tax Regs., supra; sec. 1.471-11(d)(3)(ii), Income Tax Regs. while maintaining that the inventory must be adjusted to a value that is in its entirety equal to current replacement costs. If the respondent were correct in his claim that the use of replacement costs to determine currentyear costs under dollar-value LIFO produces an impermissible inventory value, then an inventory value based entirely on current replacement costs would surely be even more impermissible. Respondent counters that respondent has not terminated Mountain State Ford's elections to value its parts inventory under the dollar-value, link-chain LIFO method and to use the most recent purchases method in determining the current-year cost of its parts pool. According to respondent, respondent has merely required Mountain State Ford to conform to the elections that it made in the Form 970 which it filed with its 1980 tax return. Respondent states on brief: All respondent has done in this case is to determine that * * * [Mountain State Ford's] LIFO reserve was incorrectly calculated because *** [Mountain State Ford] used replacement cost. *** [Mountain State Ford] did not attempt to reconstruct or recalculate the corrected reserve amount or provide evidence from which an estimate could be made. Because of this, respondent was unable to determine the amount of the corrected reserve and had to restore the reserve to income. We agree with respondent. In contradistinction to the cases on which petitioner relies, in the instant case Mountain State Ford did not comply with the requirement of section 1.4722(h), Income Tax Regs., that it maintain detailed inventory records "as will enable the district director readily to verify *** [Mountain State Ford's] inventory computations as well as *** [its] compliance with the requirements of section 472" and the regulations thereunder. Consequently, Mountain State Ford did not have, and did not provide to respondent, the records that were necessary in order to calculate for the period 1980 through 1991 (1) the LIFO and nonLIFO value of its parts inventory and (2) its LIFO reserve on the basis of invoice prices or a cost other than replacement cost. We do not understand the statements of respondent's counsel during his opening statement at trial to be a concession by respondent that respondent placed Mountain State Ford on a non-LIFO method that utilizes replacement cost, and we reject petitioner's contention to the contrary. Even if respondent's counsel had made such a concession during his opening statement at trial, we would not consider it to be a conces sion that binds respondent. That is because, inter alia, any such concession would have been contrary to respondent's position as set forth in paragraph 51 of the stipulation of facts, which was made part of the record in this case immediately before the Court allowed counsel for the parties to make opening statements. The position of respondent in paragraph 51 of the stipulation of facts is totally consistent with the notice. In the notice, respondent did not terminate Mountain State Ford's elections to value its parts inventory under the dollar-value, link-chain LIFO method and to use the most recent purchases method in order to determine the current-year cost of its parts pool.18 Mountain State Ford remains on those methods and cannot account for its parts inventory on any other methods without first receiving permission from the Commissioner. See sec. 472(e); sec. 1.472-5, Income Tax Regs. On the record before us, we find that respondent did not place Mountain State Ford on an improper method of inventory accounting in the notice. We further find that respondent did not abuse respondent's discretion in making the adjustment at issue in the notice. Consequently, we sustain that adjustment.19 To reflect the foregoing and the concessions of the parties, Decision will be entered under Rule 155. ICI PENSION FUND, ICI PENSIONS TRUSTEE LIMITED, Docket No. 10030-97. Filed March 5, 1999. During 1991 and 1992, F, a non-U.S. pension fund, received dividends from U.S. corporations, net of U.S. income tax that was withheld thereon. Relying on sec. 1.6012-1(b)(2)(i), 18 Pursuant to sec. 3.01(c), Rev. Proc. 79-23, 1979-1 C.B. 564, "Failure by the taxpayer to value its LIFO inventory at cost for Federal income tax purposes, for the year preceding the LIFO election, the year of the LIFO election, and all subsequent taxable years" may warrant the termination of that taxpayer's LIFO election. However, such termination is within the discretion of respondent and is not mandatory. See Consolidated Manufacturing, Inc. v. Commissioner, 111 T.C. 1, 38 (1998). In the present case, respondent chose not to exercise that discretion and did not terminate Mountain State Ford's LIFO election. 19 We have considered all of the arguments and contentions of petitioner that are not addressed herein and find them to be without merit or irrelevant. Income Tax Regs., F did not file tax returns for those years, K. Peter Schmidt, for petitioner. OPINION LARO, Judge: ICI Pension Fund, ICI Pensions Trustee Limited, Trustee, moves for summary judgment, asserting that section 6501 does not allow respondent to assess tax for either year in issue. Respondent moves for partial summary judgment, asserting primarily that the notices of deficiency are timely under section 6501(c)(3). Respondent issued the notices of deficiency to ICI Pension Fund, ICI Pensions Trustee Limited, Trustee, on December 19, 1996, after determining deficiencies in the 1991 and 1992 income tax of ICI Pension Fund (fund). We must decide whether the notices of deficiency are timely. We hold they are. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the subject years. Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded to the nearest dollar. |