§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) Cross reference

For rules relating to capitalization of direct and indirect costs of property, see section 263A.

(Aug. 16, 1954, ch. 736, 68A Stat. 159 ; Oct. 4, 1976, Pub. L. 94–455, title XIX, §1906(b)(13)(A), 90 Stat. 1834 ; Oct. 22, 1986, Pub. L. 99–514, title VIII, §803(b)(4), 100 Stat. 2356 .)

Amendments

1986-Pub. L. 99–514 designated existing provisions as subsec. (a) and added subsec. (b).

1976-Pub. L. 94–455 struck out "or his delegate" after "Secretary" wherever appearing.

Effective Date of 1986 Amendment

If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the amendment by Pub. L. 99–514 is applicable to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of Pub. L. 99–514) or, if applicable, section 266 of such Code, see section 7831(d)(2) of Pub. L. 101–239, set out as an Effective Date note under section 263A of this title.

Amendment by Pub. L. 99–514 applicable to costs incurred after Dec. 31, 1986, in taxable years ending after such date, except as otherwise provided, see section 803(d) of Pub. L. 99–514, set out as an Effective Date note under section 263A of this title.

Study of Accounting Methods for Inventory; Report Not Later Than December 31, 1982

Pub. L. 97–34, title II, §238, Aug. 13, 1981, 95 Stat. 254 , directed Secretary of the Treasury to conduct a study of methods of tax accounting for inventory with a view towards development of simplified methods and to report to Congress, not later than Dec. 31, 1982, prior to repeal by Pub. L. 100–647, title VI, §6252(a)(2), Nov. 10, 1988, 102 Stat. 3752 .

Cross References

Basis of property included in inventory, see section 1013 of this title.

Section Referred to in Other Sections

This section is referred to in sections 312, 472, 1363 of this title.