Inventory valuation in asset acquisitions.
If inventory is acquired in an asset acquisition or a Sec. 338 transaction, the acquired inventory's FMV must be determined. Because the inventory basis is deducted when inventory is sold, a taxpayer using FIFO can generally minimize his taxable income in the acquisition year by maximizing the acquired inventory's valuation.
Rev. Proc. 77-12 provides three different methods for determining FMV of inventory--the cost of reproduction method, the comparative sales method and the income method. If correctly applied, all three methods should calculate the same FMV. However, Rev. Proc. 77-12 also states that these valuation methods "can only serve as guidelines for determining the fair market value of inventories," because "valuing inventory is an inherently factual determination"
Editor: Wilfred H. Heitritter, CPA, J.D. Executive Partner -- Tax McGladrey & Pullen LLP San Bernardino, CA
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|Author:||Heitritter, Wilfred H.|
|Publication:||The Tax Adviser|
|Date:||Apr 1, 1999|
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