taxmap/pubs/p538-005.htm#TXMP0d9b8f86
Inventories 

taxmap/pubs/p538-005.htm#TXMP4cb02d61
Note:Revenue Procedure 2002–28 does not apply to a farming business of a qualifying small business taxpayer. A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. See Special rules for farming businesses under Cash Method, earlier.

taxmap/pubs/p538-005.htm#TXMP6bbe7b0a Gross receipts test for qualifying small business taxpayers.

To determine if you meet the gross receipts test for qualifying small business taxpayers, follow the following steps:

1. Step 1. List each of the test years. For qualifying small business taxpayers under Revenue Procedure 2002–28, the test years are each prior tax year ending on or after December 31, 2000. For 2003, the test years are 2000, 2001, and 2002 for a calendar year taxpayer.
2. Step 2. Determine your average annual gross receipts for each test year listed in Step 1. Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. For example, if gross receipts are $6 million for 1998, $9 million for 1999, and $12 million for 2000, the average annual gross receipts for 2000 are $9 million (($6 million + $9 million + $12 million) ÷ 3 = $9 million). See section 5 of Revenue Procedure 2002–28 for more information.
3. Step 3. You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less.

See Table 2 for a summary of these rules for 2003.

Step 1. Test year (prior tax years ending on or after December 31, 2002).			Step 2. Determine your average annual gross receipts for each test year.
2000			(1998 + 1999 + 2000) ÷ 3
2001			(1999 + 2000 + 2001) ÷ 3
2002			(2000 + 2001 + 2002) ÷ 3
Step 3. If the average annual gross receipts for each test year is $10 million or less, you meet the gross receipts test for qualifying small business taxpayers.

taxmap/pubs/p538-005.htm#TXMP2daea5f2 Eligible business.

An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. You have an eligible business if you meet any of the following requirements.

1. Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following.
   1. NAICS codes 211 and 212 (mining activities).
   2. NAICS codes 31–33 (manufacturing).
   3. NAICS code 42 (wholesale trade).
   4. NAICS codes 44–45 (retail trade).
   5. NAICS codes 5111 and 5122 (information industries).
2. Your principal business activity is the provision of services, including the provision of property incident to those services.
3. Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications.

Information about the NAICS codes can be found at www.census.gov or in the instructions for your federal income tax return.

taxmap/pubs/p538-005.htm#TXMP0ed7b15d Gross receipts.

In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. See the definition of gross receipts in section 1.448–1T(f)(2)(iv) of the temporary regulations for details.

taxmap/pubs/p538-005.htm#TXMP6d941f2e Business not owned or not in existence for 3 years.

If you did not own your business for all of the 3-tax-year period used in determining your average annual gross receipts, include the period of any predecessor. If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts.

taxmap/pubs/p538-005.htm#TXMP6097190f Materials and supplies that are not incidental.

If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. If you are a qualifying taxpayer under Revenue Procedure 2001–10 and a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. If you are a qualifying small business taxpayer under Revenue Procedure 2002–28, you must use the specific identification method, the first-in first-out (FIFO) method, or an average cost method to determine the amount of your allowable deduction for non-incidental materials and supplies consumed and used in your business. See section 4.02 in Revenue Procedure 2001–10 or section 4.05 in Revenue Procedure 2002–28 for more information. See also Example 15 and Example 17 through Example 20 in section 6 of Revenue Procedure 2002–28.

taxmap/pubs/p538-005.htm#TXMP5b42c2ab Changing methods.

If you are a qualifying taxpayer or qualifying small business taxpayer and want to change to the cash method or to account for inventoriable items as non-incidental materials and supplies, you must file Form 3115. Both changes can be requested under the automatic change procedures of Revenue Procedure 2002–9 in Internal Revenue Bulletin 2002–3 (or its successor). For additional guidance, see section 6 of Revenue Procedure 2001–10 for qualifying taxpayers or section 7 of Revenue Procedure 2002–28 for qualifying small business taxpayers. You can file one Form 3115 if you choose to request to change to the cash method and to account for inventoriable items as non-incidental materials and supplies.

taxmap/pubs/p538-005.htm#TXMP604fd8f5 More information.

For more information about the qualifying taxpayer exception, see Revenue Procedure 2001–10. For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002–28.

taxmap/pubs/p538-005.htm#TXMP0307d75f Items Included in Inventory

Inventory

Your inventory should include all of the following.

• Merchandise or stock in trade.
• Raw materials.
• Work in process.
• Finished products.
• Supplies that physically become a part of the item intended for sale.

taxmap/pubs/p538-005.htm#TXMP7c6da491 Merchandise.

Include the following merchandise in inventory.

• Purchased merchandise if title has passed to you, even if the merchandise is in transit or you do not have physical possession for another reason.
• Goods under contract for sale that you have not yet segregated and applied to the contract.
• Goods out on consignment.
• Goods held for sale in display rooms, merchandise mart rooms, or booths located away from your place of business.

taxmap/pubs/p538-005.htm#TXMP47d6a427 C.O.D. mail sales.

If you sell merchandise by mail and intend payment and delivery to happen at the same time, title passes when payment is made. Include the merchandise in your closing inventory until the buyer pays for it.

taxmap/pubs/p538-005.htm#TXMP07609ed5 Containers.

Containers such as kegs, bottles, and cases, regardless of whether they are on hand or returnable, should be included in inventory if title has not passed to the buyer of the contents. If title has passed to the buyer, exclude the containers from inventory. Under certain circumstances, some containers can be depreciated. See Publication 946.

taxmap/pubs/p538-005.htm#TXMP655da6a9 Merchandise not included.

Do not include the following merchandise in inventory.

• Goods you have sold, but only if title has passed to the buyer.
• Goods consigned to you.
• Goods ordered for future delivery if you do not yet have title.

taxmap/pubs/p538-005.htm#TXMP4311bbdb Assets.

Do not include the following in inventory.

• Land, buildings, and equipment used in your business.
• Notes, accounts receivable, and similar assets.
• Real estate held for sale by a real estate dealer in the ordinary course of business.
• Supplies that do not physically become part of the item intended for sale.

Special rules apply to the cost of inventory or property imported from a related person. See the regulations under section 1059A.

taxmap/pubs/p538-005.htm#TXMP549daa20

taxmap/pubs/p538-005.htm#TXMP5360ff09 Identifying Cost

Cost Identification

You can use any of the following methods to identify the cost of items in inventory.

taxmap/pubs/p538-005.htm#TXMP5f0f2e1c Specific Identification Method

Specific Identification Method

Use the specific identification method when you can identify and match the actual cost to the items in inventory.

Use the FIFO or LIFO method, explained next, if:

• You cannot specifically identify items with their costs.
• The same type of goods are intermingled in your inventory and they cannot be identified with specific invoices.

taxmap/pubs/p538-005.htm#TXMP5501c5e3 FIFO Method

FIFO Method

The FIFO (first-in first-out) method assumes the items you purchased or produced first are the first items you sold, consumed, or otherwise disposed of. The items in inventory at the end of the tax year are matched with the costs of similar items that you most recently purchased or produced.

taxmap/pubs/p538-005.htm#TXMP48516299 LIFO Method

LIFO Method

The LIFO (last-in first-out) method assumes the items of inventory you purchased or produced last are the first items you sold, consumed, or otherwise disposed of. Items included in closing inventory are considered to be from the opening inventory in the order of acquisition and from those acquired during the tax year.

taxmap/pubs/p538-005.htm#TXMP30965993 LIFO rules.

The rules for using the LIFO method are very complex. Two are discussed briefly here. For more information on these and other LIFO rules, see sections 472 through 474 and the corresponding regulations.

taxmap/pubs/p538-005.htm#TXMP6627de99 Dollar-value method.

Under the dollar-value method of pricing LIFO inventories, goods and products must be grouped into one or more pools (classes of items), depending on the kinds of goods or products in the inventories. See section 1.472–8 of the regulations.

taxmap/pubs/p538-005.htm#TXMP73a7640c Simplified dollar-value method.

Under this method, you establish multiple inventory pools in general categories from appropriate government price indexes. You then use changes in the price index to estimate the annual change in price for inventory items in the pools.

An eligible small business (average annual gross receipts of $5 million or less for the 3 preceding tax years) can elect the simplified dollar-value LIFO method.

For more information, see section 474. Taxpayers who cannot use the method under section 474 should see section 1.472–8(e)(3) of the regulations for a similar simplified dollar-value method.

taxmap/pubs/p538-005.htm#TXMP7912dcd8 Adopting LIFO method.

File Form 970, Application To Use LIFO Inventory Method,or a statement with all the information required on Form 970 to adopt the LIFO method. You must file the form (or the statement) with your timely filed tax return for the year in which you first use LIFO.

taxmap/pubs/p538-005.htm#TXMP43092d5e Differences Between   FIFO and LIFO

Differences Between FIFO and LIFO

Each method produces different income results, depending on the trend of price levels at the time. In times of inflation, when prices are rising, LIFO will produce a larger cost of goods sold and a lower closing inventory. Under FIFO, the cost of goods sold will be lower and the closing inventory will be higher. However, in times of falling prices, the opposite will hold.

taxmap/pubs/p538-005.htm#TXMP31fd53d4 Valuing Inventory

Inventory

The value of your inventory is a major factor in figuring your taxable income. The method you use to value the inventory is very important.

The following methods, described below, are those generally available for valuing inventory.

• Cost.
• Lower of cost or market.
• Retail.

taxmap/pubs/p538-005.htm#TXMP6c2d8245 Goods that cannot be sold.

These are goods you cannot sell at normal prices or they are unusable in the usual way because of damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar causes, including secondhand goods taken in exchange. You should value these goods at their bona fide selling price minus direct cost of disposition, no matter which method you use to value the rest of your inventory. If these goods consist of raw materials or partly finished goods held for use or consumption, you must value them on a reasonable basis, considering their usability and condition. Do not value them for less than scrap value. For more information, see section 1.471–2(c) of the regulations.

taxmap/pubs/p538-005.htm#TXMP25eb2f80 Cost Method

Cost Method

To properly value your inventory at cost, you must include all direct and indirect costs associated with it. The following rules apply.

• For merchandise on hand at the beginning of the tax year, cost means the ending inventory price of the goods.
• For merchandise purchased during the year, cost means the invoice price minus appropriate discounts plus transportation or other charges incurred in acquiring the goods. It can also include other costs that have to be capitalized under the uniform capitalization rules of section 263A.
• For merchandise produced during the year, cost means all direct and indirect costs that have to be capitalized under the uniform capitalization rules.

taxmap/pubs/p538-005.htm#TXMP580e96f9 Discounts.

A trade discount is a discount allowed regardless of when the payment is made. Generally, it is for volume or quantity purchases. You must reduce the cost of inventory by a trade (or quantity) discount.

A cash discount is a reduction in the invoice or purchase price for paying within a prescribed time period. You can choose either to deduct cash discounts or include them in income, but you must treat them consistently from year to year.

taxmap/pubs/p538-005.htm#TXMP02919820 Lower of Cost or Market Method

Lower of Cost or Market Method

Under the lower of cost or market method, compare the market value of each item on hand on the inventory date with its cost and use the lower of the two as its inventory value.

This method applies to the following.

• Goods purchased and on hand.
• The basic elements of cost (direct materials, direct labor, and certain indirect costs) of goods being manufactured and finished goods on hand.

This method does not apply to the following. They must be inventoried at cost.

• Goods on hand or being manufactured for delivery at a fixed price on a firm sales contract (that is, not legally subject to cancellation by either you or the buyer).
• Goods accounted for under the LIFO method.

taxmap/pubs/p538-005.htm#TXMP59c40119
Example. 

Under the lower of cost or market method, the following items would be valued at $600 in closing inventory.

Item	Cost	Market	Lower
R	$300	$500	$300
S	200	100	100
T	450	200	200
Total	$950	$800	$600

You must value each item in the inventory separately. You cannot value the entire inventory at cost ($950) and at market ($800) and then use the lower of the two figures.

taxmap/pubs/p538-005.htm#TXMP6b143b41 Market value.

Under ordinary circumstances for normal goods, market value means the usual bid price on the date of inventory. This price is based on the volume of merchandise you usually buy. For example, if you buy items in small lots at $10 an item and a competitor buys identical items in larger lots at $8.50 an item, your usual market price will be higher than your competitor's.

taxmap/pubs/p538-005.htm#TXMP612dd6c4 Lower than market.

When you offer merchandise for sale at a price lower than market in the normal course of business, you can value the inventory at the lower price, minus the direct cost of disposition. Determine these prices from the actual sales for a reasonable period before and after the date of your inventory. Prices that vary materially from the actual prices will not be accepted as reflecting the market.

taxmap/pubs/p538-005.htm#TXMP3d3b6cf6 No market exists.

If no market exists, or if quotations are nominal because of an inactive market, you must use the best available evidence of fair market price on the date or dates nearest your inventory date. This evidence could include the following items.

• Specific purchases or sales you or others made in reasonable volume and in good faith.
• Compensation amounts paid for cancellation of contracts for purchase commitments.

taxmap/pubs/p538-005.htm#TXMP3b10ae28 Retail Method

Retail Method

Under the retail method, the total retail selling price of goods on hand at the end of the tax year in each department or of each class of goods is reduced to approximate cost by using an average markup expressed as a percentage of the total retail selling price.

To figure the average markup, apply the following steps in order.

1. Add the total of the retail selling prices of the goods in the opening inventory and the retail selling prices of the goods you bought during the year (adjusted for all markups and markdowns).
2. Subtract from the total in (1) the cost of goods included in the opening inventory plus the cost of goods you bought during the year.
3. Divide the balance in (2) by the total selling price in (1). The result is the average markup percentage.

Then determine the approximate cost in three steps.

1. Subtract the sales at retail from the total retail selling price. The result is the closing inventory at retail.
2. Multiply the closing inventory at retail by the average markup percentage. The result is the markup in closing inventory.
3. Subtract the markup in (2) from the closing inventory at retail. The result is the approximate closing inventory at cost.

taxmap/pubs/p538-005.htm#TXMP5fb58ed0 Closing inventory.

The following example shows how to figure your closing inventory using the retail method.

taxmap/pubs/p538-005.htm#TXMP49645ce1
Example. 

Your records show the following information on the last day of your tax year.

		Retail
Item	Cost	Value
Opening inventory	$52,000	$60,000
Purchases	53,000	78,500
Sales		98,000
Markups		2,000
Markdowns		500

Using the retail method, determine your closing inventory as follows.

		Retail
Item	Cost	Value
Opening inventory	$52,000	$60,000
Plus: Purchases	53,000	78,500
Net markups
($2,000 − $500 markdowns)		1,500
Total	$105,000	$140,000
Minus: Sales		98,000
Closing inventory at retail		$42,000
Minus: Markup* (.25 × $42,000)		10,500
Closing inventory at cost		$31,500
* See Markup percentage, next, for an explanation of how the markup percentage (25%) was figured for this example.

taxmap/pubs/p538-005.htm#TXMP7695b17b Markup percentage.

The markup ($35,000) is the difference between cost ($105,000) and the retail value ($140,000). Divide the markup by the total retail value to get the markup percentage (25%). You cannot use arbitrary standard percentages of purchase markup to determine markup. You must determine it as accurately as possible from department records for the period covered by your tax return.

taxmap/pubs/p538-005.htm#TXMP634eef7f Markdowns.

When determining the retail selling price of goods on hand at the end of the year, markdowns are recognized only if the goods were offered to the public at the reduced price. Markdowns not based on an actual reduction of retail sales price, such as those based on depreciation and obsolescence, are not allowed.

taxmap/pubs/p538-005.htm#TXMP146b96dd Retail method with LIFO.

If you use LIFO with the retail method, you must adjust your retail selling prices for markdowns as well as markups.

taxmap/pubs/p538-005.htm#TXMP72c7342c Price index.

If you are using the retail method and LIFO, adjust the inventory value, determined using the retail method, at the end of the year to reflect price changes since the close of the preceding year. Generally, to make this adjustment, you must develop your own retail price index based on an analysis of your own data under a method acceptable to the IRS. However, a department store using LIFO that offers a full line of merchandise for sale can use an inventory price index provided by the Bureau of Labor Statistics. Other sellers can use this index if they can demonstrate the index is accurate, reliable, and suitable for their use. For more information, see Revenue Ruling 75–181 in Cumulative Bulletin 1975–1.

taxmap/pubs/p538-005.htm#TXMP34d610bb Retail method without LIFO.

If you do not use LIFO and have been determining your inventory under the retail method except that, to approximate the lower of cost or market, you have followed the consistent practice of adjusting the retail selling prices of goods for markups (but not markdowns), you can continue that practice. The adjustments must be bona fide, consistent, and uniform and you must also exclude markups made to cancel or correct markdowns. The markups you include must be reduced by markdowns made to cancel or correct the markups.

If you do not use LIFO and you previously determined inventories without eliminating markdowns in making adjustments to retail selling prices, you can continue this practice only if you first get IRS approval. You can adopt and use this practice on the first tax return you file for the business, subject to IRS approval on examination of your tax return.

taxmap/pubs/p538-005.htm#TXMP06f8a614 Figuring income tax.

Resellers who use the retail method of pricing inventories can determine their tax on that basis.

To use this method, you must do all the following.

• State that you are using the retail method on your tax return.
• Keep accurate records.
• Use this method each year unless the IRS allows you to change to another method.

You must keep records for each separate department or class of goods carrying different percentages of gross profit. Purchase records should show the firm name, date of invoice, invoice cost, and retail selling price. You should also keep records of the respective departmental or class accumulation of all purchases, markdowns, sales, stock, etc.

taxmap/pubs/p538-005.htm#TXMP69baa1db Perpetual or Book Inventory

Perpetual or Book Inventory

You can figure the cost of goods on hand by either a perpetual or book inventory if inventory is kept by following sound accounting practices. Inventory accounts must be charged with the actual cost of goods purchased or produced and credited with the value of goods used, transferred, or sold. Credits must be determined on the basis of the actual cost of goods acquired during the year and their inventory value at the beginning of the tax year.

taxmap/pubs/p538-005.htm#TXMP47511bae Physical inventory.

You must take a physical inventory at reasonable intervals and the book amount for inventory must be adjusted to agree with the actual inventory.

taxmap/pubs/p538-005.htm#TXMP43e6032b Loss of Inventory

Loss of Inventory

You claim a casualty or theft loss of inventory, including items you hold for sale to customers, through the increase in the cost of goods sold by properly reporting your opening and closing inventories. You cannot claim the loss again as a casualty or theft loss. Any insurance or other reimbursement you receive for the loss is taxable.

You can choose to take the loss separately as a casualty or theft loss. If you take the loss separately, adjust opening inventory or purchases to eliminate the loss items and avoid counting the loss twice.

If you take the loss separately, reduce the loss by the reimbursement you receive or expect to receive. If you do not receive the reimbursement by the end of the year, you cannot claim a loss for any amounts you reasonably expect to recover.

taxmap/pubs/p538-005.htm#TXMP6fa35df9 Creditors or suppliers.

If your creditors forgive part of what you owe them because of your inventory loss, this amount is treated as income and is taxable.

taxmap/pubs/p538-005.htm#TXMP2e58cb9b Disaster loss.

If your inventory loss is due to a disaster in an area determined by the President of the United States to be eligible for federal assistance, you can choose to deduct the loss on your return for the immediately preceding year. However, you must also decrease your opening inventory for the year of the loss so the loss will not show up again in inventory.

taxmap/pubs/p538-005.htm#TXMP090218f1 Uniform Capitalization Rules

Uniform Capitalization Rules

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property.

Special uniform capitalization rules apply to a farming business. See chapter 7 in Publication 225.

taxmap/pubs/p538-005.htm#TXMP548c44bd Activities subject to the rules.

You are subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a trade or business or an activity carried on for profit.

• Produce real or tangible personal property.
• Acquire property for resale. However, this rule does not apply to personal property if your average annual gross receipts are $10 million or less.

taxmap/pubs/p538-005.htm#TXMP7c25d786 Producing property.

You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Property produced for you under a contract is treated as produced by you to the extent you make payments or otherwise incur costs in connection with the property.

taxmap/pubs/p538-005.htm#TXMP28b2daa7 Tangible personal property.

Tangible personal property includes films, sound recordings, video tapes, books, artwork, photographs, or similar property containing words, ideas, concepts, images, or sounds. However, free-lance authors, photographers, and artists are exempt from the uniform capitalization rules if they qualify.

taxmap/pubs/p538-005.htm#TXMP22460746 Exceptions.

The uniform capitalization rules do not apply to:

• Resellers of personal property with average annual gross receipts of $10 million or less (small resellers).
• Property produced to use as personal or nonbusiness property or for uses not connected with a trade or business or an activity conducted for profit.
• Research and experimental expenditures deductible under section 174.
• Intangible drilling and development costs of oil and gas or geothermal wells or any amortization deduction allowable under section 59(e) for intangible drilling, development, or mining exploration expenditures.
• Property produced under a long-term contract, except for certain home construction contracts described in section 460(e)(1).
• Timber and certain ornamental trees raised, harvested, or grown, and the underlying land.
• Qualified creative expenses paid or incurred as a free-lance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return.
• Costs allocable to natural gas acquired for resale to the extent these costs would otherwise be allocable to "cushion gas" stored underground.
• Property produced if substantial construction occurred before March 1, 1986.
• Property provided to customers in connection with providing services. It must be de minimus in amount and not be inventory in the hands of the service provider.
• Loan origination.
• The costs of certain producers who use a simplified production method and whose total indirect costs are $200,000 or less. See section 1.263A–2(b)(3)(iv) of the regulations for more information.

taxmap/pubs/p538-005.htm#TXMP024feadb Qualified creative expenses.

Qualified creative expenses are expenses paid or incurred by a free-lance (self-employed) writer, photographer, or artist whose personal efforts create (or can reasonably be expected to create) certain properties. These expenses do not include expenses related to printing, photographic plates, motion picture films, video tapes, or similar items.

These individuals are defined as follows.

• A writer is an individual who creates a literary manuscript, a musical composition (including any accompanying words), or a dance score.
• A photographer is an individual who creates a photograph or photographic negative or transparency.
• An artist is an individual who creates a picture, painting, sculpture, statue, etching, drawing, cartoon, graphic design, or original print item. The originality and uniqueness of the item created and the predominance of aesthetic value over utilitarian value of the item created are taken into account.

taxmap/pubs/p538-005.htm#TXMP107e0e5d Personal service corporation.

The exemption for writers, photographers, and artists also applies to an expense of a personal service corporation that directly relates to the activities of the qualified employee-owner. A "qualified employee-owner" is a writer, photographer, or artist who owns, with certain members of his or her family, substantially all the stock of the corporation.

taxmap/pubs/p538-005.htm#TXMP0a025fd8 Inventories.

If you must adopt the uniform capitalization rules, revalue the items or costs included in beginning inventory for the year of change as if the capitalization rules had been in effect for all prior periods. When revaluing inventory costs, the capitalization rules apply to all inventory costs accumulated in prior periods. An adjustment is required under section 481(a). It is the difference between the original value of the inventory and the revalued inventory.

If you must capitalize costs for production and resale activities, you are required to make this change. If you make the change for the first tax year you are subject to the uniform capitalization rules, it is an automatic change of accounting method that does not need IRS approval. Otherwise, IRS approval is required to make the change.

taxmap/pubs/p538-005.htm#TXMP2eb55a69 More information.

For information about the uniform capitalization rules, see the section 263A regulations.

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