This position does not appear to be consistent with the regulations, which provide that subnormal goods include goods that are not salable at normal prices because of “changes of style, odd or broken lots, or other similar causes.
§ 1.471-2(c) unless the items are physically defective. The IRS’ position in the FAA is that inventory items are not subnormal for purposes of Treas. As a result, the parts could not be valued at bona fide selling prices less costs of disposition. The field attorney advice concludes that the excess parts were not subnormal goods, even though the taxpayer’s parts were obsolete, technologically dated, and physically separated from taxpayer’s other inventory. § 1.471-2(c) and should be valued at bona fide selling prices less costs of disposition. Instead, the taxpayer argued that its excess parts were “subnormal” goods under Treas.
In this case, the taxpayer conceded that there was no market write-down from cost because “there has been no diminution in the replacement and/or reproduction costs. Subnormal goods are any goods that are unsalable at normal prices or unsalable in the normal way because of damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar causes, including second-hand goods taken in exchange. The field attorney advice explains that for normal goods in inventory, “market” for purposes of LCM is the current bid price of the basic elements of cost to purchase or manufacture each item of inventory at year end. The taxpayer valued its excess parts inventory at lower of cost or market (LCM) under Treas. Washington Tax Alert from Don Barnes, Ī field attorney for the Large & Mid-Size Business division (who formerly worked in the IRS National Office) recently issued field attorney advice (FAA 20071101F) to the Inventory Technical Advisor regarding the costing of certain excess inventory parts used to maintain and repair equipment that is no longer being produced. Washington Tax Alert Ma(writedown of excess inventory parts)
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