CCA 201027054: Advice on consistency and erroneous accounting methods

Number

201027054

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Methods of Accounting (Permissible Method v. Not Permissible)

Topics

Accounting methods and periods

Code sections

§ 446

Ruling dated

January 24, 2010

Publicly released

July 9, 2010

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2010, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

Chief Counsel Advice discusses the weight that consistent application of an accounting method may receive in determining whether the method is permissible. The advice states that consistency can be an important consideration, but consistency alone does not satisfy the taxpayer's burden. It also states that consistency will be disregarded when the taxpayer has used an erroneous accounting method. The excerpt cites cases involving capitalization and overhead expenses for self-constructed assets.

Ruling snapshot

Question: Does consistently applying an accounting method make the method permissible?
Outcome: advice given
Key authorities: IRC § 446; Fort Howard Paper Company v. Commissioner; Photo-Sonics, Inc.; Advertisers Exchange, Inc.; Ezo Products Co.; V. T. H. Bien; D. Loveman & Son Export Corporation

Full text (IRS public release)

ID: CCA-124122-10 Number: 201027054
Release Date: 7/9/2010
Office: ----------------
UILC: 446.03-00

From: -----------------------
Sent: Sunday, January 24, 2010, 12:21 PM
To: ---------------------------------------------------------------
Cc: ----------------------------
Subject: One last blast

TC, [ CCH Dec. 28,712] , Fort Howard Paper Company v. Commissioner, [Methods of accounting: Overhead expenses: Capitalization: Self-constructed assets.]--, (Dec. 27, 1967)

Finally it has been recognized that consistency of application is an important consideration and may be entitled to considerable weight. Photo-Sonics, Inc., supra at p. 935; cf. Advertisers Exchange, Inc. [Dec. 21,583 ], 25 T. C. 1086 (1956), affirmed per curiam [57-1 ustc ¶9414 ] 240 F. 2d 958 (C. A. 2, 1957). But consistency standing alone is not sufficient to satisfy the taxpayer’s burden. Photo-Sonics, Inc., supra at p. 935; Ezo Products Co. [Dec. 25,149
], 37 T. C. 385, 391 (1961); V. T. H. Bien [Dec. 19,574 ], 20 T. C. 49 (1953). Indeed, it will be disregarded where an erroneous method of accounting has been used. Photo-Sonics, Inc., supra; D. Loveman & Son Export Corporation [Dec. 24,297 ], 34 T. C. 776 (1960), affd. [62-1 ustc ¶9147 ] 296 F. 2d 732 (C. A. 6, 1962), certiorari denied 369 U. S. 860 (1962).

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