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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
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term books and records in these final regulations, and the rules continue to generally include both work papers and physical counts of inventory. The term books and records is used elsewhere in the Code and regulations, and there is no indication in the statute or legislative history to section 471c1Bii that a different definition is intended from the general usage of this term used elsewhere in the Code. Consequently, these final regulations use the wellestablished definition of books and records of a taxpayer, which includes the totality of the taxpayers documents and electronically-stored data. See, for example, United States v. Euge, 444
U.S. 707 1980. See also Digby v.
Commissioner, 103 T.C. 441 1994, and 1.60011a.
Certain commenters requested that the final regulations provide additional clarification on the significance of the taking of a physical count of inventory under the non-AFS section 471c inventory method. For example, commenters requested that Example 1
in proposed 1.4711b6iii be modified to provide that the physical count is ignored if the taxpayer does not provide inventory information to a creditor. These final regulations provide additional examples, including variations on Example 1, to clarify the relevance of a physical count of inventory under the non-AFS section 471c inventory method. For example, a taxpayer that takes a physical count of inventory for reordering purposes but does not allocate cost to such inventory is not required to use the physical count for the non-AFS section 471c inventory method, regardless of whether the information is otherwise used for an internal report purpose or provided to an external third party, such as a creditor. Alternatively, a taxpayer that takes an end-of-year physical count and uses this information in its accounting procedures to allocate costs to inventory is required to use this inventory information for the non-AFS section 471c inventory method regardless of whether the taxpayer makes reconciling entries to expense these costs in its financial statements. Thus, the examples in these final regulations clarify the principle that a taxpayer may not ignore its regular accounting procedures or portions of its books and records under the non-AFS section 471c inventory method.
ii Inventory Costs The proposed regulations defined inventory costs for the non-AFS
section 471c inventory method generally as costs that the taxpayer capitalizes to property produced or
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property acquired for resale in its books and records. Certain commenters requested that the final regulations clarify how a taxpayer treats costs to acquire or produce tangible property that the taxpayer does not capitalize in its books and records because the proposed regulations did not specifically address these costs.
These final regulations clarify in 1.4711b6i that costs that are generally required to be capitalized to inventory under section 471a but that the taxpayer is not capitalizing in its books and records are not required to be capitalized to inventory. The Treasury Department and the IRS have also determined that, under this method, such costs are not treated as amounts paid to acquire or produce tangible property under 1.263a2, and therefore, are generally deductible when they are paid or incurred if such costs may be otherwise deducted or recovered notwithstanding 1.4711b4 under another provision of the Code and Regulations. Additionally, these final regulations clarify that costs capitalized for the non-AFS section 471c inventory method are those costs that related to the production or resale of the inventory to which they are capitalized in the taxpayers books and records.
Similar clarifications have been made in 1.4711b5 regarding the AFS
section 471c inventory method.
Applicability Dates These final regulations are applicable for taxable years beginning on or after January 5, 2021. However, a taxpayer may apply these regulations for a taxable year beginning after December 31, 2017, and before January 5, 2021, provided that if the taxpayer applies any aspect of these final regulations under a particular Code provision, the taxpayer must follow all the applicable rules contained in these regulations that relate to that Code provision for such taxable year and all subsequent taxable years, and must follow the administrative procedures for filing a change in method of accounting in accordance with 1.4461e3ii. For example, a taxpayer that wants to apply 1.263A1j to be exempt from capitalizing costs under section 263A
must apply 1.4482 to determine whether it is eligible for the exemption.
The same taxpayer must apply 1.448
2 to determine whether it is eligible to apply 1.4711b to be exempt from the general inventory rules under section 471a. However, it may choose not to apply 1.4711b even though it chooses to apply 1.263A1j and 1.4482.

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Alternatively, a taxpayer may rely on the proposed regulations for a taxable year beginning after December 31, 2017
and before January 5, 2021, provided that if the taxpayer applies any aspect of the proposed regulations under a particular Code provision, the taxpayer must follow all of the applicable rules contained in the proposed regulations that relate to that Code provision for such taxable year, and follow the administrative procedures for filing a change in method of accounting in accordance with 1.4461e3ii.
Statement of Availability of IRS
Documents The IRS notices, revenue rulings, and revenue procedures cited in this preamble are published in the Internal Revenue Bulletin or Cumulative Bulletin and are available from the Superintendent of Documents, U.S.
Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http www.irs.gov.
Special Analyses This regulation is not subject to review under section 6b of Executive Order 12866 pursuant to the Memorandum of Agreement April 11, 2018 between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.
I. Paperwork Reduction Act Section 1.4482b2iiiB imposes a collection of information for an election to use prior years allocated taxable income or loss to determine whether a partnership or other entity other than a C corporation is a syndicate for purposes of section 448d3 for the current tax year. The election is made by attaching a statement to the taxpayers original Federal income tax return including extensions for the taxable year that the election is made.
The election is an annual election and, if made for a taxable year, cannot be revoked. The collection of information is voluntary for purposes of obtaining a benefit under the proposed regulations.
The likely respondents are businesses or other for-profit institutions, and small businesses or organizations.
Estimated total annual reporting burden: 224,165 hours.
Estimated average annual burden hours per respondent: 1 hour.
Estimated number of respondents:
224,165.
Estimated annual frequency of responses: Once.
Other than the election statement, these regulations do not impose any additional information collection
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