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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
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December 1, 2020, H acquires $50,000
in beer and wine, and pays for this beer and wine on December 20, 2020. H may recover as deductions in 2020 the $550,000 of inventory costs.
G Example 7. Taxpayer J is a partnership engaged in the resale of beer, wine, and liquor. In 2020, J has average annual gross receipts for the prior 3-taxable-years of less than $25
million and is not otherwise prohibited from using the cash method under section 448a3. J does not have an AFS for the 2020 taxable year. For Federal income tax purposes, J uses the overall cash method of accounting, and the non-AFS section 471c inventory method of accounting. For its books and records, J uses the overall cash method.
J maintains a point-of-sale computer system that tracks acquisition costs and inventory levels of the beer, wine, and liquor. The ledger is periodically reconciled with physical counts performed by Js employees. J must use the physical inventory count and ledger to determine its ending inventory. J
includes in cost of goods sold for 2020
those inventory costs that are not properly allocated to ending inventory.
7 Effect of section 471c on other provisions. Nothing in section 471c shall have any effect on the application of any other provision of law that would otherwise apply, and no inference shall be drawn from section 471c with respect to the application of any such provision. For example, an accrual method taxpayer that includes inventory costs in its AFS is required to satisfy section 461 before such cost can be included in cost of goods sold for the taxable year. Similarly, nothing in section 471c affects the requirement under section 446e that a taxpayer secure the consent of the Commissioner
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before changing its method of accounting. If an item of income or expense is not treated consistently from year to year, that treatment may not clearly reflect income, notwithstanding the application of this section. Finally, nothing in section 471c permits the deduction or recovery of any cost that a taxpayer is otherwise precluded from deducting or recovering under any other provision in the Code or Regulations.
8 Method of accountingi In general. A change in the method of treating inventory under this paragraph b is a change in method of accounting under sections 446 and 481 and the accompanying regulations. A taxpayer changing its method of accounting under paragraph b of this section may do so only with the consent of the Commissioner as required under section 446e and 1.4461. For example, a taxpayer using the AFS section 471c inventory method or non-AFS section 471c inventory method that wants to change its method of accounting for inventory in its AFS, or its books and records, respectively, is required to secure the consent of the Commissioner before using this new method for Federal income tax purposes. However, a change from having an AFS to not having an AFS, or vice versa, without a change in the underlying method for inventory for financial reporting purposes that affects Federal income tax is not a change in method of accounting for such inventory under section 446e.
In the case of any taxpayer required by this section to change its method of accounting for any taxable year, the change shall be treated as a change initiated by the taxpayer. For rules relating to the clear reflection of income and the pattern of consistent treatment of an item, see section 446 and 1.446

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1. The amount of the net section 481a adjustment and the adjustment period necessary to implement a change in method of accounting required under this section are determined under 1.4461e and the applicable administrative procedures to obtain the Commissioners consent to change a method of accounting as published in the Internal Revenue Bulletin see Revenue Procedure 201513 20155
IRB 419 or successor see also 601.601d2 of this chapter.
ii Automatic consent for certain method changes. Certain changes in method of accounting made under paragraph b of this section may be made under the procedures to obtain the automatic consent of the Commissioner to change a method of accounting. See Revenue Procedure 201513 20155
IRB 419 or successor see 601.601d2 of this chapter. In certain situations, special terms and conditions may apply.
c Applicability dates. This section applies for taxable years beginning on or after January 5, 2021. However, for a taxable year beginning after December 31, 2017, and before January 5, 2021, a taxpayer may apply this section provided that the taxpayer follows all the applicable rules contained in this section for such taxable year and all subsequent taxable years.
Douglas W. ODonnell, Acting Deputy Commissioner for Services and Enforcement.
Approved: December 18, 2020.
David J. Kautter, Assistant Secretary of the Treasury Tax Policy.
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