Thor Power Tool Co. v. Commissioner

439 U.S. 522 (1979)

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Thor Power Tool Co. v. Commissioner

United States Supreme Court
439 U.S. 522 (1979)

SC

Facts

Thor Power Tool Company (plaintiff) concluded that much of its inventory was overvalued and excess. Accordingly, Thor wrote down those items for accounting purposes. However, Thor continued to offer that inventory for sale at its original prices. Thor utilized the lower of cost or market method of inventory accounting, under which a company values its inventory at cost, unless the market value of the inventory is lower. Thor did not present any supporting evidence of actual offers or sales to show that the valuation reflected its income. The Internal Revenue Service (IRS) (defendant) disallowed Thor’s write-down, finding that even though its accounting method was consistent with generally accepted accounting principles (GAAP), it did not accurately reflect Thor’s income. Thor appealed. The United States Tax Court and the United States Court of Appeals for the Seventh Circuit affirmed. The United States Supreme Court granted certiorari.

Rule of Law

Issue

Holding and Reasoning (Blackmun, J.)

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