Texas Corporation disassembles old automobiles for the purpose of reselling their components (i.e., different types of metals, plastics, rubber, and other materials). Texas sells some of the items for scrap, but must pay to dispose of environmentally hazardous plastics and rubber. At year-end, Texas Corporation has a difficult time determining the cost of the individual parts that are stacked in piles. In fact, it would be very expensive to even weigh some of the materials on hand. Texas has followed the practice of having two experienced employees estimate the weight of different stacks and then price them based on quotes found in trade journals. If Texas must pay to dispose of an item, it is assigned a value of zero. In other words, Texas does not value its inventory using standard FIFO or LIFO methods. Is such a practice acceptable?
A partial list of research sources is:
• Reg. Secs. 1.471-2(a) and 1.471-3(d)
• Morrie Chaitlen, 1978 PH T.C. Memo ¶78,006, 37 TCM 17
• Justus & Parker Co., 13 BTA 127 (1928)