'' Thor Power Tool Company v. Commissioner'', 439 U.S. 522 (1979), was a

United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...

case in which the Court upheld

IRS The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...

regulations limiting how taxpayers could write down inventory. Thor manufactured equipment using multiple parts that it produced. It capitalized the costs of these parts when produced. When it had inventories of parts in excess of production needs, the company's accounting practice was to write down those inventories, taking a loss based on management judgment. However, IRS regulations accepted this "

lower of cost or market Lower of cost or market (LCM or LOCOM) is a conservative approach to valuing and reporting inventory. Normally, ending inventory is stated at historical cost. However, there are times when the original cost of the ending inventory is greater than ...

" method for tax purposes only if the taxpayer could demonstrate a reduced market price, or the goods were defective or "subnormal". It did not permit companies to write down goods simply because they were not selling them. In court, the company argued that its deduction for loss should be allowed for tax purposes because it was permitted for accounting purposes. But the Court upheld the IRS regulations, saying, "There is no presumption that an inventory practice conformable to '

generally accepted accounting principles Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...

' is valid for tax purposes. Such a presumption is insupportable in light of the statute, this Court's past decisions, and the differing objectives of tax and financial accounting."

Effects

The ''Thor'' decision caused publishers and booksellers to be much quicker to destroy stocks of poorly-selling books in order to realize a taxable loss. These books would previously have been kept in stock but written down to reflect the fact that not all of them were expected to sell.

References

External links

* {{DEFAULTSORT:Thor Power Tool Company V. Commissioner United States Supreme Court cases United States taxation and revenue case law 1979 in United States case law United States Supreme Court cases of the Burger Court