Rev. Rul. 67-107

Advice has been requested concerning the proper method of valuing for inventory purposes used cars taken in trade by a car dealer.

A car dealer files his returns on a calendar year basis employing an accrual method of accounting and values his inventories at the lower of cost or market.

It is a common practice for the car dealer to sell a car and as part of the payment to take in trade the purchaser's old car. The dealer values the car taken in trade at cost which is an amount representing the average wholesale price listed by an official used car guide at the time of trade-in. If not sold, the used car is carried in inventory at the cost figure until the end of year. The inventory value is then adjusted to conform to the average wholesale price listed at that time. This is the practice recommended by the auto industry and used by nearly all car dealers.

Section 471 of the Internal Revenue Code of 1954 provides that inventories must conform as nearly as may be to the best accounting practice in the trade or business and must clearly reflect income. Section 1.471-2(c) of the Income Tax Regulations provides that the bases of valuation most commonly used by business concerns and which meet the requirements of section 471 are (1) cost and (2) cost or market, whichever is lower. Section 1.471-4(a) of the regulations defines `market' as the `the current bid price prevailing at the date of inventory for the particular merchandise in the volume in which usually purchased by the taxpayer.'

Accordingly, a car dealer may value his used cars for inventory purposes at valuations comparable to those listed in an official used car guide as the average wholesale prices for comparable cars.

O.D. 782, C.B. No. 4, 31 (1921) is revoked.

¹ Also released as Technical Information Release 892, dated Mar. 15, 1967.