Limitations on Commissioner's power to require accounting changes;

              Limitations on Commissioner's Power to Require Accounting Changes
BY THOMAS J. GRAVES Partner, Executive Office
Presented before the New York University Nineteenth Annual Institute on Federal Taxation, New York — November 1960
SINCE the enactment of the Internal Revenue Code of 1954, there has been a marked increase in the frequency and significance of ques­tions
regarding tax accounting methods. This has been caused not so much by any lack of clarity in the accounting provisions of the Code, most of which are merely re-enactments of earlier provisions, as by the increased attention to several problems of longstanding that resulted from discussion and consideration of the few tax accounting rules that were new in the Code.
The statutory recognition given to prepaid income and estimated expenses in 19541 caused many taxpayers to find tax-saving improve­ments
and corrections in their accounting, some of which seemed usable even after the new rules were repealed. The Treasury's dis­satisfaction
with these new rules and with those of section 481, which was enacted to provide an orderly and reasonable basis for dealing with adjustments resulting from accounting-method changes, forced its staff into greater awareness of tax-accounting concepts. As a result, both tax practitioners and the Internal Revenue Service are more sophisticated in these matters today than they were in 1954.
This greater awareness has led to a better understanding of the advantages to be gained from correction and changing accounting methods. Taxpayers have been interested primarily in revisions that would tend to reduce their tax liabilities, such as corrections of their treatment of accruable liabilities deducted erroneously on a cash basis in earlier years. There are many instances, however, where tax treat­ments
already in use are sufficiently advantageous to taxpayers and sufficiently subject to attack by the Internal Revenue Service that taxpayers and their advisers should be aware of the defenses they may raise against attempts by the Service to force unwanted changes. A typical and fairly common example is the reduction in taxable income that has resulted where inventories have been valued consistently over a period of years under a method resulting in inventory costs lower than those that might be determined under any valuation
1IRC sections 452 and 462, repealed by PL 74, 84th Cong. 1st Sess. (1955).
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