Internal Revenue Service
Revenue Ruling
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smRev. Rul. 54-4
1954-1 C.B. 75
Sec. 446
IRS Headnote
A modification of a taxpayer's accounting procedures whereby pennies would be eliminated from certain internal financial transactions by increasing or decreasing the amount to the nearest dollar will be acceptable for Federal income tax purposes provided such procedures, once adopted, are maintained with reasonable consistency.
Full Text
Rev. Rul. 54-4
Advice is requested whether a proposed modification of a taxpayer's accounting procedures whereby pennies would be eliminated from certain internal transactions by increasing or decreasing the amount to the nearest dollar will be acceptable for Federal income tax purposes.
Under the proposed plan pennies would be eliminated in the processing of figures relating to certain internal transactions such as accounts payable distributions, sales distributions, and payroll distributions. Balance sheet accounts, including balances due to and from employees, and others, would be kept on an exact amount basis. However, in the internal distributions, pennies would be eliminated at the earliest stage of the accounting operations. If an amount ends in 50 cents or more, it would be rounded upward to the next dollar, and if less than 50 cents, the pennies would be dropped. The net variances resulting from penny eliminations should be minor since the pennies added and dropped would tend to offset each other. Such variances will be recorded as debits or credits in a penny elimination account which will be maintained for balancing purposes. At the end of the taxable year, this account will represent additional income or expense depending upon its balance.
In view of the foregoing, it is held that the proposed modification of the taxpayer's accounting procedures whereby pennies would be eliminated from certain internal financial transactions is acceptable for Federal income tax purposes provided that such procedures, once adopted, are maintained with reasonable consistency.