Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-60

1960-1 C.B. 190

Sec. 446

Sec. 471

IRS Headnote

A taxpayer, engaged in raising livestock and employing the unit-livestock-method of valuing his inventory, who elects to include in inventory all animals purchased for draft, breeding, or dairy purposes, rather than treat such animals as capital assets subject to depreciation after maturity, must continue to follow such method for all subsequent years unless the prior consent of the Commissioner of Internal Revenue is secured to change to another method.

Full Text

Rev. Rul. 60-60

Advice has been requested whether a taxpayer engaged in raising livestock and using the unit-livestock-price method in valuing his inventory, may make a new election each year to include in inventory draft, breeding, or dairy animals purchased in that year, or to treat such animals as capital assets subject to depreciation after maturity.

Section 471 of the Internal Revenue Code of 1954 provides, in effect, that whenever the use of inventories is necessary in order clearly to determine income, they shall be taken by the taxpayer on such basis as the Secretary of the Treasury or his delegate may prescribe.

Section 1.471-6(a) of the Income Tax Regulations provides that a farmer may make his return upon the inventory method instead of the cash receipts and disbursements method. It is optional with the taxpayer which of these methods of accounting is used but, having elected one method, the option so exercised will be binding for the year for which the option is exercised and for subsequent years unless the prior consent of the Commissioner of Internal Revenue is secured to change to another method.

Section 1.471-6(g) of the regulations provides, in part, as follows:

A livestock raiser who uses the `unit-livestock-price mathod' must include in his inventory at cost any livestock purchased, except that animals purchased for draft, breeding, or dairy purposes can, at the election of the livestock raiser, be included in inventory or be treated as capital assets subject to depreciation after maturity. * * *

The above language of the regulations provides only one election to a taxpayer engaged in raising livestock. This election is either to include all purchased breeding animals in inventory or to capitalize all purchased breeding animals. Once the election is made, it is binding and must be consistently followed for all such animals purchased each year, until such time as the prior consent of the Commissioner of Internal Revenue is secured to change to another method. Such consent involves compliance with the requirements for a change of accounting method, including the filing of an application therefor within 90 days after the beginning of the year of change. See section 446 of the Code and section 1.446-1(e)(3) of the regulations. The taxpayer, in his application, should set forth all business reasons for the proposed change.

Accordingly, it is held that a taxpayer, engaged in raising livestock and employing the unit-livestock-method of valuing his inventory, who elects for a taxable year to include in inventory all animals purchased for draft, breeding, or dairy purposes, rather than treat such animals as capital assets subject to depreciation after maturity, must continue to follow such method for subsequent years unless the prior consent of the Commissioner is secured to change to another method.