Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-31

1973-1 C.B. 217

Sec. 471

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A dealer in securities, using a cost method of valuing inventory, who transfers the securities to the Federal Reserve Bank Book-entry system should maintain tax records that substantially conform to those set forth in Revenue Ruling 71-21.

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Rev. Rul. 73-31

Advice has been requested as to the tax records that must be maintained by the taxpayer, a dealer in securities, for specifically identifying inventoried securities that are transferred to a book-entry system maintained by a Federal Reserve Bank.

The taxpayer uses cost as the method of valuing securities that are included in inventory as part of its accrual method of accounting for Federal income tax purposes. Cost has been determined by a specific identification of securities purchased, sold, and inventoried, i.e., the taxpayer maintains records by specific certificate numbers and actually transfers the specified certificate(s) when a sale is made. The taxpayer proposes to transfer the securities to the book-entry system maintained by the Federal Reserve Bank.

Revenue Ruling 71-21, 1971-1 C.B. 221, sets forth a means of specifically identifying book-entry securities owned as investments. Since under a book-entry system, the physical securities cannot be used to verify that particular securities were sold and that others are on hand, the Revenue Ruling provided a means for independent verification.

Specific identification of inventoried book-entry securities presents the same need of a verification method. Accordingly, it is held that tax records of the taxpayer substantially conforming to those set forth in Revenue Ruling 71-21 will be appropriate for identification of inventoried securities. Compare Revenue Ruling 71-15, 1971-1 C.B. 149.