Thor Power Tool Company v. Commissioner

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Thor Power Tool Company v. Commissioner
Seal of the United States Supreme Court.svg
Argued November 1, 1978
Decided January 16, 1979
Full case name Thor Power Tool Company v. Commissioner of Internal Revenue
Citations 439 U.S. 522 (more)
The Commissioner did not abuse his discretion in determining that the write-down of "excess" inventory failed to reflect petitioner's 1964 income clearly, since the write-down was plainly inconsistent with the governing Regulations.
Court membership
Case opinions
Majority Blackmun, joined by unanimous

Thor Power Tool Company v. Commissioner, 439 U.S. 522 (1979), was a United States Supreme Court case in which the Court upheld IRS regulations limiting how taxpayers could write down inventory. The opinion limited the application of the lower of cost or market method to the two circumstances in the regulations.

The taxpayer had reduced the value of its inventory to an amount management asserted was the fair market value, without selling the inventory. In court, the taxpayer argued that its deduction for loss should be allowed for tax purposes because it was permitted for accounting purposes. The Court stated, "There is no presumption that an inventory practice conformable to 'generally accepted accounting principles' is valid for tax purposes. Such a presumption is insupportable in light of the statute, this Court's past decisions, and the differing objectives of tax and financial accounting." The Court's opinion cited, in particular, a lack of evidence presented by the taxpayer to support its loss.

Thor manufactured equipment using multiple parts that it produced. It capitalized the costs of these parts when produced. When it had inventories of parts in excess of production needs, it wrote down those inventories, taking a loss based on management judgment. This write-down was in accordance with the company's accounting practice.

IRS regulations provided that goods could be written down only if one of two conditions existed: either the taxpayer could demonstrate a market price, or the goods were defective or "subnormal". The Court denied the write-down because Thor did not present evidence to demonstrate a market price of less than its cost and did not show that the parts were subnormal goods.

The decision prevents companies from writing down goods simply because they are not selling them.[1]

External links[edit]

  • Text of Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979) is available from:  Findlaw  Justia 


  1. ^ Pratt & Kulsrud, Federal Taxation, 2006, p. 10-33. ISBN 0-79-35175-9.