The Internal Revenue Service has reversed itself on the rolling-average method of valuing inventory and will now consider it valid for tax purposes.
The IRS has traditionally viewed rolling-average inventory valuation as a method of accounting that does not clearly reflect income, especially when inventory is held for several years or costs fluctuate substantially. However, many industries consider the rolling-average method an accurate estimate of costs and use it for financial statements.
The IRS issued
However, if inventory is held for several years or costs fluctuate substantially, a rolling-average cost method may or may not clearly reflect income, depending on the particular facts and circumstances, the IRS cautioned. In addition, if a taxpayer does not use a rolling-average method for financial accounting purposes, then the rolling-average method may not accurately determine costs or clearly reflect income for federal income tax purposes.