* * * *

(3) Exception to limitation in this subsection. -- The limitation in this subsection shall not apply if the transferor corporation and the 80 T.C. 895">*903 acquiring corporation are owned substantially by the same persons in the same proportion. ²

1983 U.S. Tax Ct. LEXIS 82">*97 The Commissioner takes the position that SCF is not entitled to carry over the Byerly net operating loss because the merger of Byerly into SCF did not qualify as a reorganization within the meaning of section 368(a)(1)(A). He contends that for the merger to qualify as such a reorganization, the continuity-of-interest requirement must be satisfied, that in applying such requirement, the step-transaction doctrine must be considered, that we must apply the continuity-of-interest requirement by looking to whether there was a continuity of interest of the historic shareholders of Byerly, and that when so applied, the continuity-of-interest requirement was not satisfied. Thus, he maintains that we need not reach the question of the applicability of section 382(b) since the merger did not meet the requirements of section 368(a)(1)(A). On the other hand, SCF argues that since the Zaffrans owned all the stock of Byerly before the merger and virtually all the stock of SCF after the merger, the continuity-of-interest requirement was satisfied. In the alternative, it argues that the provisions of section 382(b) have replaced the longstanding judicial continuity-of-interest requirement and1983 U.S. Tax Ct. LEXIS 82">*98 that because of the Zaffrans' ownership of Byerly and SCF, the requirement of section 382(b)(3) was satisfied.

It is well settled that for a corporate reorganization to qualify as nontaxable, there must be a continuity of proprietary interest. The regulations declare that the purpose of the tax-free reorganization provisions is:

to except from the general rule certain specifically described exchanges incident to such readjustments of corporate structures made in one of the particular ways specified in the Code, as are required by business exigencies and which effect only a readjustment of continuing interest in property under modified corporate forms. * * * [Sec. 1.368-1(b), Income Tax Regs.; emphasis added.]

Section 1.368-2(a), Income Tax Regs., provides, in part:

80 T.C. 895">*904 The term [tax-free reorganization] does not embrace the mere purchase by one corporation of the properties of another corporation, for it imports a continuity of interest on the part of the transferor or its shareholders in the properties transferred. * * * [Emphasis added.]

The requirement that the "historic" owners retain a continuing interest in the reorganized corporation was born of a judicial1983 U.S. Tax Ct. LEXIS 82">*99 effort to confine the tax-free reorganization provisions to their proper function. Cortland Specialty Co. v. Commissioner, 60 F.2d 937">60 F.2d 937 (2d Cir. 1937), affg. 22 B.T.A. 808">22 B.T.A. 808 (1931); 3 B. Bittker, Federal Taxation of Income, Estates and Gifts, par. 94.2.4 (1981). The continuity-of-interest doctrine requires that a certain portion of the stockholders of the transferor (acquired) corporation maintain an equity position in the transferee (acquiring) corporation after the transfer is completed and is based upon the fundamental statutory purpose of providing for the carryover of tax attributes only if the reorganization is distinguishable from a sale. See sec. 1.368-2(a), Income Tax Regs.; B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders, par. 3.05, at 3-19 (4th ed. 1979); Reef Corp. v. Commissioner, 368 F.2d 125">368 F.2d 125, 368 F.2d 125">132 (5th Cir. 1966), affg. on this issue a Memorandum Opinion of this Court; 60 F.2d 937">Cortland Specialty Co. v. Commissioner, supra.In testing for the continuity of shareholder interest, the courts have held that a requisite continuity1983 U.S. Tax Ct. LEXIS 82">*100 is not fulfilled in the absence of a showing (1) that the transferor corporation or its shareholders retain a proprietary stake in the ongoing enterprise, and (2) that such retained interest represents a substantial part of the value of the property transferred. See generally LeTulle v. Scofield, 308 U.S. 415">308 U.S. 415 (1940); Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462">287 U.S. 462 (1933); Southwest National Gas Co. v. Commissioner, 189 F.2d 332">189 F.2d 332, 189 F.2d 332">334 (5th Cir. 1951), affg. 14 T.C. 81">14 T.C. 81 (1950); Kass v. Commissioner, 60 T.C. 218">60 T.C. 218 (1973), affd. without published opinion 491 F.2d 749">491 F.2d 749 (3d Cir. 1974).

Moreover, it is equally well established that the incidence of taxation depends not on the form but on the actual substance of a transaction ( Commissioner v. Court Holding Co., 324 U.S. 331">324 U.S. 331 (1945); Helvering v. Clifford, 309 U.S. 331">309 U.S. 331 (1940)), and "The considerations underlying the reorganization provisions were not cast in terms of form but of substance" (1983 U.S. Tax Ct. LEXIS 82">*101 Davant v. Commissioner, 366 F.2d 874">366 F.2d 874, 366 F.2d 874">887 n. 27 (5th Cir. 1966), affg. on 80 T.C. 895">*905 this issue South Texas Rice Warehouse Co. v. Commissioner, 43 T.C. 540">43 T.C. 540 (1965); emphasis added). The step-transaction doctrine is a particular manifestation of the more general tax law principle that purely formal distinctions cannot obscure the substance of a transaction. Gregory v. Helvering, 293 U.S. 465">293 U.S. 465 (1935). Where the step-transaction doctrine is applied, a series of formally separate steps may be amalgamated and treated as a single transaction if they are in substance integrated, interdependent, and focused toward a particular end result. B. Bittker & J. Eustice, supra at par. 14.51; King Enterprises, Inc. v. United States, 189 Ct. Cl. 466">189 Ct. Cl. 466, 189 Ct. Cl. 466">474, 418 F.2d 511">418 F.2d 511, 418 F.2d 511">516 (1969); see L. Davis, Corporate Acquisitions and Dispositions of Businesses 4-44 (1974); S. Hagendorf, Tax Guide for Buying and Selling a Business 182-187 (5th ed. 1982). If, upon consideration of the intentions of the parties and the nature of the steps or parts of a transaction or transactions, 1983 U.S. Tax Ct. LEXIS 82">*102 it appears that what was accomplished should properly be treated for tax purposes as one transaction, that treatment will be established by this Court in accordance with the step-transaction doctrine. Where a step transaction is involved in a reorganization, it is necessary to look at the makeup or identity of the stockholders before the initial step in the series of steps and those after the final step to ascertain whether the requisite continuity of interest has been maintained by the historic shareholders. See L. Davis, supra.

It is clear that the merger of Byerly and SCF was effected by the Zaffrans as part of an overall plan to acquire the business of Byerly. Prior to effecting such merger, Mr. Zaffran learned of Byerly's weak financial position. He discussed with Mr. Byerly the possibility of "merging" their operations and thereafter secured the approval of Superior. In addition, Mr. Zaffran reviewed the contents of Byerly's interim financial statements and consulted with his attorney before proceeding with the plan to acquire the Byerly stock. On the day after such stock was acquired, the Zaffrans merged Byerly into SCF. A review of such record shows beyond a1983 U.S. Tax Ct. LEXIS 82">*103 doubt that the ultimate objective of Mr. Zaffran was to acquire the assets of Byerly and that the purchase of the Byerly stock and its subsequent liquidation were merely steps in the accomplishment of that objective. "A given result at the end of a straight path is not made a different result because reached by 80 T.C. 895">*906 following a devious path." Minnesota Tea Co. v. Helvering, 302 U.S. 609">302 U.S. 609, 302 U.S. 609">613 (1938).

The facts of the present case are very similar to those of Estate of McWhorter v. Commissioner, 69 T.C. 650">69 T.C. 650 (1978), affd. in an unpublished opinion 590 F.2d 340">590 F.2d 340 (8th Cir. 1978). In McWhorter, a corporation (Ozark) entered into an agreement with the shareholders of a second corporation (Benton) to purchase all of Benton's stock. Benton had a large net operating loss. Pursuant to the purchase agreement, Ozark became the sole shareholder in Benton. Eighteen days later, Ozark and Benton adopted a plan of merger, and after the merger was effected, Ozark was the surviving corporation. In disallowing Ozark's use of Benton's net operating loss, this Court wrote:

Section 381(a)(2) refers to 1983 U.S. Tax Ct. LEXIS 82">*104 certain A, C, D, and F reorganizations. One underlying premise of these and all reorganizations is that there is a significant, continuing proprietary interest. * * *

Petitioner clearly has not presented us with facts that indicate a continuing proprietary interest. On April 12, 1971, Ozark, which had previously owned no Benton stock, purchased all of Benton's outstanding stock. Eighteen days later, Benton was liquidated into Ozark. We cannot view the purchase and liquidation as separate, independent steps. As we noted in Kass v. Commissioner, 60 T.C. 218">60 T.C. 218, 60 T.C. 218">223 (1973), affd. per order (3d Cir., Jan. 18, 1974), "In short, where the parent's stock interest is 'old and cold,' it may contribute to continuity-of-interest. Where the parent's interest is not 'old and cold,' the sale of shares by the majority of shareholders actually detracts from continuity-of-interest." In the facts before us Ozark's interest in Benton was recently acquired. Further, there has been no showing by petitioner that the stock was not acquired as the first step in a plan to acquire Benton's assets. In view of this, we conclude the underlying continuity-of-proprietary-interest1983 U.S. Tax Ct. LEXIS 82">*105 requirement necessary to some extent in every reorganization has not been satisfied. * * * As such, it is impossible for petitioner to fall within the second type of corporate combination described in section 381(a)(2). [69 T.C. 650">69 T.C. 664.]

In McWhorter, the corporation acquired the stock and liquidated the acquired corporation, whereas in the present case, it was the Zaffrans, the shareholders of the acquiring corporation, who acquired the stock and liquidated the acquired corporation; but in both cases, the acquisition of the stock and the liquidation were merely steps in the acquisition of the assets of the acquired corporation. Thus, the Byerly shares could hardly be considered "old and cold" in the hands of the Zaffrans for purposes of characterizing them as the 80 T.C. 895">*907 historic shareholders. Estate of McWhorter v. Commissioner, 69 T.C. 650">69 T.C. 664; Yoc Heating Corp. v. Commissioner, 61 T.C. 168">61 T.C. 168 (1973); B. Bittker & J. Eustice, supra, par. 14.12, at 14-35, 14-36. In our view, the Zaffrans' acquisition of the Byerly shares was inextricably interwoven with their intent to effect a merger1983 U.S. Tax Ct. LEXIS 82">*106 of Byerly and SCF, and since the historic shareholders of Byerly retained no proprietary interest in SCF, the requisite test of continuity was not satisfied. Accordingly, we conclude that the merger did not qualify as a reorganization under section 368(a)(1)(A), and since the carryover of tax attributes under section 381(a)(2) is conditioned on the existence of a reorganization qualifying under section 368(a)(1), we hold that SCF has not satisfied the requirement of section 381(a)(2).

There is no merit in the argument by SCF that the enactment of section 382(b) was intended to replace the continuity-of-interest requirement under sections 368(a)(1) and 381(a)(2). Section 382(b) was enacted to provide objective criteria for determining when an acquiring corporation is entitled to a carryover from a transferor corporation, and it limits such a carryover where the shareholders of the transferor corporation do not acquire at least a 20-percent interest in the acquiring corporation. Resorts International, Inc. v. Commissioner, 511 F.2d 107">511 F.2d 107, 511 F.2d 107">110 (5th Cir. 1975), affg. on this issue 60 T.C. 778">60 T.C. 778 (1973). However, by its very terms, 1983 U.S. Tax Ct. LEXIS 82">*107 section 382(b) only applies when there has been a transfer described in section 381(a)(2); thus, the applicability of section 382(b) is not reached unless the reorganization first meets the requirements of sections 368(a)(1) and 381(a)(2). In McWhorter, we held that the acquiring corporation was not entitled to any carryover of a net operating loss because it failed to meet the continuity-of-interest requirement of section 368(a)(1), and the Court never reached the question of the applicability of section 382(b). Accordingly, we, too, do not reach the question of the applicability of section 382(b), ³ and we hold that SCF is not 80 T.C. 895">*908 entitled to carry over the Byerly net operating loss. ⁴

1983 U.S. Tax Ct. LEXIS 82">*108 The next issue for decision is whether the Commissioner's revaluation of SCF's 1974 ending inventory constituted a change in its accounting method. SCF does not challenge the Commissioner's revaluation of its closing 1974 inventory; but it argues that there was a mistake in determining the amount of its opening 1974 inventory and that the value of such inventory should be recomputed by use of the same method used for valuing its closing inventory. It also contends that the mistake in the opening inventory was the omission of new buses, that the correction of such a mistake is not a change of accounting method, and that therefore section 481 is not applicable. On the other hand, the Commissioner maintains that SCF has failed to prove that there was a mistake in its reported 1974 opening inventory. In the alternative, he takes the position that if the 1974 opening inventory is recomputed, there has been a change of accounting method and that an adjustment under section 481 is authorized to prevent the omission of income resulting from such change.

Section 446(a) states the general rule for methods of accounting. Such section provides that "Taxable income shall be computed under1983 U.S. Tax Ct. LEXIS 82">*109 the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books." However, section 446(b) provides that "If no method of accounting has been regularly used by the taxpayer, or if the method used does not clearly reflect income, the computation of taxable income shall be made under such method as, in the opinion of the Secretary, does clearly reflect income" (emphasis added). See also sec. 1.446-1, Income Tax Regs. With respect to inventories, section 471 provides:

Whenever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income. [Emphasis added.]

See sec. 1.471-2(a), Income Tax Regs. It is well established that 80 T.C. 895">*909 sections 446(b) and 471 vest the Commissioner with broad authority in matters of inventory accounting and give him wide latitude to recompute income so as to clearly reflect income. Thor Power Tool Co. v. Commissioner, 439 U.S. 522">439 U.S. 522, 439 U.S. 522">532 (1979);1983 U.S. Tax Ct. LEXIS 82">*110 United States v. Catto, 384 U.S. 102">384 U.S. 102, 384 U.S. 102">113-114 (1966); Primo Pants Co. v. Commissioner, 78 T.C. 705">78 T.C. 705, 78 T.C. 705">719-720 (1982).

In his regulations, the Commissioner has undertaken to define what constitutes a change in accounting method. Section 1.446-1(e)(2)(ii), Income Tax Regs., provides, in part:

(ii) (a) A change in the method of accounting includes a change in the overall plan of accounting for gross income or deductions or a change in the treatment of any material item used in such overall plan. * * * A material item is any item which involves the proper time for the inclusion of the item in income or the taking of a deduction. Changes in method of accounting include * * * a change involving the method or basis used in the valuation of inventories * * *

(b) A change in method of accounting does not include correction of mathematical or posting errors, or errors in the computation of tax liability * * *

(c) A change in an overall plan or system of identifying or valuing items in inventory is a change in method of accounting. Also a change in the treatment of any material item used in the overall plan for identifying1983 U.S. Tax Ct. LEXIS 82">*111 or valuing items in inventory is a change in method of accounting.

Where the inventory is valued according to the lower of cost or market method, the market value of each article on hand at the inventory date is compared with the cost, and the lower of the two values is the amount taken as the inventory value. Sec. 1.471-4(c), Income Tax Regs. The regulations specifically define "market" to be the "current bid price prevailing at the date of the inventory for the particular merchandise." Sec. 1.471-4(a), Income Tax Regs. Where no open market exists, or "where quotations are nominal, due to inactive market conditions, the taxpayer must use such evidence of a fair market price at the date or dates nearest the inventory as may be available, such as specific purchases or sales by the taxpayer or others in reasonable volume and made in good faith." Sec. 1.471-4(b), Income Tax Regs.

In Thor Power Tool Co., the Supreme Court examined such regulations and observed:

The taxpayer must value inventory for tax purposes at cost unless the "market" is lower. "Market" is defined as "replacement cost," and the taxpayer is permitted to depart from replacement cost only in specified 80 T.C. 895">*910 1983 U.S. Tax Ct. LEXIS 82">*112 situations. When it makes any such departure, the taxpayer must substantiate its lower inventory valuation by providing evidence of actual offerings, actual sales, or actual contract cancellations. In the absence of objective evidence of this kind, a taxpayer's assertions as to the "market value" of its inventory are not cognizable in computing its income tax. [439 U.S. 522">439 U.S. at 535; emphasis added.]

In 78 T.C. 705">Primo Pants Co. v. Commissioner, supra, we were concerned with whether a change in the method for valuing inventory constituted a change in accounting method. In that case, a manufacturer of men's pants maintained inventories which it purported to value at the lower of cost or market. The taxpayer generally valued its finished goods at 50 percent of the sales price. Its materials and work-in-process inventories were valued at varying percentages of their costs. The taxpayer did not include any amounts for direct labor or factory overhead in valuing its inventory of manufactured goods. The Commissioner determined that the petitioner's method of valuing its inventory was improper and revalued such inventory. There, we recognized1983 U.S. Tax Ct. LEXIS 82">*113 the principle that a change in the treatment of an item which affects the time for reporting income constitutes a change in an accounting method, and we pointed out that the undervaluation of inventory does affect the time for reporting income. 78 T.C. 705">78 T.C. 723-725. We concluded that since Primo had improperly valued its inventory, the Commissioner's revaluation of such inventory constituted a change in accounting method. 78 T.C. 705">78 T.C. 725; 4 B. Bittker, Federal Taxation of Income, Estates and Gifts, par. 105.6 (1981).

When we apply the principles of these regulations and decisions to the facts of this case, it is clear that the Commissioner's revaluation of SCF's closing 1974 inventory was a change in accounting method. The record does not reveal precisely how SCF determined the items included in such inventory or the value of such items, but it is clear that SCF lacked adequate evidence to substantiate its determination of the fair market value of such items. The Commissioner, with the assistance of Mr. Durrett, identified all items to be included in such inventory and based the valuation on their cost since there was no adequate1983 U.S. Tax Ct. LEXIS 82">*114 evidence that their market value was less. As SCF recognizes, such action by the Commissioner was proper, but it did represent a change in accounting method.

80 T.C. 895">*911 The facts also show that there was a mistake in the computation of the value of SCF's opening 1974 inventory, but we are not convinced that the mistake was the omission of the new buses. Mr. Hummel, who prepared the 1973 return for SCF, rejected a proposed listing of inventory which clearly omitted the new buses, and when he specifically requested a new valuation that included both new and used buses, he was given the figure of $ 175,853. Under such circumstances, we must conclude that SCF has failed to prove that the amount which it reported as its opening 1974 inventory omitted the new buses. Nevertheless, the evidence does show that such inventory was computed improperly on the basis of a general estimate. Compare sec. 1.471-4, Income Tax Regs. The reconstruction of the opening 1974 inventory by Mr. Durrett properly identified all new and used buses and based their valuation on cost. Such reconstruction shows that there was a substantial understatement of the opening 1974 inventory and is sufficient to establish1983 U.S. Tax Ct. LEXIS 82">*115 the need for recomputing such inventory. It is well settled that the opening 1974 inventory must be computed in the same manner as the closing inventory for that year. Primo Pants Co. v. Commissioner, 78 T.C. 705">78 T.C. 725; Dearborn Gage Co. v. Commissioner, 48 T.C. 190">48 T.C. 190, 48 T.C. 190">197 (1967); Fruehauf Trailer Co. v. Commissioner, 42 T.C. 83">42 T.C. 83, 42 T.C. 83">107 (1964), affd. 356 F.2d 975">356 F.2d 975 (6th Cir. 1966). Accordingly, we hold that the opening 1974 inventory for SCF must be recomputed in the manner proposed by Mr. Durrett and that such recomputation constitutes a change in the method for valuing such inventory.

Since we have concluded that there was a change in the method of accounting used by SCF in 1974, it follows that section 481 is applicable. Section 481(a) provides, in relevant part:

(a) General Rule. -- In computing the taxpayer's taxable income for any taxable year (referred to in this section as the "year of the change") --

(1) if such computation is under a method of accounting different from the method under which the taxpayer's taxable income for the preceding taxable year was computed, 1983 U.S. Tax Ct. LEXIS 82">*116 then

(2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted * * *

Section 481(b) provides that if an adjustment under section 48180 T.C. 895">*912 results in a substantial increase in taxable income, the liability for the adjustment may be spread over several years.

Section 481 was designed to cure the distortions of taxable income resulting from changes in the taxpayer's method of accounting. Grogan v. United States, 475 F.2d 15">475 F.2d 15 (5th Cir. 1973); Graff Chevrolet Co. v. Campbell, 343 F.2d 568">343 F.2d 568, 343 F.2d 568">572 (5th Cir. 1965); 48 T.C. 190">Dearborn Gage Co. v. Commissioner, supra.Section 481 assures that the taxpayer's income is reported correctly in the year of the change and that the distortion is taken into account in accordance with such section. The amount for the 1974 opening inventory was $ 83,274.42 greater than the 1973 ending inventory, and if section 481 were not applicable, that amount would be omitted from income as a result of the change in SCF's accounting method in 1974.

SCF1983 U.S. Tax Ct. LEXIS 82">*117 maintains that the omission occurred in 1973, a year with respect to which the statute of limitations has run, and that therefore no adjustment can be made in 1974 with respect to such omission. Such argument was considered and rejected in Graff Chevrolet Co. v. Campbell, 343 F.2d 568">343 F.2d at 572, where Judge Wisdom wrote:

There is no necessary conflict between section 481 and the statute of limitations. Until the year of the accounting change, the Commissioner has no claim against the taxpayer for amounts which the taxpayer should have reported in prior years. The statute of limitations is directed toward stale claims. Section 481 deals with claims which do not even arise until the year of the accounting change. "When a taxpayer uses an accounting method which reflects an expense before it is proper to do so or which defers an item of income that should be reported currently, he has not succeeded (and does not purport to have succeeded) in permanently avoiding the reporting of any income; he has impliedly promised to report that income at a later date, when his accounting method, improper though it may be, would require it. Section 481, therefore, does1983 U.S. Tax Ct. LEXIS 82">*118 not hold the taxpayer to any income which he has any reason to believe he has avoided, and does not frustrate the policy that men should be able, after a certain time, to be confident that past wrongs are set at rest." Note, Problems Arising from Changes in Tax-Accounting Methods, 73 Harv. L. Rev. 1564, 1576 (1960). [Emphasis added.]

See also W. S. Badcock Corp. v. Commissioner, 59 T.C. 272">59 T.C. 272, 59 T.C. 272">288-289 (1972), revd. on another issue 491 F.2d 1226">491 F.2d 1226 (5th Cir. 1974).

In arguing that section 481 is not applicable, SCF also relies on Korn Industries, Inc. v. United States, 209 Ct. Cl. 559">209 Ct. Cl. 559, 532 F.2d 1352">532 F.2d 1352 (1976). In Korn, the taxpayer, a furniture manufacturer, computed the value of its inventories by taking separate 80 T.C. 895">*913 inventories of its raw materials, work-in-process, supplies, and finished goods, based upon physical count and actual cost calculations. The cost of each piece of furniture in the finished goods inventory was computed by using the standard cost for that piece, and the standard cost consisted of the aggregate of the cost elements of1983 U.S. Tax Ct. LEXIS 82">*119 materials, labor, and overhead for that piece. There were 14 kinds of materials in the finished furniture.

In the course of an internal audit of its inventories, the taxpayer discovered that its accountants had not included 3 of the 14 materials in their calculations of the finished goods inventories for a number of years. However, such elements were not omitted from the raw materials inventory, the work-in-process inventory, or the supplies inventory. The omissions in such years caused taxable income to be understated due to overstatements in the cost of goods sold. The taxpayer corrected the understatement of inventory and reported its beginning inventory in an amount greater than its ending inventory for the preceding year. The Commissioner audited Korn's return and determined that the adjustments constituted a change in accounting method and resulted in an omission of income necessitating an adjustment under section 481.

The Court of Claims rejected the Commissioner's position. The court took cognizance of the fact that the items omitted from the finished goods inventory were not omitted from the raw materials, work-in-process, or supplies inventories. The court found1983 U.S. Tax Ct. LEXIS 82">*120 the omissions from the finished goods inventory to be inadvertent and held that the taxpayer's act of adjusting the inventory constituted the correction of a posting error within the meaning of section 1.446-1(e)(2)(ii)(b), Income Tax Regs.

The Korn case is factually distinguishable from the case now before us. ⁵ In Korn, there was an omission of certain elements 80 T.C. 895">*914 of the costs of the inventories, and the court found such omission to be inadvertent. Here, we have concluded that SCF failed to prove that there was any omission from its inventory; it was using an insupportable and improper method for valuing its inventories, and the Commissioner revalued such inventories by use of a different and proper method. Under these circumstances, we conclude and hold that within the meaning of section 481, there was a change in an accounting method used by SCF in 1974 and that as a result of such change, section 481 is applicable.

1983 U.S. Tax Ct. LEXIS 82">*121 Decision will be entered under Rule 155.