Sec. 3-3.6. Average value

Tax Law, § 210(2)

In determining average value, the taxpayer must use fair market value as described in section 3-3.5 of this Subpart for real property and marketable securities and must use the value shown on the books and records of the taxpayer in accordance with generally accepted accounting principles for personal property other than marketable securities. Allowance must be made for variations in the amount of assets held by the taxpayer during the period covered by the report, as well as for variations in market prices. Average value generally is computed on a quarterly basis where the taxpayer's usual accounting practice permits such computation. However, at the option of the taxpayer, a more frequent basis (such as monthly, weekly or daily average) may be used. Where the taxpayer's usual accounting practice does not permit a quarterly or more frequent computation of average value, a semiannual or annual computation may be used where no distortion of average value will result. If, because of variations in the amount or value of any class of assets, it appears to the Commissioner that averaging on an annual, semiannual or quarterly basis does not properly reflect average value, the Commissioner may require averaging on a more frequent basis. Any method of determining average value which is adopted by the taxpayer on any report and accepted by the Commissioner may not be changed on any subsequent report without the prior consent of such Commissioner.

Example 1:

A taxpayer owns shares of common stock of X Corporation. The fair market values, during the period covered by its report, on a quarterly basis, were as follows:

(1) at the end of first quarter, it owned no shares;

(2) at the end of second quarter, it owned no shares;

(3) at the end of third quarter, it owned no shares;

(4) at the end of fourth quarter, it owned 100 shares with a value of $100 a share—$10,000.

The average value during the period covered by the report, on a quarterly basis, of the taxpayer's holdings of X Corporation's common stock would be $2,500, computed as follows:

Fair market values of stock
End of 1st quarter	0
End of 2nd quarter	0
End of 3rd quarter	0
End of 4th quarter	$10,000
Total	$10,000
Total fair market value/Number of quarters covered by report =	$10,000/4 =	$2,500

Example 2:

The taxpayer's inventories and their values during the period covered by its report, on a quarterly basis, were as follows:

(1) at the end of first quarter, 1,000 tons with a value of $2 a ton-$2,000;

(2) at the end of second quarter, 2,000 tons with a value of $2 a ton-$4,000;

(3) at the end of third quarter, 2,000 tons with a value of $3 a ton-$6,000;

(4) at the end of fourth quarter, 1,000 tons with a value of $2 a ton-$2,000.

The average value of the taxpayer's inventories during the period covered by the report, computed on a quarterly basis, would be $3,500 computed as follows:

Values of inventories
End of 1st quarter	$ 2,000
End of 2nd quarter	4,000
End of 3rd quarter	6,000
End of 4th quarter	2,000
Total	$14,000
Total value/Number of quarters covered by report =	$14,000/4 =	$3,500

Example 3:

The taxpayer did not dispose of or acquire any part of its plant or equipment during the period covered by its report. The values of its plant and equipment were as follows:

(1) at the beginning of the year, the value was $800,000;

(2) at the end of the year, the value was $780,000.

The average value of the taxpayer's plant and equipment during the period covered by its report, computed on the basis of the average values at the beginning and end of such period, would be $790,000, computed as follows:

Values of plant and equipment
Beginning of year	$ 800,000
End of year	780,000
Total	$1,580,000
Total value of plant and equipment/Number of values =	$1,580,000/2 = $790,000