The U.S. Supreme Court case Thor Power Tool Co. v. Commissioner of Internal Revenue, 1978 revolved around the issue of tax deductions for inventory write-downs by businesses. Thor Power Tool Company had written down its inventory to "market value" and claimed a deduction on their federal income taxes for the loss in value under section 471 of the Internal Revenue Code (IRC). The IRS disallowed this deduction, arguing that it was not consistent with Generally Accepted Accounting Principles (GAAP), which require inventories to be valued at cost or market price, whichever is lower. Thor argued that they were following an industry practice and should be allowed to claim these deductions as per IRC Section 446(b) which allows taxpayers to use any method of accounting that clearly reflects income unless otherwise prohibited by law. However, the Supreme Court sided with the IRS stating that GAAP must be followed when determining taxable income unless there's a specific provision in tax law allowing deviation from those principles. Therefore, companies cannot unilaterally decide how much their unsold goods are worth just because they have been unable to sell them at anticipated prices.

The dissenting opinion in the Thor Power Tool Co. v. Commissioner of Internal Revenue case argued that the majority's decision was too rigid and failed to consider the unique circumstances surrounding inventory valuation for tax purposes. The dissent believed that a more flexible approach should be taken, allowing companies to write down their inventories based on market conditions rather than adhering strictly to IRS rules about "lower of cost or market" accounting methods. They contended that this would better reflect economic reality and provide a fairer basis for taxation. Furthermore, they criticized the majority's reliance on strict adherence to Generally Accepted Accounting Principles (GAAP), arguing these principles are not always appropriate for tax purposes due to their focus on providing information useful for investors rather than accurately reflecting taxable income.