Sandstone,Inc. ,has consistently included some factory overhead as a current expense,rather than as a cost of producing goods.As a result,the beginning inventory for 2015 is understated by $40,000.If Sandstone voluntarily changes accounting methods effective January 1,2015,the positive adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2015,2016,2017,and 2018.

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A § 481 adjustment is used to prevent duplication or omission of income or deductions when there is a change in accounting method. The $40,000 understatement is spread over four years, adding $10,000 to taxable income each year.