I have a client the files a 1065 that is a distributor that has inventory. Client has beginning inventory of 5 million that was purchased in December 2017 on credit. Client is on accrual method. So in 2017 debit inventory credit accounts payable 5 million. Now in 2018 client decided to exit this line of business and simply returns inventory back to vendor and the vendor cancels the 5 million payable. No inventory was sold to actual customers. No big deal there is no affect to the income statement, but I'm wondering how best to show this on the 1125-A COGS schedule. I have beginning inventory of 5 million, ending inventory is zero but the Cost of Goods Sold should be zero. The only thing i can think of is putting a negative amount on line 5 for other costs and say "inventory returned to vendor". But this seems strange and I don't want to raise a red flag with the IRS. Any suggestions on how to present?