Form 970 Application To Use LIFO Inventory Method

OMB No. 1545-0042

(Rev. September 2001)

 Attach to your tax return. Department of the Treasury

Internal Revenue Service

For Paperwork Reduction Act Notice, see instructions on back.

Name Identifying number

Check one: First election Subsequent election

A

B

1

2

Yes No

3

4

6a

b

c

7a Check method used to figure the cost of the goods in the closing inventory over those in the opening inventory (see instructions):

Most recent purchases Earliest acquisitions during the year

Average cost of purchases during the year Other (attach explanation)

The taxpayer selects the month of as the representative month used in selecting

the index or indexes used to determine the current-year cost of the taxpayer’s inventory pool(s) under Regulations section 1.472-8(e)(2)(ii)

(see instructions). This applies only to taxpayers using the inventory price index computation method.

7b

8 Method used in valuing LIFO inventories: Unit method Dollar-value method (see instructions)

9 If you use pools, check the box that indicates the pooling method. List and describe the contents of each pool in an attached statement.

By line, type, or class of goods authorized by Regulations section 1.472-8(c) (retailer, wholesaler, jobber, or distributor)

Pooling method authorized by Regulations section 1.472-8(e)(3)(iv) (retailer, wholesaler, jobber, or distributor)

Natural business unit authorized by Regulations section 1.472-8(b)(1) (manufacturer or processor)

Multiple pools authorized by Regulations section 1.472-8(b)(3)(i) (manufacturer or processor)

Raw material-content authorized by Regulations section 1.472-8(b)(3)(ii) (manufacturer or processor)

Simplified dollar-value method under section 474 (see instructions)

Other (describe and justify)

10 Method used in computing LIFO value of dollar-value pools (see instructions and attach required information):

Published price index (describe)

Double-extension (describe) New Vehicle Alternative LIFO

Link-chain (describe and justify)

11 Attach a statement briefly describing the cost system used.

12 Did you receive IRS consent to change your method of valuing inventories for this tax year? Yes No

13 Did you ever use the LIFO inventory method before? Yes No

If “Yes,” attach a statement listing the tax years you used LIFO and explain why you discontinued it.

Cat. No. 17057T Form 970 (Rev. 9-2001)

Part I

Part II

Statement of Election

The taxpayer elects to adopt and use the LIFO inventory method provided by section 472. The taxpayer will use (or expand)

the LIFO inventory method for the first tax year ending (month, day, year) 

for the following goods (see instructions):

Will inventory be taken at actual cost regardless of market value? If “No,” attach an explanation

Other Information

Nature of business 

Inventory method used until now 

Will any adjustment that resulted from the change to the LIFO method be included in income over a 3-year period? If “No,”

attach an explanation

List goods subject to inventory that will not be inventoried under the LIFO method 

Did you issue credit statements or reports to shareholders, partners, other proprietors, or beneficiaries covering the first tax

year to which this application relates?

If “Yes,” state to whom and on what dates 

Show the inventory method used to determine income, profit, or loss in those statements 

C

D

The taxpayer agrees, as required by Regulations section 1.472-4, to make any adjustments that the IRS may require, on the

examination of the taxpayer’s income tax return, to clearly reflect income for the years involved in the change to or from the

LIFO inventory method or due to the use of the LIFO inventory method.

Was the beginning inventory for the items specified in Item A above valued at cost (as required by section 472(d)) for the first

tax year this application applies? If “No,” attach an explanation

Other method (describe and justify)

Attachment

Sequence No. 122

Were the goods specified in Part I, Item A treated as acquired at the same time and at a unit cost equal to the actual cost

of the total divided by the number of goods on hand? If “No,” attach an explanation

Used Vehicle Alternative LIFO

5

Index (describe and justify)
Form 970 (Rev. 9-2001) Page 2

General Instructions

Section references are to the Internal Revenue Code unless

otherwise noted.

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United States.

You are required to give us the information. We need it to ensure

that you are complying with these laws and to allow us to figure and

collect the right amount of tax.

The time needed to complete and file this form will vary depending

on individual circumstances. The estimated average time is:

Recordkeeping 8 hr., 7 min.

Line 7a. See Regulations sections 1.472-2 and 1.472-8(e) for more

information.

Learning about the law or the form 2 hr., 47 min.

Line 7b. See Regulations section 1.472-8(e)(3)(iii)(C) before

completing line 7b. If you do not use the retail inventory method,

also see Rev. Rul. 89-29, 1989-1 C.B. 168.

Preparing and sending the form to the IRS 3 hr., 2 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would be

happy to hear from you. See the instructions for the tax return with

which this form is filed.

Line 8. You may use the dollar-value LIFO method to determine the

cost of LIFO inventories as long as you use it consistently and it

clearly reflects income. Regulations section 1.472-8 gives details

about this method.

Line 9. Please provide sufficient information to justify the pooling

method. If you select indexes from the CPI Detailed Report, you may

establish inventory pools for any group of goods included within

each of the general categories of producer goods described in Table

3 of the CPI Detailed Report. Likewise, if you select indexes from the

Producer Price Indexes, you may establish inventory pools for any

group of goods included within each of the general categories of

producer goods described in Table 6 of the Producer Price Indexes.

See Rev. Proc. 84-57, 1984-2 C.B. 496.

Simplified dollar-value LIFO method under section 474. Only

small businesses whose average annual gross receipts for the 3

preceding tax years did not exceed $5 million may elect to use the

simplified dollar-value LIFO method. If the taxpayer is a member of a

controlled group, the gross receipts of the group are used to

determine if the taxpayer qualifies. This method requires that the

taxpayer maintain a separate inventory pool for items in each major

category in the applicable Government price index, and that the

taxpayer make adjustments to each separate pool based on

changes from the preceding tax year in the component of such

index for the major category. A qualified taxpayer does not need IRS

consent to elect these provisions. The election is in effect for the

first year the election is made and for each succeeding year the

taxpayer qualifies as an eligible small business. The election may be

revoked only with IRS consent.

Line 10. Select a LIFO computation method for the dollar-value

pooling. This is not applicable to taxpayers using the specific goods

(unit) method. To compute the LIFO value of a dollar-value pool, use

a method described in Regulations section 1.472-8(e)(2). If you use a

published price index method, indicate the specific consumer or

producer price index(es) selected for each inventory pool. Generally,

you must use 80% of the change in price indexes, unless you are an

eligible small business, as defined in section 474(c). Provide a

detailed description of the LIFO computation method you will use. If

you use the link-chain, index, or “other” method, attach a detailed

statement explaining how the method is justified under Regulations

section 1.472-8(e)(1). In addition, if you use a link-chain method,

your statement should explain why the nature of the pool makes the

double-extension or index method impractical or unsuitable.

Change from LIFO method. Once you adopt the LIFO method, it is

irrevocable unless the IRS allows you to change to another method.

Specific Instructions

First election or subsequent election. If this is your first election to

use the LIFO method, check the box for first election. If you are

expanding a prior LIFO election, check the box for subsequent

election.

The simplified dollar-value method requires that general categories

of inventory pools be established. The general categories are based

on categories of inventory items contained in the PPI Detailed

Report or the CPI Detailed Report published by the U.S. Department

of Labor, Bureau of Labor Statistics. See section 474 and

Regulations section 1.472-8 for more details.

Part II—Other Information

Attach a detailed analysis of all of your inventories as of the

beginning and end of the first tax year the LIFO method will be used

(or expanded) and the beginning inventory of the preceding tax year.

Also, include the ending inventory reported on your tax return for the

preceding tax year. See Regulations sections 1.472-2 and 1.472-3

for more details on preparing this analysis.

Identifying number. An individual’s identifying number is his or her

social security number. For all others, it is the entity’s employer

identification number.

LIFO recapture amount. A C corporation must include in gross

income the LIFO recapture amount (defined below) if:

1. It uses the LIFO method for its last tax year before the first tax

year for which an election to be taxed as an S corporation becomes

effective or

2. It transferred LIFO inventory assets to an S corporation in a

nonrecognition transaction (within the meaning of section 7701(a)(45))

in which transferred assets constitute transferred basis property (within

the meaning of section 7701(a)(43)).

For additional information on LIFO recapture, see Regulations

section 1.1363-2 and Rev. Proc. 94-61, 1994-2 C.B. 775. Also see

the instructions for Forms 1120 and 1120-A and the instructions for

Form 1120S.

The LIFO recapture amount is the amount by which the

C corporation’s inventory under the FIFO method (determined by

using cost or market, whichever is lower) authorized by section 471

exceeds the inventory amount under the LIFO method at the close

of the C corporation’s last tax year as a C corporation (or for the

year of the transfer, if 2 above applies).

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the form

displays a valid OMB control number. Books or records relating to a

form or its instructions must be retained as long as their content

may become material in the administration of any Internal Revenue

law. Generally, tax returns and return information are confidential, as

required by section 6103.

Automobile dealers engaged in the trade or business of retail sales

of new automobiles or new light-duty trucks may adopt or use the

New Vehicle Alternative LIFO Inventory Method under Rev. Proc.

97-36, 1997-2 C.B. 450. A new automobile dealer who previously

elected this method under Rev. Proc. 92-79, 1992-2 C.B. 457 is not

required to change its method of accounting to comply with Rev.

Proc. 97-36. For more information, see Rev. Proc. 97-36.

When to file. File Form 970 (or a similar statement) with your tax

return for the first tax year you intend to use or expand the LIFO

method.

Purpose of form. Form 970 is filed with your income tax return to

adopt or expand the last-in, first-out (LIFO) inventory method

described in section 472. If you prefer, you may file a statement that

gives the same information requested on Form 970.

If you filed your return for the tax year in which you wish to adopt

and use the LIFO inventory method described in section 472 without

making the election, you may make the election by filing an

amended return within 12 months of the date you filed your original

return. Attach Form 970 to the amended return and write “Filed

pursuant to section 301.9100-2” at the top of Form 970. File the

amended return at the same address the original return was filed.

Automobile dealers engaged in the trade or business of retail sales

of used automobiles or used light-duty trucks may adopt or use the

Used Vehicle Alternative LIFO Inventory Method under Rev. Proc.

2001-23, 2001-10 I.R.B. 784. You can find Rev. Proc. 2001-23 on

page 784 of Internal Revenue Bulletin 2001-10 at www.irs.gov.

Part I—Statement of Election

Item A. Enter the tax year the LIFO inventory method will first be

used (or expanded) and list the inventory items for which you will

use this method. If this is a subsequent election, list the inventory

items for which you will use this method but only for those items

that are not covered under a previous LIFO election.

Line 12. If you filed Form 3115, Application for Change in

Accounting Method, and received IRS consent to change your

method of valuing inventories for this tax year, do not attach a copy

of the approval (grant) letter. Retain a copy of the letter for your

records.