Form 970 Application To Use LIFO Inventory Method (Rev. August 1998) OMB No. 1545-0042

© Attach to your tax return. Department of the Treasury

Internal Revenue Service

For Paperwork Reduction Act Notice, see instructions on back.

Name Identifying number (See instructions.)

Number, street, and room or suite no. (If a P.O. box, see instructions.) CHECK ONE:

First Election

Subsequent Election

A

B

1

2

Yes No

3

4a

5a

b

c

6a 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.

6b

7 Method used in valuing LIFO inventories: Unit method Dollar-value method (See instructions.)

8 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 General Instructions)

Other (describe and justify)

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

Double-extension (describe) Published Price Index (describe) Index (describe and justify)

Link-chain (describe and justify) Alternative LIFO

10 Attach a statement briefly describing the cost system used.

11 Did you receive the Commissioner’s permission to change your method of valuing inventories for this tax year? Yes No

If “Yes,” attach a copy of the National Office’s “grant letter”.

12 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.

Under penalties of perjury, I declare that I have examined this application, including any accompanying schedules and statements, and to the best of my knowledge

and belief, it is true, correct, and complete.

Applicant’s signature and date Parent officer’s signature (if applicable) and date

Cat. No. 17057T Form 970 (Rev. 8-98)

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 District Director of Internal

Revenue 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

City or town, state, and ZIP code

Were the goods specified in Item A above 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

b

Name and title (print or type) Name and title (print or type)

Other method (describe and justify)
Form 970 (Rev. 8-98) Page 2

Part I—Statement of Election

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 9 hr., 20 min.

Line 6a. See Regulations sections 1.472-2 and 1.472-8(e) for more

information.

Learning about the law or the form 2 hr., 17 min.

Line 6b. See Regulations section 1.472-8(e)(3)(iii)(C) before

completing line 6b. 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 2 hr., 32 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 7. 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.

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 asked for on Form 970. (See Regulations

section 1.472-3(a).) 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.

Line 8. 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 (Line 8).

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 the

consent of the Secretary 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 the consent of the Secretary.

Line 9. Select a LIFO computation method for the dollar-value

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

(unit) method. To figure 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 should 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 Secretary allows you to change to another

method.

Signature. Form 970 must be signed by or on behalf of the taxpayer

electing the LIFO inventory method by an individual with the

authority to bind the taxpayer in such matters. If the taxpayer is a

member of a consolidated group, Form 970 must also be signed by

a duly authorized officer of the common parent. See Regulations

section 1.1502-77.

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

Producer Price Indexes 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

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.

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 the social

security number. For all others, it is the employer identification

number.

Address. Include the suite, room, or other unit number after the

street address. If the Post Office does not deliver mail to the street

address and you have a P.O. box, show the box number instead of

the street address.

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 the 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.

Only automobile dealers who are engaged in the trade or business

of retail sales of new automobiles or new light-duty trucks may

adopt or use the Alternative LIFO Inventory Method, as set forth in

Rev. Proc. 97-36, 1997-33 I.R.B. 14. 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.