Form 970 Application To Use LIFO Inventory Method OMB No. 1545-0042

(Rev. December 2005)

 Attach to your tax return. Department of the Treasury

Internal Revenue Service

For Paperwork Reduction Act Notice, see the instructions.

Name of filer (name of parent corporation if a consolidated group) (see instructions) Filer’s identification number (see instructions)

Cat. No. 17057T Form 970 (Rev. 12-2005)

Part I

Part II

Statement of Election under Section 472

LIFO Inventory Requirements

Attachment

Sequence No. 122

Name of applicant(s) (if different from filer) and identification number(s)

1

2

3a

4a

The applicant elects to use the LIFO inventory method for the tax year ending (enter month, day, year) 

Yes No

for the following goods (enter here):

See instructions and attach a statement if necessary.

In an attached statement, identify and describe the inventory method(s) used by the applicant in the prior tax year

for the goods covered by this election.

Is the applicant already using the LIFO inventory method for any other goods?

If “Yes” to line 3a, attach a statement identifying and describing the goods and the LIFO methods used.

Has the applicant ever used the LIFO inventory method for the goods covered by this election?

If “Yes” to line 4a, attach a statement listing the tax years for which the LIFO inventory method was used and

explaining why the LIFO inventory method was discontinued.

The applicant will not use the LIFO inventory method to account for the following goods (enter here): 

Attach a statement if necessary.

5

b

b

6a Did the applicant value the closing inventories of goods covered by this election at cost for the tax year immediately

preceding the tax year specified on line 1?

b If “No” to line 6a, did the applicant value the beginning inventories of goods covered by this election at cost for

the tax year specified on line 1 as required by section 472(d)?

If “No” to line 6b, attach an explanation.

c If “Yes” to line 6b, will the applicant account for the adjustment required by section 472(d) over a 3-year period?

If “No” to line 6c, attach an explanation.

7a When determining the beginning inventories of goods covered by this election, did the applicant treat those goods

as being acquired for a unit cost that is equal to the total cost of those goods divided by the total number of units

on hand?

b If “No” to line 7a, attach an explanation.

8a Did the applicant (or any member of the same group of financially related corporations as defined in section 472(g))

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

year specified on line 1?

b If “Yes” to line 8a, attach a statement describing the recipient(s), the date(s) of issuance, and the inventory method(s)

used to determine income, profit, or loss in those statements.

9a Will the applicant determine beginning and ending inventories at cost regardless of market value?

b If “No” to line 9a, attach an explanation.

10a As a condition of adopting the LIFO inventory method, Regulations section 1.472-4 requires a taxpayer to agree

to make any adjustments incident to the change to, the change from, or the use of, the LIFO inventory method

that, upon the examination of the taxpayer’s income tax return, the IRS determines are necessary to clearly reflect

income. Does the applicant agree to this condition?

Yes No

Part III

11 Under Regulations section 1.472-1, the types of goods in the opening inventory must be compared with similar types of

goods in the closing inventories. Attach a list of the types or categories of goods that will be compared, describe the

goods that will be included in each type or category, and identify the unit of measure (pounds, barrels, feet, etc.) used for

each type or category.

Specific Goods (Unit) Method

b If “No” to line 10a, the applicant is not eligible to use the LIFO inventory method and does not need to file Form 970.
Form 970 (Rev. 12-2005) Page 2

Form 970 (Rev. 12-2005)

Part VI

Part III

Part V

Part IV

12

13

14a

15

16

17

18

19

20

21

22

23

Check the box corresponding to the method that the applicant will use to determine the cost of the goods in the closing

inventories in excess of the cost of the goods in the opening inventories (see instructions):

Specific Goods (Unit) Method (Continued)

Actual cost of goods most recently purchased or produced

Average cost of goods purchased or produced during the tax year

Actual cost of goods purchased or produced in the order of acquisition

Other (attach explanation)

Dollar-Value Method

Inventory Price Index Computation (IPIC) Method

Other Information

Attach a statement describing the applicant’s method of defining “items.”

Did the applicant acquire any of the goods covered by this election at below-market prices?

If “Yes” to line 14a, attach a statement explaining whether the applicant did, or will, account for the goods purchased at

below-market prices and similar goods produced or acquired at market prices as separate items. If the applicant did, or will,

account for both types of goods as the same item, explain and justify.

Attach a statement describing the method of pooling the applicant will use for the goods covered by this election. If the

applicant will use more than one dollar-value pool, list and describe the contents of each dollar-value pool (see instructions).

Identify or describe the method the applicant will use to compute the LIFO value of each dollar-value pool containing goods

covered by this election (for example, double-extension method, link-chain method, or index method). 

Check the box corresponding to the method the applicant will use to determine the current-year cost of goods in the closing

inventories and to value the LIFO increments of the dollar-value pool(s) (see instructions).

Actual cost of goods most recently purchased or produced

Average cost of goods purchased or produced during the tax year

Actual cost of goods purchased or produced in the order of acquisition

Other (attach explanation)

Yes No

b

Check the box corresponding to the method the applicant will use to compute the LIFO value of each dollar-value pool

containing goods covered by this election (see instructions).

Double-extension IPIC method

Link-chain IPIC method

Check the box corresponding to the table from which the applicant will select Bureau of Labor Statistics (BLS) price indexes

(see instructions).

Table 3 of the Consumer Price Index (CPI) Detailed Report

Table 6 of the Producer Price Index (PPI) Detailed Report

Other table of the PPI Detailed Report

If the applicant will use “Other table of the PPI Detailed Report,” attach a statement explaining why the other table is more

appropriate than Table 6.

Will the applicant use the 10 percent method (see instructions)? Yes No

If the applicant elects to use a representative month for selecting BLS price indexes from the applicable Detailed Report, enter

the representative month elected for each dollar-value pool.

See instructions and attach a statement if necessary.

Attach a statement describing the applicant’s method of determining the cost of inventory items (for example, standard cost

method, actual invoice cost, joint product cost method, or retail inventory method).

Did the applicant receive IRS consent to change the method of valuing inventories for the tax year specified

on line 1 (see instructions)? Yes No

If the applicant’s method is neither the double-extension method nor the Inventory Price Index Computation method, attach

a statement describing the method in detail and justifying the applicant’s use of the selected method (see instructions).
Form 970 (Rev. 12-2005) Page 3

General Instructions

Section references are to the Internal Revenue Code unless

otherwise noted.

Purpose of Form

Form 970 is filed with your income tax return to elect to use

the last-in, first-out (LIFO) inventory method described in

section 472. If you prefer, you can file an election statement

that gives the same information requested on Form 970.

When To File

File Form 970 (or a similar statement) with your tax return for

the first tax year you intend to use the LIFO method.

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

use the LIFO inventory method described in section 472

without making the election, you can make the election by

filing an amended return within 12 months of the date you

filed your original return. Attach Form 970 (or similar

statement) 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.

Change From LIFO Method

Once you adopt the LIFO method, it is irrevocable unless the

IRS allows you to change to another method. To request

approval to change from the LIFO inventory method, you can

use the automatic change request procedures or the

advance consent request procedures. For details about these

two procedures under which an applicant can request a

change in accounting method, see Purpose of Form under

General Instructions in the Instructions for Form 3115,

Application for Change in Accounting Method. For more

information, also see change number 56 in the List of

Automatic Accounting Method Changes in the Instructions

for Form 3115.

LIFO Recapture Amount

A C corporation must include in gross income a LIFO

recapture amount (defined below) if it:

1. Used 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. Transferred LIFO inventory assets to an S corporation in

a nonrecognition transaction in which those assets constitute

transferred basis property. The LIFO recapture amount is the

amount by which the C corporation’s inventory amount of the

inventory assets using the first-in, first-out (FIFO) method

exceeds the inventory amount of such assets 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).

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.

Specific Instructions

Name and Identification Number

Enter the name of the filer on the first line of page 1 of Form

970. In general, the filer of the Form 970 is the applicant.

However, if Form 970 is filed on behalf of the applicant, enter

the filer’s name and identification number on the first line of

Part I—Statement of Election under

Section 472

Line 1. Enter the tax year the LIFO inventory method will first

be used and list the inventory items for which you will use

this method. Include only inventory items that are not already

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 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.

Part III—Specific Goods (Unit) Method

Line 12. See Regulations section 1.472-2 for more

information.

Part IV—Dollar-Value Method

Line 15. Provide sufficient information to justify the pooling

method you are using. Retailers, wholesalers, jobbers, and

distributors are required to pool their goods by major lines,

types, or classes, as authorized under Regulations section

1.472-8(c). Manufacturers or processors can use the natural

business unit pooling method, as authorized by Regulations

section 1.472-8(b)(1), or can establish multiple pools of

similar items in lieu of natural business unit pools, under

Regulations section 1.472-8(b)(3)(i). Multiple pools include

raw materials content pools authorized by Regulations

section 1.472-8(b)(3)(ii).

Eligible small businesses can establish pools under the

simplified dollar-value LIFO method (discussed below).

Manufacturers or processors using the inventory price

index computation (IPIC) method can establish pools based

on the 2-digit commodity codes in Table 6 of the Producer

Price Index (PPI) Detailed Report. A retailer using the IPIC

method can establish pools based on either the general

expenditure categories in Table 3 of the Consumer Price

Index (CPI) Detailed Report or on the 2-digit commodity

codes in Table 6 of the PPI Detailed Report. A wholesaler,

jobber, or distributor using the IPIC method can establish

pools based on the 2-digit commodity codes in Table 6 of

the PPI Detailed Report. The PPI and CPI Detailed Reports

are published monthly by the U.S. Bureau of Labor Statistics

(BLS). Under the IPIC method, you can also combine pools

under special 5% rules. See Regulations sections

1.472-8(b)(4) and 1.472-8(c)(2) for more information.

Describe any other method of pooling used.

Simplified dollar-value LIFO method. If your average

annual gross receipts for the 3 preceding tax years did not

exceed $5 million, you can 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 can be

revoked only with IRS consent.

How To Use Form 970

You must complete Parts I, II, and VI. In addition, complete

Parts III, IV, and V, as applicable.

Form 970 and enter the applicant’s name and identification

number on the second line. An individual’s identifying

number is his or her social security number. For all others, it

is the entity’s employer identification number.
Form 970 (Rev. 12-2005) Page 4

Line 16. Generally, you can only use the double-extension

method or the inventory price index computation method.

See Regulations sections 1.472-8(e)(2) and 1.472-8(e)(3) for a

description of these methods. However, 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.

New Vehicle Alternative LIFO Inventory Method.

Automobile dealers engaged in the trade or business of retail

sales of new automobiles or new light-duty trucks can 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. For information on

accounting method changes to this method, see section

10.03 of the Appendix in Rev. Proc. 2002-9.

Used Vehicle Alternative LIFO Inventory Method.

Automobile dealers engaged in the trade or business of retail

sales of used automobiles or used light-duty trucks can

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/pub/irs-irbs/irb01-10.pdf. For

information on accounting method changes to this method,

see section 10.04 of the Appendix in Rev. Proc. 2002-9 and

change number 59 in the List of Automatic Accounting

Method Changes in the Instructions for Form 3115.

Line 17. See Regulations section 1.472-8(e)(2) for more

information.

Part V—Inventory Price Index Computation

(IPIC) Method

Line 18. See Regulations section 1.472-8(e)(3)(iii)(E) for a

description of the double-extension and link-chain IPIC

methods, including examples. The use of either of these IPIC

methods is a method of accounting. For information on

accounting method changes to or within an IPIC method, see

change numbers 61 and 62 in the List of Automatic

Accounting Method Changes in the Instructions for Form

3115.

Line 20. See Regulations section 1.472-8(e)(3)(iii)(C)(2) for a

description of the 10 percent method.

Line 21. See Regulations section 1.472-8(e)(3)(iii)(B)(3) before

completing line 21.

Part VI—Other Information

Line 23. If you filed Form 3115, Application for Change in

Accounting Method, and received IRS consent to change

your method of valuing inventories for the tax year specified

on line 1, do not attach a copy of the approval letter (consent

agreement). Retain a copy of the letter for your records.

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.

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 contents may become material in

the administration of any Internal Revenue law. Generally, tax

returns and return information are confidential, as required by

section 6103.

The time needed to complete and file this form and related

schedules will vary depending on individual circumstances.

The estimated burden for individual taxpayers filing this form

is approved under OMB control number 1545-0074 and is

included in the estimates shown in the instructions for their

individual income tax return. The estimated burden for all

other taxpayers who file this form is shown below.

Recordkeeping 8 hr., 36 min.

Learning about the law or the form 1 hr., 47 min.

Preparing and sending the form to the IRS 2 hr., 0 min.

If you have comments concerning the accuracy of these

time estimates or suggestions for making this form and

related schedules simpler, we would be happy to hear from

you. See the instructions for the tax return with which this

form is filed.

Line 19. Manufacturers, processors, wholesalers, jobbers,

and distributors must select BLS price indexes from Table 6

of the PPI Detailed Report, unless the taxpayer can

demonstrate that selecting BLS price indexes from another

table of the PPI Detailed Report is more appropriate.

Retailers can select BLS price indexes from either Table 3 of

the CPI Detailed Report or from Table 6 (or another more

appropriate table) of the PPI Detailed Report.

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. See section 474 and Regulations section 1.472-8 for

more details.

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