Opinion ID: 75891
Heading Depth: 3
Heading Rank: 1

Heading: The Statutory Scheme of Section 1363(d)

Text: 31 Under its plain language, Section 1363(d) will apply and recapture of LIFO benefits will be triggered if two conditions are met: (1) a C corporation elects S corporation status under Section 1363(a); and (2) the C corporation inventoried goods under the LIFO method in the last taxable year before the first taxable year for which the election under Section 1362(a) was effective. 32 Here it is clear that the first prong is met. However, it is apparent that, by definition, the second prong is not met. Coggin never owned any inventories. Accordingly it never made an election to use the LIFO method. In fact, the Commissioner concedes in its brief that the plain language of Section 1363(d) does not literally apply to the facts of this case. 16 33 Continuing on with the plain language of the statute, a C corporation converting to S corporation status need only recapture its LIFO recapture amount. Section 1363(d)(1). LIFO recapture amount is defined as the difference between the value of an inventory asset as it would have been valued using the FIFO method and its value using the taxpayer's LIFO method. Section 1363(d)(3). An inventory asset is defined as the stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year. Section 1363(d)(4)(B). 34 Here it is undisputed that Coggin held no stock in trade. Neither did it hold property of a kind which would properly be included in its inventory at the close of its taxable year. Therefore under the plain meaning of the statute, there is no LIFO recapture amount that can be attributed to Coggin.