Rp 2003-45

the New York Liberty Zone. Qualified
project costs also include the cost of acquisition, construction, reconstruction, and
renovation of nonresidential real property
(including fixed tenant improvements associated with the property) located outside the New York Liberty Zone but within
The City of New York, New York, if the
property is part of a project that consists of
at least 100,000 square feet of usable office or other commercial space located in
a single building or multiple adjacent buildings. Liberty Bonds may not be used to finance movable fixtures or equipment.
Section 1400L(d)(5) contains the following modifications to the general rule that
Liberty Bonds are treated as exempt facility bonds: (1) Liberty Bonds are not subject to the private activity bond volume cap
under section 146; (2) the 15-percent rehabilitation requirement in section 147(d)
that applies to the acquisition of certain existing property is increased to 50-percent for
Liberty Bonds; (3) Liberty Bonds are eligible for the two-year construction exception to the rebate requirement under section 148(f)(4)(C); (4) repayments of
principal on financing provided by Liberty Bonds are subject to certain special
rules; and (5) section 57(a)(5), which treats
interest on specified private activity bonds
as an item of tax preference for purposes
of computing the alternative minimum tax,
does not apply to Liberty Bonds.
QUESTIONS AND ANSWERS
Set forth below are questions and answers with regard to section 1400L(d).
Q–1. What types of costs are qualified
project costs under section 1400L(d)(4)?
A–1. Section 1400L(d)(1) provides that
Liberty Bonds are treated as exempt facility bonds. Accordingly, qualified project
costs are costs that (a) are chargeable to the
capital account of a facility described in section 1400L(d)(4), or (b) would be so chargeable either with a proper election by a taxpayer (for example, under section 266) or
but for a proper election by a taxpayer to
deduct the costs. Qualified project costs also
include costs of functionally related and
subordinate property within the meaning of
§ 1.103–8(a)(3) of the Income Tax Regulations.
Q–2. Does § 1.142–4 apply to Liberty
Bonds?
A–2. Yes. Section 1.142–4 applies to exempt facility bonds. Section 1.142–4 con-

2003–27 I.R.B.

tains certain requirements that generally are
designed to ensure that exempt facility
bonds are not issued to finance working
capital expenditures. For example, § 1.142–
4(b) provides that, if an expenditure for a
facility is paid before the issue date of the
bonds to provide that facility, the facility
is an exempt facility only if the expenditure meets the requirements of § 1.150–2
(relating to reimbursement allocations).
Q–3. How does § 1.150–2 apply to Liberty Bonds?
A–3. Section 1.150–2 applies to Liberty Bonds in the same manner as exempt
facility bonds, except that all issuers of Liberty Bonds are treated as having adopted
an official intent (as defined in § 1.150–
2(c)) that satisfies the requirements of
§ 1.150–2(e) with respect to expenditures
paid after September 11, 2001, and before June 23, 2003. For expenditures paid
on or after June 23, 2003, any official intent must be adopted not later than 60 days
after payment of the expenditures. See
§ 1.150–2(d)(1).
Q–4. Do Liberty Bonds issued before
January 1, 2005, to currently refund outstanding Liberty Bonds count against the
$8 billion volume limitation on Liberty
Bonds?
A–4. Liberty Bonds issued before January 1, 2005, to currently refund outstanding Liberty Bonds do not count against the
$8 billion volume limitation to the extent
that the amount of the refunding bonds does
not exceed the outstanding amount of the
bonds being refunded.
Q–5. May Liberty Bonds be issued after December 31, 2004, to refund outstanding Liberty Bonds?
A–5. Liberty Bonds may be issued after December 31, 2004, to refund outstanding Liberty Bonds originally issued before January 1, 2005, to the extent (a) the
amount of the refunding bonds does not exceed the outstanding amount of the refunded bonds, and (b) the refunding is not
an advance refunding.
Q–6. May Liberty Bonds be issued by
entities that are acting on behalf of the State
of New York or any political subdivision
thereof?
A–6. Liberty Bonds may be issued on
behalf of the State of New York or any political subdivision thereof if the issuance satisfies the requirements for determining
whether a bond issued on behalf of a State
or political subdivision constitutes an ob-

11

ligation of that State or political subdivision for purposes of section 103.
FURTHER INFORMATION
For further information regarding this notice, contact Michael P. Brewer at (202)
622–3980 (not a toll-free call).

26 CFR 1.472–8: Dollar value method of pricing
LIFO inventories.
(Also Part I, §§ 446; 1.446–1.)

Rev. Proc. 2003–45
SECTION 1. PURPOSE
For certain accounting method changes
within the inventory price index computation (IPIC) method of accounting for lastin, first-out (LIFO) inventories, this revenue procedure waives the 5-year prior
change scope limitation in section 4.02(6)
of Rev. Proc. 2002–9, 2002–1 C.B. 327, as
modified and clarified by Announcement
2002–17, 2002–1 C.B. 561, modified and
amplified by Rev. Proc. 2002–19, 2002–1
C.B. 696, and amplified, clarified, and
modified by Rev. Proc. 2002–54, 2002–35
I.R.B. 432.
SECTION 2. BACKGROUND
.01 The regulations under § 472 of the
Internal Revenue Code provide special,
elective pooling rules for LIFO inventory
items accounted for under the IPIC method.
See §§ 1.472–8(b)(4) (manufacturers and
processors) and 1.472–8(c)(2) (wholesalers, retailers, jobbers and distributors) of the
Income Tax Regulations. The special IPIC
pooling rules provide two optional 5 percent rules for pooling miscellaneous items.
Any change in pooling required or permitted as a result of one of these 5 percent
rules is a change in method of accounting. The taxpayer must secure the consent of the Commissioner pursuant to
§ 446(e) and § 1.446–1(e) before combining or separating IPIC pools, and must combine or separate IPIC pools in accordance
with the requirements of the applicable
regulations. §§ 1.472–8(b)(4), 1.472–8(c)(2).
.02 A taxpayer using the IPIC method
of accounting for a trade or business computes the inventory price index (IPI) for a
pool using an appropriate price index for
an appropriate month. § 1.472–
8(e)(3)(iii)(B)(1). A taxpayer not using the

July 7, 2003

retail method may elect to use a representative appropriate month (representative
month). The election to use a representative month is a method of accounting, and
the month elected must be used for the taxable year of the election and all subsequent taxable years, unless the electing taxpayer obtains the Commissioner’s consent
under §§ 446(e) and 1.446–1(e) to change
or revoke its election. § 1.472–
8(e)(3)(iii)(B)(3).
.03 Rev. Proc. 2002–9 applies to a taxpayer requesting the Commissioner’s consent to change to a method of accounting
described in the APPENDIX of that revenue procedure. Rev. Proc. 2002–9, section 4.01. Changes in method of accounting to: (1) combine or separate IPIC pools
as a result of the application of a 5 percent pooling rule described in § 1.472–
8(b)(4) or 1.472–8(c)(2); and (2) change the
representative month when the change in
representative month is necessitated by a
change in taxable year, are described in sections 10.07(1)(d) and 10.07(1)(f), respectively, of the APPENDIX of Rev. Proc.
2002–9.
.04 Rev. Proc. 2002–9 is the exclusive
procedure for a taxpayer within its scope
to obtain the consent of the Commissioner
under §§ 446(e) and 1.446–1(e). Rev. Proc.
2002–9, section 4.01. Section 4.02 of Rev.
Proc. 2002–9 sets forth certain scope limitations for the revenue procedure. The
5-year prior change scope limitation set
forth in section 4.02(6) of Rev. Proc.
2002–9 provides that the automatic consent procedures of that revenue procedure
may not be used if the taxpayer, within the
last 5 taxable years (including the year of
change) has made a change in the same
method of accounting (with or without obtaining the Commissioner’s consent) or has
applied to change the same method of accounting without effecting the change.
SECTION 3. CHANGES RELATED TO
5 PERCENT RULES FOR IPIC
POOLING
Every third year, taxpayers using the
IPIC method for LIFO inventories are required to redetermine whether their IPIC
pooling complies with the applicable 5 percent rules and to make any pooling changes
that are necessary to achieve compliance.
§§ 1.472–8(b)(4); 1.472–8(c)(2). As a result, taxpayers using the IPIC pooling
method may be required to change their

July 7, 2003

pooling as frequently as every three years.
The Service believes that the 5-year prior
change scope limitation in section 4.02(6)
of Rev. Proc. 2002–9 should not apply to
prevent taxpayers from using the automatic consent procedures of Rev. Proc.
2002–9 to obtain the consent of the Commissioner to make the periodic pooling
changes required to comply with the 5 percent rules under §§ 1.472–8(b)(4) and
1.472–8(c)(2). Accordingly, the 5-year prior
change scope limitation in section 4.02(6)
does not apply to a change described in section 10.07(1)(d) of the APPENDIX of Rev.
Proc. 2002–9.
SECTION 4. CHANGES OF
REPRESENTATIVE MONTH FOR IPI
CALCULATIONS
A taxpayer generally is required to
change its representative month if the taxpayer changes its taxable year. A taxpayer
may change its taxable year voluntarily or,
in certain cases, may be required to change
its taxable year under the Code or regulations. The Service believes that the 5-year
prior change scope limitation in section
4.02(6) of Rev. Proc. 2002–9 should not apply to prevent taxpayers from using the automatic consent procedures of Rev. Proc.
2002–9 to obtain the consent of the Commissioner to change their representative
month as necessitated by a change in taxable year. Accordingly, the 5-year prior
change scope limitation in section 4.02(6)
of Rev. Proc. 2002–9 does not apply to a
change described in section 10.07(1)(f) of
the APPENDIX of Rev. Proc. 2002–9 if the
change in representative month is necessitated by a change in the taxpayer’s taxable year.

quest is pending with the national office on
June 18, 2003, the national office will process the application or ruling request under the procedures of Rev. Proc. 97–27, unless prior to the later of September 17, 2003,
or the issuance of the letter ruling granting or denying consent to the change, the
taxpayer notifies the national office that it
wants to make the method change under
Rev. Proc. 2002–9. If the taxpayer timely
notifies the national office that it wants to
make the method change under Rev. Proc.
2002–9, the national office may require the
taxpayer to make any appropriate modifications to the application or ruling request
to comply with the applicable provisions of
this revenue procedure and Rev. Proc.
2002–9. The national office will notify the
taxpayer if and when such adjustments are
required. In addition, any user fee that was
submitted with the application or ruling request will be returned to the taxpayer.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–9 is modified to include in section 10.07 of the APPENDIX
thereof the scope limitation waivers provided in this revenue procedure.
DRAFTING INFORMATION
The principal author of this revenue procedure is Grant Anderson of the Office of
the Associate Chief Counsel (Income Tax
and Accounting). For further information regarding this revenue procedure, contact
Mr. Anderson at (202) 622–4930 (not a tollfree call).

SECTION 5. EFFECTIVE DATE
.01 Except as otherwise provided in section 5.02 of this revenue procedure, this revenue procedure is effective for taxable years
ending on or after December 31, 2002.
.02 If a taxpayer filed an application or
ruling request with the national office under Rev. Proc. 97–27, 1997–1 C.B. 680,
modified and amplified by Rev. Proc. 2002–
19, to make a change in method of accounting described in sections 3 or 4 of this
revenue procedure for a year of change for
which this revenue procedure is effective
(see section 5.01 of this revenue procedure), and the application or ruling re-

12

2003–27 I.R.B.