970 Application to Use LIFO Inventory Method

Form

970

Application To Use LIFO Inventory Method

(Rev. November 2012)
Department of the Treasury
Internal Revenue Service

▶

OMB No. 1545-0042

▶ Attach to your tax return.
Information about Form 970 and its instructions is at www.irs.gov/form970.

Name of filer (name of parent corporation if a consolidated group) (see instructions)

Attachment
Sequence No.

122

Filer’s identification number (see instructions)

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

Part I

Statement of Election under Section 472

Yes No

1

The applicant elects to use the LIFO inventory method for the tax year ending (enter month, day, year) ▶
for the following goods (enter here):
See instructions and attach a statement if necessary.

2

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.

3a Is the applicant already using the LIFO inventory method for any other goods? . . . . . . . . .
b If “Yes” to line 3a, attach a statement identifying and describing the goods and the LIFO methods used.

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4a Has the applicant ever used the LIFO inventory method for the goods covered by this election? . . . . . .
b 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): ▶

5

Attach a statement if necessary.

Part II

LIFO Inventory Requirements

Yes No

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

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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? . . . . . . . . . . . . . . . . . . . . .

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.

Part III
11

Specific Goods (Unit) Method

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.

For Paperwork Reduction Act Notice, see the instructions.

Cat. No. 17057T

Form

970

(Rev. 11-2012)

Form 970 (Rev. 11-2012)

Part III
12

Page

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Specific Goods (Unit) Method (Continued)

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):
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)

Part IV

Dollar-Value Method

13

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

14a

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

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Yes

No

b 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.
15

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).

16

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).

17

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).
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)

Part V

Inventory Price Index Computation (IPIC) Method

18

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

19

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.

20

Will the applicant use the 10 percent method (see instructions)? .

21

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.

Part VI
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23

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Yes

No

Other Information

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
Form

970

(Rev. 11-2012)

Page

Form 970 (Rev. 11-2012)

General Instructions

Specific Instructions

Section references are to the Internal Revenue Code unless
otherwise noted.

Name and Identification Number

Future Developments
For the latest information about developments related to Form
970 and its instructions, such as legislation enacted after they
were published, go to www.irs.gov/form970.

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.

How To Use Form 970
You must complete Parts I, II, and VI. In addition, complete
Parts III, IV, and V, as applicable.

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
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 Form 1120 and the
Instructions for Form 1120S.

3

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
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.

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 2digit 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 dollarvalue 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

Page

Form 970 (Rev. 11-2012)

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.
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.
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 linkchain, 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, as modified by Rev. Proc.
2008-23, 2008-12 I.R.B. 664, or its succesor. 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 information on
accounting method changes to this method, see section 22.03
in the Appendix of Rev. Proc. 2011-14, 2011-4 I.R.B. 330, or its
successor.
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 as
described in Rev. Proc. 2001-23, 2001-10 I.R.B. 784, as
modified by Announcement 2004-16, 2004-1 I.R.B. 668, and
Rev. Proc. 2008-23, or its successor. For information on
accounting method changes to this method, see section 22.04
in the Appendix of Rev. Proc. 2011-14, or its successor, 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.

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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.
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.