LIFO Confirmity Requirement

Welfare-to-Work tax credit (35 percent of
wages as defined in section 51A(b)(5) of
the Code up to $10,000). For 1999, the
employer may choose again which credit
to claim. The WOTC would be based
solely on the amount of first-year wages
(up to the $6,000 limit) paid in 1999, during the balance of the first employment
year (i.e., January and February 1999).
The We l f a r e - t o - Work tax credit would
have two components: 35 percent of the
amount of first-year wages (up to the
$10,000 limit) paid in January and February 1999, and 50 percent of the amount of
the second-year wages (up to a separate
$10,000 limit) paid in March through December 1999. For 2000, the taxpayer
could claim only the Welfare-to-Work tax
credit, based on the amount of secondyear wages (up to the second $10,000
limit) paid in January and February 2000.
Revised Form 8850
On September 20, 1997, the IRS issued
a revised and renamed Form 8850, P re Screening Notice and Certification Re quest for the Work Opportunity and Wel fare-to-Work Credits. The changes to the
WOTC and the enactment of the Welfareto-Work tax credit are reflected on a single form to simplify the certification
process for prospective employees, employers, and SESAs.

26 CFR 1.472–2: Requirements incident to adoption and use of LIFO inventory method.
(Also Part I, § 472; § 1.472-1.)

Rev. Proc. 97–44
SECTION 1. PURPOSE

The new form is available to computer
users through the IRS home page on the
World Wide Web, http://www. i r s . u streas.gov, and by modem directly at 703321-8020 (not a toll-free number). Employers may also request Form 8850 by
calling 1-800-TAX-FORM (1-800-8293676).

This revenue procedure provides relief
for automobile dealers that elected the
last-in, first-out (LIFO) inventory method
and violated the LIFO conformity requirement of § 472(c) or (e)(2) of the Internal Revenue Code by providing, for
credit purposes, an income statement prepared in a format required by the franchisor or on a pre-printed form supplied
by the franchisor (an automobile manufacturer), covering any taxable year ended
on or before October 14, 1997, that fails
to reflect the LIFO inventory method.
See, e.g., R e v. Rul. 97–42, 1997–41
I.R.B. (Situation 3). Automobile dealers
that comply with this revenue procedure
will not be required to change from the
LIFO inventory method to another inventory method as a result of such LIFO conformity violation.

Transition Relief

SECTION 2. BACKGROUND

Employers should begin using the new
Form 8850 for employees whose first day of
work is on or after October 1, 1997 (for the
WOTC), or on or after January 1, 1998 (for
the Welfare-to-Work tax credit). Employers
may continue to use the old Form 8850,
however, for individuals who are in one of
the original seven WOTC targeted groups
and begin work before January 1, 1998.
Employers that submit Forms 8850 to
SESAs are not entitled to the applicable
credits unless the employers receive the

.01 Section 472(a) authorizes a taxpayer to use the LIFO inventory method
in accordance with regulations prescribed
by the Secretary.
.02 Section 472(c) provides that a taxpayer may not elect to use the LIFO inventory method unless it establishes to the
satisfaction of the Commissioner that it
used no method other than the LIFO
method in inventorying goods to ascertain
the income, profit, or loss of the first taxable year for which the LIFO method is to

How to Get the Revised Form 8850

October 14, 1997

8

be used, for the purpose of a report or
statement covering that taxable year to
shareholders, partners, other proprietors,
or beneficiaries, or for credit purposes.
.03 Section 472(e) provides that a taxpayer electing to use the LIFO inventory
method must continue to use the LIFO inventory method unless the taxpayer: (1)
obtains the consent of the Commissioner
to change to a different method; or (2) is
required by the Commissioner to change
to a different method because the taxpayer has used some inventory method
other than LIFO to ascertain the income,
profit, or loss of any subsequent taxable
year in a report or statement covering that
taxable year (a) to shareholders, partners,
other proprietors, or beneficiaries, or (b)
for credit purposes.
.04 Section 1.472–2(e)(1) of the Income Tax Regulations provides that a taxpayer electing to use the LIFO inventory
method must establish to the satisfaction
of the Commissioner that the taxpayer, in
ascertaining the income, profit, or loss of
the taxable year for which the LIFO inventory method is first used, or for any
subsequent taxable year, for credit purposes or for purposes of reports to shareholders, partners, other proprietors, or
beneficiaries, has not used any inventory
method other than LIFO.
.05 Rev. Rul. 97–42 holds that a franchised automobile dealer that elected the
LIFO inve ntory method violates the
LIFO conformity requirement by providing to a credit subsidiary of its franchisor
(an automobile manufacturer) an income
statement covering a taxable year that
fails to reflect the LIFO inventory
method in the computation of net income.
.06 Rev. Proc. 79–23, 1979–1 C.B.
564, provides that a violation of the LIFO
conformity requirement warrants termination of a taxpayer’s LIFO election.
SECTION 3. SCOPE
This revenue procedure applies to any
taxpayer engaged in the purchase, sale,
and service of automobiles or light-duty
trucks that violated the LIFO conformity
requirement by providing, for credit purposes, an income statement prepared in a
format required by the franchisor or on a
pre-printed form supplied by the franchisor (an automobile manufacturer), covering any taxable year ended on or before
October 14, 1997, that fails to reflect the
1997–41 I.R.B.

LIFO inventory method in the computation of net income, regardless of whether
the taxpayer is currently under examination, before an appeals office, or before a
federal court. For this purpose, the term
“taxpayer” has the same meaning as the
term “person” defined in § 7701(a)(1)
(rather than the meaning of the term “taxpayer” defined in § 7701(a)(14)). The
term “taxpayer” includes a corporation
that is included in an affiliated group of
corporations as defined in § 1504.
SECTION 4. RELIEF
.01 A taxpayer within the scope of this
revenue procedure that satisfies all the re quirements for relief set forth herein is
hereby granted the following relief: the
district director will not terminate the
LIFO election of the taxpayer because of
a LIFO conformity violation described in
section 3 of this revenue procedure.
.02 The relief granted under this revenue procedure extends only to LIFO
conformity violations described in section
3 of this revenue procedure that occurred
on or before October 14, 1997. Accordingly, the district director may, upon examination, terminate a taxpayer’s LIFO
election for:
(1) other LIFO conformity violations, including those described in section
3 of this revenue procedure that occur
after October 14, 1997; or
(2) any other action that may warrant termination of a taxpayer’s LIFO
election.
.03 The district director may, upon examination, verify the accuracy of the taxpayer’s settlement amount calculation and
otherwise determine whether the taxpayer
has fully satisfied the requirements of this
revenue procedure. The district director
may terminate a taxpayer’s LIFO election
for any violation year ended within the
look-back period if the taxpayer failed to
fully satisfy the requirements of this revenue procedure.
.04 Nothing in this revenue procedure
will prohibit the district director from
making adjustments to a taxpayer’s LIFO
inventory method of accounting.
SECTION 5. REQUIREMENTS FOR
RELIEF
.01 A taxpayer within the scope of this
revenue procedure for which any violation year ended within the look-back pe1997–41 I.R.B.

riod is entitled to relief only if the taxpayer: (1) pays the settlement amount at
the time and in the manner set forth in
section 5.03 of this revenue procedure;
(2) submits the accompanying memorandum at the time and in the manner set
forth in sections 5.03 and 5.04 of this revenue procedure; and (3) satisfies the additional requirements set forth in section 7
of this revenue procedure. A taxpayer
within the scope of this revenue procedure that does not have a violation year
that ends in the look-back period is automatically granted relief and is not required to satisfy any of the requirements
of this revenue procedure.
.02 Settlement Amount. (1) In general.
A taxpayer applying for relief under this
revenue procedure must pay a “settlement
amount,” which is intended to approximate the after-tax, time value of money
benefit that the taxpayer will derive from
continuing to use the LIFO inventory
method for a period of years. The settlement amount is not treated as interest
under § 163(a) and may not be capitalized
or deducted under any provision of the
Code. Moreover, the settlement amount
is not refundable or creditable against any
federal tax liability of the taxpayer.
(2) Calculating the settlement
amount. The settlement amount equals
4.7% of the difference between the LIFO
carrying value and the non-LIFO carrying
value (for example, the value using the
actual invoice cost or the first-in, first-out
method) of the taxpayer’s inventory (the
“LIFO reserve”) on the last day of the taxpayer’s last taxable year ended on or before October 14, 1997. For this purpose,
the taxpayer’s inventory includes only inventory related to the purchase, sale, and
service of automobiles and light-duty
trucks. A taxpayer determines the LIFO
reserve on the last day of its last taxable
year ended on or before October 14, 1997,
using the method of accounting that it
used on its original federal income tax return for that taxable year.
.03 Time and Manner of Payment. (1)
In general. The settlement amount must
be paid in three equal installments. Except
as provided in section 5.03(2) or (3) of this
revenue procedure, the first installment
and the memorandum described in section
5.04 of this revenue procedure, are due on
or before May 31, 1998. The remaining
installments and memoranda are due on or
9

before January 31 of the two succeeding
calendar years. Payments, together with
the original memorandum, must be sent to
the Internal Revenue Service, Cincinnati
Service Center, 201 W. River Center Blvd.,
Stop 31, Unit 21, Covington, KY 41019.
A copy of each memorandum must be sent
to the national office addressed to the
Commissioner of Internal Revenue, Attention: CC:DOM:IT&A, P.O. Box 7604,
Benjamin Franklin Station, Washington,
DC 20044 (or, in the case of a private delivery service: Commissioner of Internal
Revenue, Attention: CC:DOM:IT&A,
1111 Constitution Avenue, NW, Washington, DC 20224).
(2) Taxpayers under examination,
before appeals, or before a federal court.
If any federal income tax return of a taxpayer is under examination, before an appeals office, or before a federal court on
October 14, 1997, the first installment of
the settlement amount and the memorandum described in section 5.04 of this revenue procedure are due on or before December 1, 1997. For this purpose, the
terms “under examination,” “before an appeals office,” and “before a federal court”
have the same meaning as provided in Rev.
Proc. 97–27, 1997–21 I.R.B. 10. The taxpayer must notify the examining agent(s),
appeals officer, or the counsel for the government, whichever is applicable, in writing on or before December 15, 1997, that it
has applied for relief under this revenue
procedure. Evidence that the first installment has been paid and a copy of the memorandum described in section 5.04 of this
revenue procedure must be provided as
part of this written notification.
(3) Option to pay settlement
amount in one installment. A taxpayer
may elect to pay the entire settlement
amount in one installment. If a taxpayer
makes this election, the entire settlement
amount and the original memorandum described in section 5.04 of this revenue
procedure are due on or before May 31,
1998, or, if any federal income tax return
of the taxpayer is under examination, before an appeals office, or before a federal
court, on or before December 1, 1997. In
addition, if applicable, the written notification required in section 5.03(2) of this
revenue procedure must be satisfied. A
copy of the memorandum must be sent to
the national office as required by section
5.03(1) of this revenue procedure.
October 14, 1997

.04 Accompanying Memorandum.
Each installment payment must be accompanied by a memorandum providing
the following information:
(1) the taxpayer’s name, address,
and EIN number;
(2) the amount of the taxpayer’s
LIFO reserve calculated under section
5.02(2) of this revenue procedure;
(3) the total settlement amount calculated under section 5.02(2) of this revenue procedure;
(4) the amount of the installment
being paid;
(5) a statement identifying the payment as the first, second, or third installment (or a statement that the taxpayer
elects to pay the entire settlement amount
in a single installment); and
(6) a statement that the taxpayer
agrees to all of the terms of this revenue
procedure.
Each memorandum must be signed under
penalties of perjury by an individual with
authority to bind the taxpayer in such matters. The following language must be either typed or legibly printed at the top of
the first page of each memorandum:
“ PAY M E N T OF SETTLEM ENT
AMOUNT UNDER REV. PROC. 97–44.”
SECTION 6. DEFINITIONS
.01 Violation year. A violation year is
any taxable year for which a taxpayer violated the LIFO conformity requirement
under the facts described in section 3 of
this revenue procedure. However, solely
for purposes of this revenue procedure, a
taxable year will not be treated as a violation year if it ended on or before October
14, 1997, and the taxpayer replaced the
twelfth monthly income statement for that
year with a “thirteenth period income
statement” that:
(1) covered the same period as the
twelfth monthly income statement;
(2) reflected the LIFO inventory
method; and
(3) was provided, before the first
monthly income statement of the following year, to each creditor that received the
twelfth monthly income statement.
.02 Look-back period. For purposes of
this revenue procedure, the “look-back
period” consists of the taxpayer’s six
most recent taxable years ended on or before October 14, 1997.
October 14, 1997

SECTION 7. ADDITIONAL TERMS OF
RELIEF

SECTION 9. PAPERWORK
REDUCTION ACT

.01 A taxpayer that fails to pay each
installment of the settlement amount
t i m e l y, or to submit the memorandum
t i m e l y, has not satisfied the requirements of this revenue procedure. A ccordingly, the relief provided under section 4 of this revenue procedure is not
available.
.02 A taxpayer that ceases to engage in
the trade or business of purchase, sale,
and service of automobiles or light-duty
trucks or terminates its existence must
pay the remaining balance of the settlement amount within 45 days of the cessation or termination. A taxpayer is
treated as ceasing to engage in a trade or
business if the operations of the trade or
business cease, or substantially all the
assets of the trade or business are transferred to another taxpayer in a taxable or
non-taxable transfer. For this purpose,
“substantially all” has the same meaning
as in section 3.01 of Rev. Proc. 77–37,
1977–2 C.B. 568. No acceleration of the
settlement amount is required under this
section 7.02 when a C corporation elects
to be treated as an S corporation, or an S
corporation terminates its S election and
is then treated as a C corporation. Howe v e r, acceleration of the settlement
amount is required if a sole proprietor incorporates and immediately elects to be
treated as an S corporation.
.03 A taxpayer that makes one or
more payments under this revenue procedure may not change from the LIFO
inventory method pursuant to Rev. Proc.
97–37, 1997–33 I.R.B. 18, for a taxable
year beginning before the date that the
entire settlement amount is paid in accordance with this revenue procedure.
A taxpayer requesting to change from
the LIFO method for a taxable year beginning before the date that the entire
settlement amount is paid, must file a
Form 3115 in accorda nce with Rev.
Proc. 97–27. The Commissioner will
not grant consent to change from the
LIFO method unless the taxpayer agrees
to accelerate any remaining payments of
the settlement amount.

The collections of information contained
in this revenue procedure have been reviewed and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507)
under control number 1545–1559.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
OMB control number.
The collection of information in this revenue procedure is in section 5 of this revenue
procedure. This information is required to
ensure that the settlement amount required to
be paid under this revenue procedure is accurately computed and timely paid. The
likely respondents are businesses engaged in
the retail sale of new automobiles.
The estimated total annual reporting
burden is 100,000 hours.
The estimated annual burden per respondent will vary from 10 hours to 30
hours, depending on individual circumstances, with an estimated average of 20
hours. The estimated number of respondents is 5,000.
Books or records relating to a collection of information 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 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Jeffery G. Mitchell of the Office of Assistant Chief Counsel (Income
Tax & Accounting). For further information regarding this revenue procedure,
contact Mr. Mitchell on (202) 622-4970
(not a toll-free call).

SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 97–37 is modified.
10

1997–41 I.R.B.