Form 970 Application To Use LIFO Inventory Method

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I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
FORM 970, PAGE 1 of 4
MARGINS: TOP 13mm (1⁄2 "), CENTER SIDES.
PAPER: WHITE, WRITING, SUB. 20.
FLAT SIZE: 203mm (8")
279mm (11")
PERFORATE: (NONE)

970

(Rev. December 2005)
Department of the Treasury
Internal Revenue Service

Date

Revised proofs
requested

OMB No. 1545-0042

Application To Use LIFO Inventory Method
䊳

Attachment
Sequence No.

Attach to your tax return.

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

Signature

O.K. to print

PRINTS: HEAD TO HEAD
INK: BLACK

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form

Action

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
䊳

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.
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.
5

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

䊳

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 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. 12-2005)

10
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 970, PAGE 2 of 4
MARGINS: TOP 13mm (1⁄2 "), CENTER SIDES. PRINTS: HEAD TO HEAD
PAPER: WHITE, WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 203mm (8")
279mm (11")
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 970 (Rev. 12-2005)

Part III
12

2

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
13

Page

Dollar-Value Method

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

Yes
No
14a Did the applicant acquire any of the goods covered by this election at below-market prices?
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
22
23

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
Yes
No
on line 1 (see instructions)?
Form

970

(Rev. 12-2005)

10
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 970, PAGE 3 of 4
MARGINS: TOP 13mm (1⁄2 "), CENTER SIDES. PRINTS: HEAD TO HEAD
PAPER: WHITE, WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 203mm (8")
279mm (11")
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 970 (Rev. 12-2005)

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.

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 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

Page

3

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 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.

10
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 970, PAGE 4 of 4
MARGINS: TOP 13mm (1⁄2 "), CENTER SIDES. PRINTS: HEAD TO HEAD
PAPER: WHITE, WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 203mm (8")
279mm (11")
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 970 (Rev. 12-2005)

Page

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
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.

4

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.

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