PLR 200003036: Thirty days granted to file a late LIFO election

Plain-English summary

A partnership used the LIFO inventory method but failed to attach Form 970 to its first partnership return after receiving inventory from another business. It discovered the omission while preparing an accounting method change request and sought extra time to make the election. The IRS found that the partnership acted reasonably and in good faith and that an extension would not prejudice the government. It gave the partnership 30 days from the ruling date to file Form 970, with a copy of the ruling attached. The IRS expressly did not approve the partnership's overall use of LIFO.

Ruling snapshot

• Question: Could the partnership file its missing Form 970 after the election deadline?
• Outcome: Approved: a 30-day extension to file Form 970 for the stated tax year.
• Key authorities: IRC § 472; Treas. Reg. §§ 1.472-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury

Index Numbers:       472.01-00; 9100.11-00       Washington, DC 20224



Number: 200003036                                Person to Contact:
Release Date: 1/21/2000                          Telephone Number:

                                                 Refer Reply To:
                                                  CC:DOM:IT&A:7-PLR-115114-99
                                                 Date:
                                                 October 26, 1999




LEGEND:

X=
Y=
Date 1 =

Dear

    This ruling is in reply to the letter and enclosures requesting an extension of time
under § 301.9100-1(c) of the Procedure and Administration Regulations for X to file a
Form 970, Application To Use LIFO Inventory Method, which is to be effective for the
tax year ended Date 1. This request is made in accordance with § 301.9100-3.

      Y transferred assets, including inventory, to a newly formed partnership, X. Prior to
the transfer, Y accounted for certain of its inventory items using the last-in, first-out
(LIFO) method. Following the transfer, X began to use the LIFO method to account for
certain inventory items, including items transferred to it by Y that were previously
accounted for by Y on the LIFO method. However, X failed to attach a Form 970 to its
initial partnership return for the tax year ended Date 1 to properly elect to use the LIFO
method. Further, X has used the LIFO inventory method for certain inventory items for
both book and tax purposes for all tax years following the transfer.

     During preparation of a Form 3115, Application for Change in Accounting Method,
for X, it was determined that the Form 970 had not been attached to X's initial
partnership return. This failure was not intentional, but was an oversight resulting from
a change in personnel responsible for the preparation and review of X's Date 1 tax
return. Soon thereafter, this request for relief was submitted.

    Section 472 of the Internal Revenue Code provides that a taxpayer may use the
LIFO method of inventorying goods specified in an application to use such method filed
at such time and in such manner as the Secretary may prescribe.


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PLR-115114-99

    Section 1.472-3 of the Income Tax Regulations provides that the LIFO inventory
method may be adopted and used only if the taxpayer files with its income tax return for
the tax year as of the close of which the method is first to be used a statement of its
election to use such inventory method. The statement shall be made on Form 970
pursuant to the instructions printed with respect thereto and to the requirements of this
section, or in such other manner as may be acceptable to the Commissioner.

     Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable
extension of the time to make a regulatory election under all subtitles of the Code
except subtitles E, G, H, and I, provided that the taxpayer acted reasonably and in good
faith and granting relief will not prejudice the interests of the Government. Section
301.9100-1(b) defines a regulatory election as an election whose due date is prescribed
by a regulation published in the Federal Register, or a revenue ruling, revenue
procedure, notice, or announcement published in the Internal Revenue Bulletin. An
election is defined in § 301.9100-1(b) to include a request to adopt, change, or retain an
accounting method or accounting period.

    Section 301.9100-2 sets forth rules governing automatic extensions for regulatory
elections. If the provisions of § 301.9100-2 do not apply to a taxpayer's situation, the
provisions of § 301.9100-3 may apply.

     Section 301.9100-3 sets forth the standards that the Commissioner will use in
determining whether to grant an extension of time to make a regulatory election. It also
sets forth information and representations that must be furnished by the taxpayer to
enable the Internal Revenue Service to determine whether the taxpayer has satisfied
these standards. The standards to be applied in this case are whether the taxpayer
acted reasonably and in good faith and whether granting relief would prejudice the
interests of the Government.

    Under § 301.9100-3(b)(1)(i), a taxpayer that applies for relief for failure to make an
election before the failure is discovered by the Service ordinarily will be deemed to have
acted reasonably and in good faith. However, pursuant to § 301.9100-3(b)(3) a
taxpayer will not be considered to have acted reasonably and in good faith if the
taxpayer seeks to alter a return position for which an accuracy-related penalty has been
or could be imposed under § 6662 at the time the taxpayer requests relief and the new
position requires or permits a regulatory election for which relief is requested or if the
taxpayer was informed in all material respects of the required election and related tax
consequences but chose not to file the election. Furthermore, a taxpayer ordinarily will
not be considered to have acted reasonably and in good faith if the taxpayer uses
hindsight in requesting relief.

    Section 301.9100-3(c)(1)(i) provides that the interests of the Government are
prejudiced if granting relief would result in a taxpayer having a lower tax liability in the
aggregate for all tax years affected by the regulatory election than the taxpayer would


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PLR-115114-99

have had if the election had been timely made (taking into account the time value of
money). Likewise, if the tax consequences of more than one taxpayer are affected by
the election, the Government’s interests are prejudiced if extending the time for making
the election may result in the affected taxpayers, in the aggregate, having a lower tax
liability than if the election had been timely made.

     Further, the interests of the Government are ordinarily prejudiced if the tax year in
which the regulatory election should have been made or any tax years that would have
been affected by the election had it been timely made are closed by the period of
limitations on assessment under § 6501(a) before the taxpayer’s receipt of a ruling
granting relief under § 301-9100.

    The information and representations furnished by X establish that X has acted
reasonably and in good faith in this request. Furthermore, granting an extension will not
prejudice the interests of the Government. Accordingly, an extension of time is hereby
granted for X to file Form 970 for the tax year ending Date 1. This extension shall be for
a period of 30 days from the date of this ruling. Please attach a copy of this ruling to
the Form 970 when it is filed.

     No opinion is expressed as to the application of any other provisions of the Code or
the regulations which may be applicable to the transaction. It should be understood
that this ruling only addresses the request to extend the time period for filing Form 970
and does not, directly or indirectly, approve X’s overall use of the LIFO method. This
determination is to be made by the district director in connection with an examination of
X’s income tax returns.

    This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

     In accordance with the terms of a power of attorney on file with this office, copies of
this ruling are being sent to X’s authorized representatives.

Sincerely yours,

Heather Maloy
Acting Assistant Chief Counsel
(Income Tax and Accounting)

By

_______________________________
Richard L. Carlisle
Acting Deputy Assistant Chief Counsel