PLR 200223005: Partnership allowed to correct its LIFO election form

Plain-English summary

A partnership timely filed Form 970 to elect the LIFO inventory method, but the form listed inventory and calculation methods different from those it intended and consistently used. The partnership had used its intended methods for both tax and financial reporting since the election year. The IRS found that it 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 a modified Form 970 with the ruling attached. The IRS did not rule on whether the partnership's actual use of LIFO was otherwise proper.

Ruling snapshot

• Question: Could the partnership revise its filed Form 970 to reflect its intended LIFO inventory and methods?
• Outcome: Approved 30 day extension to file a modified form; no ruling on the underlying LIFO method.
• Key authorities: IRC §§ 472, 703(b); Treas. Reg. §§ 1.472-3, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
aep~rtment of the qre~sury

Number: 200223005
Washington, DC 20224
’
Release Date: 6/7/2002
Index No.: 472.01-00; 9100.11-00
Person to Contact:

Identifying Number:

Telephone Number:

Attention: Refer Reply To:
CC:ITA:B06/PLR-164319-01
Date:
March 6, 2002

LEGEND:

A
=

Date 1
=

Date 2
=

Date 3
=

Inventory
=

Dear
:

This letter is in reply to the ruling request submitted on behalf of A by A’s authorized representatives pursuant to § 301.9100-1(c) of the Procedure and Administration Regulations. Specifically, A has requested permission to revise the Form 970, Application To Use LIFO Inventory Method, filed for the tax year ended Date 1. This ruling request is made in accordance with § 301.9100-3.

On Date 2, A was organized as a partnership and classified as such for federal income tax purposes. A received an extension until Date 3 to file its U.S. return of income for the tax year ending Date 1. On Date 3, an authorized representative of A timely executed a Form 970 to elect the last-in, first-out (LIFO) method for A’s tax year ended Date 1. This Form 970 was included with A’s return for the tax year ended Date 1. The Form 970 requested that A’s inventory, excluding Inventories 1 and 2, be allowed to use the earliest-acquisitions method in the determination of cost of goods sold. The Form 970 also requested that A be permitted to use the double-extension method to compute the LIFO value of its dollar-value pools.

However, A intended that its LIFO election apply solely to its Inventory.
Moreover, A used the most-recent-purchases method in determining its costs of goods

sold and the link-chain method to determine the LIFO value of its dollar-value pools for its Inventory. A has consistently used these methods for its tax year ended Date 1 and for all subsequent years to determine federal taxable income. Further, for these years, A used these methods to account for its Inventory for financial reporting purposes.

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.

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.

Section 703(b) provides that generally any election affecting the taxable income derived from a partnership must be made by the partnership.

Section 6031(a) generally provides that every partnership is required to file a return for each tax year.

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 includes an application for relief in respect of tax and 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 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 and chose not to make 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 have had if the election had been timely made (taking into account the time value of money).

Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are ordinarily prejudiced if the tax year in which the regulatory election should have been made or any tax year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment before the taxpayer receives the ruling granting relief under § 301.9100-1(c).

The information and representations furnished by A establish that it 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 A to file a modified Form 970 for the tax year ended 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. Specifically, no opinion is expressed in regard to A’s use of the LIFO method.

Pursuant to a power of attorney on file in this office, a copy of this ruling is being sent to each of A's authorized representatives.

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

Sincerely,
James Atkinson
Deputy Associate Chief Counsel
(Income Tax & Accounting)