PLR 201342009: IRS grants more time to elect the LIFO inventory method

Plain-English summary

A corporate subsidiary asked for more time to file Form 970 and elect the LIFO inventory method after discovering that the form had not been filed. The IRS found that the taxpayer had acted reasonably and in good faith, and that the extension would not prejudice the government's interests. It granted 30 days from the ruling date to file Form 970 and required the taxpayer to attach a copy of the ruling. The ruling expressed no opinion on whether the taxpayer's use of the LIFO method otherwise complied with the Code or regulations.

Ruling snapshot

• Question: Could the taxpayer receive an extension of time to file Form 970 under Treas. Reg. § 301.9100-3?
• Outcome: Approved, a 30-day extension was granted.
• Key authorities: IRC § 472; Treas. Reg. §§ 1.472-3(a), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201342009
Third Party Communication: None
Release Date: 10/18/2013
Date of Communication: Not Applicable
Index Number: 472.01-00, 9100.11-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:ITA:6
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PLR-128869-13
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July 17, 2013

DO: --------------------------------------------------------------------------------------------------------------
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LEGEND:

Parent = ----------------------------------------------------------------- Taxpayer = ------------------------------------------------------------ CPA Firm = ----------------------------------------- Tax Year = ---------------------------

Dear ---------------:

We received CPA Firm’s letter of June 26, 2013, which notes Parent’s request for an extension of time under § 301.9100-1(c) of the Procedure and Administration Regulations to file a Form 970, Application To Use LIFO Inventory Method, on behalf of Taxpayer. See also § 301.9100-3.

The following facts have been obtained from the above-referenced letter, the accompanying affidavit, and completed draft of a Form 970. Taxpayer is a wholly owned subsidiary of Parent. For the taxable year ending Tax Year, Taxpayer began using the LIFO inventory method for both financial reporting and federal income tax purposes. Recently, the employee who had overseen Taxpayer’s tax inventory work for many years left the company. During the transition of oversight responsibility to a new employee, a review of Taxpayer’s inventory processes was conducted. It was

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discovered that Parent had failed to file a Form 970 on Taxpayer’s behalf as required under § 1.472-3(a) of the Income Tax Regulations. Taxpayer is not under examination and is not before either an Appeals office or a Federal court.

Section 472(a) of the Internal Revenue Code provides that a taxpayer may use the method provided in subsection (b) [LIFO inventory method] in 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(a) provides, in relevant part, that the LIFO inventory method may be adopted and used only if the taxpayer files with its income tax return for the taxable year as of the close of which the method is first to be used a statement of its election to use such inventory method.

Section 301.9100-1(b) defines “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.

Section 301.9100-1(c) provides, in relevant part, that 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, if the taxpayer has acted reasonably and in good faith and if granting that relief will not prejudice the interests of the Government.

Section 301.9100-3 provides the standards that the Commissioner will use in determining whether to grant an extension of time to make a regulatory election. It also provides 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 relevant standards are whether the taxpayer acted reasonably and in good faith and whether granting relief would prejudice the interests of the Government.

Section 301.9100-3(b)(1)(i) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer requests relief under this section before the failure to make the regulatory election is discovered by the Internal Revenue Service.

Section 301.9100-3(b)(3) provides that 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

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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). Similarly, 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.

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 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 this section.

The information and representations furnished by Parent 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 to file the necessary Form 970, for the taxable year ended Tax Year. 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 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. Specifically, no opinion is expressed regarding the propriety of the LIFO inventory method used by Taxpayer.

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

In accordance with the provisions of a power of attorney on file with this office, we are sending a copy of this ruling letter to Parent’s authorized representatives.

Please contact the person whose name and telephone number are shown above if you have any questions.

Sincerely,

ROY A. HIRSCHHORN
Chief, Branch 6
Office of Associate Chief Counsel
(Income Tax & Accounting)