IRS gives a corporation 45 days to file a late LIFO election form

Plain-English summary

An LLC became an independent C corporation and acquired inventory that its former owner had accounted for under the last-in-first-out method. The corporation continued using LIFO, but two accounting firms failed to advise that Form 970 had to accompany its return to elect that method. The omission was discovered while the next year's return was being prepared, and the corporation represented that it had consistently used LIFO and complied with the LIFO conformity requirement. The IRS found the late-election relief requirements satisfied and gave the corporation 45 days to file only the missing Form 970, reflecting exactly the LIFO method used since the election year. The ruling did not decide whether the corporation was eligible to use LIFO, whether it had used the method correctly, or whether Form 970 was legally required on the stated facts.

Ruling snapshot

• Question: Could the corporation receive extra time to file Form 970 for its first year using the LIFO inventory method?
• Outcome: approved (a 45-day extension was granted for the missing Form 970)
• Key authorities: IRC §§ 472, 6501(a), 6662; Treas. Reg. §§ 1.472-2(e), 1.472-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202037006                                             Third Party Communication: None
 Release Date: 9/11/2020                                       Date of Communication: Not Applicable
 Index Number: 9100.00-00
                                                               Person To Contact:
 --------------------------------------------                  ---------------------------, ID No. ------------
 -------------------------------------------                   Telephone Number:
 ----------------------------                                  --------------------
 -------------------------                                     Refer Reply To:
                                                               CC:ITA:B06
                                                               PLR-105549-20
                                                               Date:
                                                               June 17, 2020




Legend

Taxpayer = ---------------------------------------------
EIN: ----------------

Entity A = -------------------------
EIN: ----------------

Accounting Firm A = ----------------

Accounting Firm B = ------------------------------

Accounting Firm C = -------------------------------------- --

Tax Year = -------

X = ---------------------------------------------------------------------

Y = ---------------------------------------------------------------------------------------------------------------
-------

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

This letter is in reply to a request for a private letter ruling made by Taxpayer. Taxpayer
requests an extension of time under sections 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations to file Form 970, Application to Use LIFO
Inventory Method, for Tax Year. This letter ruling is being issued electronically in
accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be
mailed to Taxpayer.
PLR-105549-20                                 2


                                          FACTS

Taxpayer is a limited liability company that is a X. It offers Y and related products.

Prior to Tax Year, for U.S. Federal income tax purposes, Taxpayer was a disregarded
entity solely owned by Entity A. Entity A accounted for all of Taxpayer's inventory using
the last-in-first-out (LIFO) method under section 472 of the Internal Revenue Code.

In Tax Year, Taxpayer became a C corporation; independent of Entity A. Also, in that
year, Taxpayer acquired assets that had been held previously by Entity A. These
assets included the inventory that had been identified using the LIFO method.
Taxpayer continued to identify the inventory using the LIFO method.

Accounting Firm A “assisted” Taxpayer with the events that occurred in Tax Year.
Accounting Firm A did not advise Taxpayer that Taxpayer was required to file Form 970
with its Federal income tax return for Tax Year in order to properly continue to use the
LIFO method for its inventory.

Accounting Firm B prepared Taxpayer’s Federal income tax return for Tax Year.
Accounting Firm B failed to inform Taxpayer that it was required to file Form 970 with its
Federal income tax return in order to properly continue to use the LIFO method for its
inventory. Thus, when the return was filed, a Form 970 was not attached.

During the preparation and review of the Federal income Tax return for the year
immediately subsequent to Tax Year, Accounting Firm B realized that a Form 970
should have been filed with Taxpayer’s return for Tax Year and that no Form 970 had
been filed for Tax Year. Taxpayer contacted Accounting Firm C, to request assistance
in preparing the Form 970. Accounting Firm C also assisted Taxpayer to file this
request for a private letter ruling.

Taxpayer has consistently accounted for all of its inventory using the LIFO method for
Tax Year and all subsequent years for U.S. Federal income tax purposes. Taxpayer
represents “that it has not violated the LIFO conformity requirement provided in Section
472(c) and Treas. Reg. §1.472-2(e)” for Tax Year and all subsequent years.

                                  RULING REQUESTED

Taxpayer requests an extension of time to file Form 970 and for it to be considered
timely for Tax Year under sections 301.9100-1 and 301.9100-3.


                                  LAW AND ANALYSIS
PLR-105549-20                                 3

Section 472 provides that a taxpayer may use the LIFO 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 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
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. The statement is to be made on Form 970.

Section 301.9100-1(c) provides that the Commissioner has the discretion to grant a
reasonable extension of time under the rules set forth in sections 301.9100-2 and
301.9100-3 to make certain regulatory elections. Section 301.9100-1(b) defines a
regulatory election as an election whose due date is prescribed by regulations published
in the Federal Register, or in a revenue ruling, revenue procedure, notice, or
announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides for automatic extensions of time for making certain
elections. Section 301.9100-3 provides for extensions of time for making elections that
do not meet the requirements of section 301.9100-2.

The requested election is a regulatory election as defined under section 301.9100-1(b)
because the due date of the election is prescribed in section 1.472-3. Taxpayer’s
request is analyzed under the requirements of section 301.9100-3 because the
automatic provisions of section 301.9100-2 are not applicable.

Requests for relief under section 301.9100-3 will be granted when a taxpayer provides
evidence to establish to the satisfaction of the Commissioner (1) that the taxpayer acted
reasonably and in good faith, and (2) that granting relief will not prejudice the interest of
the government. See section 301.9100-3(a).

Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer: (i) requests relief before the failure to make a
regulatory election is discovered by the Internal Revenue Service (IRS); (ii) failed to
make the election because of intervening events beyond the taxpayer’s control; (iii)
failed to make the election because, after exercising reasonable diligence, the taxpayer
was unaware of the necessity of the election; (iv) reasonably relied on written advice of
the IRS; or (v) reasonably relied on a qualified tax professional, including a tax
professional employed by the taxpayer, and the tax professional failed to make, or
advise the taxpayer to make, the election.

Section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which
an accuracy-related penalty has been or could be imposed under section 6662 at the
time the taxpayer requests relief and the new position requires or permits a regulatory
election for which relief is requested; (ii) was informed in all material respects of the
PLR-105549-20                                 4

required election and related tax consequences and chose not to file the election; or (iii)
uses hindsight in requesting relief.

Section 301.9100-3(c)(i) provides, that the interests of the government are prejudiced if
granting relief would result in the taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money). The
section also provides that, 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, section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the
government are ordinarily prejudiced if the taxable year in which the regulatory election
should be been made, or any taxable years that would have been affected by the
election had it been timely made, are closed by the period of limitations on assessment
under section 6501(a) before the taxpayer’s receipt of a ruling granting relief under this
section.
                                      CONCLUSION

On the basis of Taxpayer’s representations, we conclude that the requirements of
section 301.9100-3 have been satisfied. Accordingly, we hereby grant an extension of
time for Taxpayer to file the missing Form 970 for Tax Year. No form other than a Form
970 may be filed and the Form 970 to be filed by Taxpayer must reflect exactly the LIFO
method it had used since Tax Year for U.S. Federal income tax purposes. This
extension shall be for a period of 45 days from the date of this ruling. Please attach a
copy of this ruling to the Form 970 filed pursuant to this private letter ruling request.

Except as expressly set forth above, this office neither expresses nor implies any
opinion concerning the tax consequences of the facts described above under any other
provision of the Code or regulations. Specifically, we have no opinion, either express or
implied as to whether: (1) Taxpayer may permissibly use the LIFO inventory method;
(2) Taxpayer has correctly used or is correctly using the LIFO inventory method; (3)
Taxpayer was required to file a Form 970 in order to use the LIFO inventory method; (4)
it was permissible for Entity A to use the LIFO inventory method for the years prior to
Tax Year, (5) Entity A had correctly used the LIFO inventory method for the years prior
to Tax Year for the inventory Taxpayer acquired from it, and (6) any of the events that
occurred in Tax Year involving Entity A and Taxpayer were proper.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of this request for an extension of time to file the required Form 970, all material
is subject to verification on examination.
PLR-105549-20                                  5

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

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to Taxpayer’s authorized representatives.


                                           Sincerely,



                                           Cheryl L. Oseekey
                                           Senior Counsel, Branch 6
                                           Office of Associate Chief Counsel
                                           (Income Tax & Accounting)




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