IRS grants extra time for subsidiaries to file LIFO elections

Plain-English summary

After acquiring a corporate group, a taxpayer discovered that the former parent’s tax adviser had failed to advise that LIFO computations must be performed entity by entity and that each inventory-holding subsidiary needed its own Form 970. The IRS concluded that the affected taxpayers acted reasonably and in good faith and that relief would not prejudice the Government. It granted 30 days from the ruling date to file the missing Forms 970, but expressed no opinion on whether the LIFO methods themselves were proper.

Ruling snapshot

• Question: Should subsidiaries receive extra time under the section 301.9100 regulations to file Forms 970 electing the LIFO inventory method?
• Outcome: approved
• Key authorities: IRC § 472(a); Treas. Reg. §§ 1.472-3(a), 301.9100-1, 301.9100-3

Full text (IRS public release)

```
Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202014014 Third Party Communication: None
Release Date: 4/3/2020 Date of Communication: Not Applicable
Index Number: 9100.11-00, 472.01-00
Person To Contact:
------------------------------------------------ ------------------------, ID No. ------------------
------------------------------------------------------- ----------------------------------------------------
------------------------------------------- Telephone Number:
--------------------
ATTN: ---------------- Refer Reply To:
CC:ITA:B06
PLR-115751-19
Date:
December 18, 2019

LEGEND

Taxpayer = ------------------------------------------------------------------------

Former Common Parent = -----------------------------------------------------------

Subconsolidated Group 1 = ------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

Subcon Group 1 Parent = -------------------------------

Subconsolidated Group 2 = ------------------------------------------------------------------------

Subcon Group 2 Parent = -------------------------

Industry = ------------------------------------------------------------------------

Date 1 = -----------------------

Date 2 = --------------------------

Date 3 = --------------------------

Month = ------
PLR-115751-19 2

Year = -------

Old Tax Advisor = ------------------------------------------------------------------------

New Tax Advisor = -----------------------

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

This ruling responds to a recent letter submitted on behalf of Taxpayer and its
subsidiaries dated July 3, 2019 requesting that the Commissioner of Internal Revenue
give Taxpayer an extension of time under §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations to file a Form 970, Application To Use LIFO
Inventory Method on behalf of the subsidiaries in its two subconsolidated groups,
Subconsolidated Group 1 and Subconsolidated Group 2. A Form 970 was filed on
behalf of the Subcon Group 1 Parent and Subcon Group 2 Parent. However, a Form
970 also should have been filed on behalf of each of the individual subsidiaries of
Subconsolidated Group 1 and Subconsolidated Group 2.

FACTS

Taxpayer and its subsidiaries, including the members of Subconsolidated Group 1 and
Subconsolidated Group 2, are Industry.

Former Common Parent (now Subcon Group 1 Parent) was the common parent of an
affiliated group of corporations that included the subsidiaries in Subconsolidated Group
1 and the parent and subsidiaries in Subconsolidated Group 2. Taxpayer acquired
Former Common Parent and its subsidiaries on Date 1. Following the acquisition, it
was determined that Subcon Group 1 Parent and Subcon Group 2 Parent are using the
“Last-In First-Out” (LIFO) method to identify inventory, but that Former Common Parent
failed to file Forms 970 on behalf of the individual subsidiaries of Subconsolidated
Group 1 and Subconsolidated Group 2. It was also determined that Subcon Group 1
Parent and Subcon Group 2 Parent are performing LIFO computations on a combined
basis rather than an entity basis.

It is represented that Former Common Parent was advised by Old Tax Advisor
regarding the use of the LIFO method prior to its acquisition by Taxpayer. Old Tax
Advisor failed to advise Former Common Parent that the LIFO computations needed to
be done on an entity by entity basis and that it was required to file Forms 970 on behalf
of the individual entities that are now the subsidiaries of Subconsolidated Group 1 and
Subconsolidated Group 2 in order for them to be able to use the LIFO method.
PLR-115751-19 3

It is further represented that, Former Common Parent, which holds inventory, filed Form
970 to use the LIFO method effective for the taxable year ending Date 2 and has used
the LIFO method since. Former Common Parent (now Subcon Group 1 Parent)
performs LIFO computations on a combined basis (as if Subcon Group 1 Parent and its
subsidiaries are a single entity) and failed to file Forms 970 on behalf of the subsidiaries
of Subconsolidated Group 1 as required by the Regulations.

Former Common Parent filed a Form 970 on behalf on behalf of Subcon Group 2
Parent, which does not hold inventory, to use the LIFO method effective for taxable year
ending Date 3. Subcon Group 2 Parent performs LIFO computations on a combined
basis (as if Subcon Group 2 Parent and its subsidiaries are a single entity) and Former
Common Parent failed to file Forms 970 on behalf of the subsidiaries of Subcon Group
2 Parent as required by the Regulations.

After the acquisition of Former Common Parent, Taxpayer engaged New Tax Advisor
who uncovered the failure to make the elections in Month 1 of Year 1.

RULING REQUESTED

Taxpayer respectfully requests that it be granted an extension of time under Treas. Reg.
§ 301-9100 to file Forms 970 on behalf of the subsidiaries in its two subconsolidated
groups, Subconsolidated Group 1 and Subconsolidated Group 2, to adopt the LIFO
method effective for each subsidiary for the taxable year, set forth in Appendix A.

LAW AND ANALYSIS

Section 472(a) provides that a taxpayer may use the method provided in subsection (b)
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 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 regulation 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.
PLR-115751-19 4

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 interest 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)(1)(v) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer reasonably relies 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 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 may not be considered to have acted reasonably and
in good faith if the taxpayer uses hindsight in requested 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).
Similarly, if the taxes 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 Taxpayer on behalf of itself and
Subconsolidated Group 1 and Subconsolidated Group 2 establish that they have 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
PLR-115751-19 5

granted to file the necessary Forms 970, for the taxable years ended as set forth in
Appendix A. 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 Forms 970 when they are filed.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, no opinion is expressed regarding the propriety of the LIFO
inventory methods used by Taxpayer on behalf of itself and Subconsolidated Group 1
and Subconsolidated Group 2.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
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 your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The rulings contained in this letter are based upon information and representations
submitted by the 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 the request for rulings, it is subject to verification on examination.

                                   Sincerely,



                                   CHRISTINA A. MORRISON
                                   Senior Technician Reviewer, Branch 6
                                   (Income Tax & Accounting)

PLR-115751-19 6

                                               Appendix A

Name Tax Year Ending
------------------------------------------------ -----------------------------
---
------------------------------------------------ -----------------------------
---
----------------------------------------------- -----------------------------
---
------------------------------------------------ -----------------------------
---
----------------------------------------- -----------------------------
---
------------------------------- -----------------------------
---
--------------------------------------------- -----------------------------
---
```