26 U.S.C. § 472 — Last-in, first-out inventories

(a) Authorization -- A taxpayer may choose to value inventory using the method in subsection (b), called LIFO, even if section 471 wasn't the reason for choosing it. To use LIFO, the taxpayer files an application in the way and by the deadline the Secretary sets. The taxpayer must follow whatever regulations the Secretary sets so that using LIFO gives an accurate picture of income. (b) Method applicable -- Under LIFO, the taxpayer must: (1) treat inventory left at year's end as coming first from the goods on hand at the start of the year (in the order bought), and only after that, from goods bought during the year; (2) value that inventory at cost; and (3) treat the goods in the very first year's opening inventory as if they were all bought at the same time, using their average cost. (c) Condition -- LIFO under subsection (a) only applies if the taxpayer proves to the Secretary that, before switching to LIFO, it used no other method besides the one in subsection (b), paragraphs (1) and (3), for figuring income or loss in reports to shareholders, partners, other owners, beneficiaries, or lenders, for the first year LIFO is used. (d) 3-year averaging for increases in inventory value -- In the first year the taxpayer uses LIFO, it must value its beginning inventory at cost. If this creates a change in the inventory's value, the taxpayer spreads that change evenly across the first three years of using LIFO. (e) Subsequent inventories -- Once a taxpayer starts using LIFO, it must keep using it every year after, unless: (1) the Secretary approves a switch to a different method; or (2) the Secretary finds that, in a later year, the taxpayer used some other method -- besides the one in subsection (b)(1) -- in a report to owners or beneficiaries, or for credit purposes, and the Secretary then requires a change to a different method starting that year or later. If either of these happens, the taxpayer must follow whatever regulations the Secretary sets for switching methods and keeping income accurate. (f) Use of government price indexes in pricing inventory -- The Secretary must write regulations that let taxpayers use suitable published government price indexes when applying the LIFO method in subsection (b). (g) Conformity rules applied on controlled group basis -- (1) In general -- Unless regulations say otherwise, all corporations in the same "group of financially related corporations" count as a single taxpayer for the rules in subsections (c) and (e)(2). (2) Group of financially related corporations -- This term means: (A) any affiliated group as defined in section 1504, but using "50 percent" instead of "80 percent" everywhere it appears in section 1504(a), and ignoring section 1504(b); or (B) any other group of corporations that combine their financial statements together.