26 U.S.C. § 474 — Simplified dollar-value LIFO method for certain small businesses

(a) General rule -- A business that qualifies as an "eligible small business" may choose to use the simplified dollar-value method for pricing its LIFO inventory. (b) Simplified dollar-value method of pricing inventories -- (1) In general -- Under this method, (A) the taxpayer keeps a separate inventory pool for each major category in the applicable government price index, and (B) adjusts each pool based on how much that index category changed from the year before. (2) Applicable Government price index -- This means (A) the Producer Price Index from the Bureau of Labor Statistics, unless (B) says otherwise, or (B) for a retailer using the retail method, the Consumer Price Index instead. (3) Major category -- This means (A) for the Producer Price Index, any 2-digit standard industrial classification in the Producer Prices Data Report, or (B) for the Consumer Price Index, any general expenditure category in the Consumer Price Index Detailed Report. (c) Eligible small business -- A taxpayer qualifies for any tax year if its average annual gross receipts over the previous three years don't exceed $5,000,000. Rules like those in section 448(c)(3) apply when figuring this out. (d) Special rules -- (1) Controlled groups -- (A) In general -- If a taxpayer belongs to a controlled group, every member of that group counts as one taxpayer when figuring gross receipts. (B) Controlled group defined -- A group counts as "controlled" if its members would be treated as a single employer under section 52. (2) Election -- (A) In general -- A taxpayer can elect this method without asking the Secretary's permission. (B) Period to which election applies -- The election applies (i) to the year it's made, and (ii) to every later year the taxpayer still qualifies as an eligible small business, unless the Secretary approves revoking it. (3) LIFO method -- This means the method described in section 472(b). (4) Transitional rules -- (A) In general -- In the year a business switches methods: (i) its inventory pools must (I) if it's the first year using this method, follow the price index's major categories, or (II) if it's the first year after stopping this method, follow the normal rules under section 472; (ii) the total dollar value of inventory at the start of the switch year must match the value at the end of the year before; and (iii) the switch year counts as a new "base year," following the usual section 472 procedures. (B) Year of change -- This means (i) the first year the election applies, or (ii) if the election stops, the first year after it stops.