Rev. Rul. 79-242

ISSUE

Is the submission of four quarters of inventory information to the Federal Trade Commission, under the circumstances described below, on a basis other than the last-in, first-out (LIFO) method of inventory valuation by a taxpayer that uses the LIFO method for federal income tax purposes a violation of the conformity requirements of section 472(c) and (e)(2) of the Internal Revenue Code of 1954?

FACTS

The taxpayer, a corporation, files its federal income tax return on a calendar year basis using an accrual method of accounting. The taxpayer elected to use the LIFO method of valuing its inventories for federal income tax and financial reporting purposes for taxable year 1975 and has used the LIFO method for these purposes in each subsequent year, including the current year.

The taxpayer maintains its internal records on a FIFO method of inventory valuation and is required to file certain financial information regarding inventories with the Federal Trade Commission (FTC) on a basis consistent with its internal records. However, the taxpayer does not use the information submitted to the FTC to report to its shareholders, for credit purposes, or for any other purpose.

The information submitted to the FTC is used in the FTC's Quarterly Financial Report (QFR). The QFR is a compilation of financial data from thousands of United States companies. The information submitted by any one company is not individually disclosed in the QFR, which contains only aggregated industry-wide totals. Under the "Rules and Procedures for the Use of Confidential Individual Company Data Collected Under the FTC's Quarterly Financial Statistics Program" adopted by the FTC (38 Fed. Reg. 18720 (1973), as amended in 38 Fed. Reg. 26162 (1973)), all the QFR data is considered confidential and access to the data is restricted to certain employees. Although access to the data may be granted to other government agencies, any agency granted access must comply with the FTC's confidentiality restrictions. In addition, the QFR data is exempt from the disclosure provisions of the Freedom of Information Act, pursuant to the "Rules and Procedures" cited above.

LAW AND ANALYSIS

Section 472(c) of the Code provides that the LIFO method may only be used if the taxpayer establishes to the satisfaction of the Secretary that it has used no method other than the LIFO method in valuing inventory to determine income, profit, or loss of the first taxable year for which the method is used, in reports or statements for such year to shareholders, proprietors, partners, or for credit purposes. Section 472(e)(2) imposes similar restrictions for subsequent taxable years.

Rev. Rul. 78-49, 1978-1 C.B. 145, describes the application of the conformity requirements of section 472(c) and (e)(2) of the Code to four situations in which LIFO method taxpayers issued quarterly interim financial statements. Situation 2 of Rev. Rul. 78-49 concerns a taxpayer that uses the LIFO method of inventory valuation for federal income tax purposes and issues all of its annual reports and statements on the LIFO method but issues four quarterly interim financial statements using the FIFO inventory method. Rev. Rul. 78-49 holds in Situation 2 that because the four quarterly interim financial statements can be combined to show the operating results for the entire taxable year, their issuance is a violation of the conformity requirements of section 472(c) and (e)(2).

The provisions of section 472(c) and (e)(2) of the Code are not intended to restrict the furnishing of financial information to state or federal governmental agencies for official purposes, provided that this information is not directly or indirectly available to shareholders, partners, proprietors, or beneficiaries of the taxpayer, or used for credit purposes. Unlike the information contained in the four quarterly interim financial statements issued by the taxpayer in Situation 2 of Rev. Rul. 78-49, the quarterly information submitted to the FTC for use in the QFR is confidential and is available only to certain FTC and other government employees in the performance of their official duties.

HOLDING

The submission of four quarters of inventory information to the FTC, under the circumstances described above, on a basis other than the LIFO method of inventory valuation by a taxpayer that uses the LIFO method for federal income tax purposes is not a violation of the conformity requirements of section 472(c) and (e)(2) of the Code.

Rev. Proc. 75-30, 1975-1 C.B. 756, Rev. Proc. 75-36, 1975-2 C.B. 565, and Rev. Proc. 76-36, 1976-2 C.B. 659, provide that the furnishing of certain information to the Federal Trade Commission, the Bureau of the Census, or the Bureau of Economic Affairs under circumstances described in those Revenue Procedures, would not result in the termination of the taxpayer's LIFO election. Rev. Procs. 75-30, 75-36, and 76-36 were not intended to imply that the furnishing of this information would be a violation of the conformity requirements of section 472(c) and (e)(2) of the Code. See Rev. Rul. 79-139, 1979-1 C.B. 190.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 78-49 is distinguished.