Rev. Proc. 75-36

Section 1. Purpose

The purpose of this Revenue Procedure is to set forth the procedure to be used by the Internal Revenue Service in the examination of Federal income tax returns involving the last-in, first-out (LIFO) inventory requirements of section 472(c) of the Internal Revenue Code of 1954 for the taxable year in which the taxpayer elects to use the LIFO inventory method, reelects such method with the approval of the Secretary or his delegate, or extends an existing LIFO election to cover all or a greater portion of it's inventories, and the Bureau of Census (Census) and the Bureau of Economic Analysis (BEA), agencies within and under the jurisdiction of the Department of Commerce, request that the taxpayer furnish certain information to it.

Sec. 2. Scope

The scope of this Revenue Procedure is limited to those taxpayers who provide Census and BEA with information concerning a change to the LIFO method.

Sec. 3. Background

.01 Section 472(c) of the Code and the regulations issued thereunder provide, in effect, that a taxpayer may not use the LIFO inventory method unless it establishes to the satisfaction of the Secretary or his delegate that it has used no procedure other than the LIFO method for purposes of an annual report to shareholders, partners, other proprietors, beneficiaries, or for credit purposes.

.02 Census collects data on inventories of manufacturing and wholesale firms in the quinquennial economic censuses. Similar data are also collected in monthly and/or annual surveys for manufacturing, wholesale, and retail firms. These data are collected under the authority of title 13, United States Code, 13 U.S.C.A. section 9 (supp. 1974). Section 9 of title 13 states that the information collected may not be used "for any purpose other than the statistical purposes for which it is supplied" and further prohibits "any publication whereby the data furnished by any particular establishment or individual under this title can be identified." This section also does not permit "anyone other than the sworn officers and employees of the Department or bureau or agency thereof to examine the individual reports."

.03 BEA prepares the official estimates of the gross national product (GNP) and related measures that are widely used by Government and business in formulating and monitoring policy decisions. BEA is conducting a survey of companies to collect information on the financial impact resulting from the adoption of LIFO. These data are collected under the authority of title 15, United States Code, 15 U.S.C.A. section 176a (1963). Section 176a of title 15 states that the information for an individual company "shall be held to be confidential, and shall be used only for the statistical purposes for which it is supplied." This section also prohibits the inspection of such individual reports by anyone other than employees of BEA.

.04 Under the provisions of titles 13 and 15, United States Code, data collected in Census and BEA surveys are exempt from disclosure under the Freedom of Information Act. Data on individual firms may not be released because (1) they are "specifically exempted by statute," and (2) they are "commercial or financial information obtained from a person and privileged or confidential." (Section 552(b) and (b)(4) of title 5, United States Code, 5 U.S.C.A. section 552 (Supp. 1975).)

.05 Certain of the information submitted by the taxpayer to BEA and Census concerns the taxpayer's change in its inventory valuation method to the LIFO method. Because of the large number of taxpayers that are changing to the LIFO method of inventory costing, there is a possibility that the present procedures for estimating inventory investment and corporate profits by Census and BEA are fautly. Therefore, Census and BEA are conducting a survey to update their procedure. The necessary information requested by Census and BEA includes:

(1) Information concerning whether the taxpayer has changed or intends to change its accounting method of inventory valuation to LIFO.

(2) Percentage of domestic inventory valued on a LIFO basis before and after the change to LIFO.

(3) Restated net income before tax using LIFO or increased use of LIFO.

.06 The information to be furnished to Census and BEA will not be furnished by the taxpayer to any other persons nor will it be furnished to other government agencies unless otherwise authorized by the Service.

Sec. 4. Application

In the examination of returns, a taxpayer's LIFO election will not be terminated for Federal income tax purposes solely because the taxpayer has furnished the information to Census and BEA as described in Section 3, above. The disclosures permitted by this Revenue Procedure are strictly limited to the effect on the taxable year in which LIFO is elected, reelected, or extended. The LIFO election of a taxpayer may be terminated for similar disclosures in any subsequent taxable year. Further, the disclosures permitted by this Revenue Procedure with respect to any taxpayer extending an existing LIFO election under section 472 of the Code shall be strictly limited to the effect on earnings attributable to the portion of the inventory subject to the extension.

Sec. 5. Inquiries

Inquiries in regard to this Revenue Procedure should refer to its number and be addressed to the Commissioner of Internal Revenue, Attention T:C:C, 1111 Constitution Avenue, N.W., Washington, D. C. 20224.

¹ Released also as TIR-1395, dated July 21, 1975.