Rev. Proc. 72-24

Section 1. Purpose and Scope.

.01 The purpose of this Revenue Procedure is to update Revenue Procedure 69-11, C.B. 1969-1, 401 which sets forth an administrative procedure under which taxpayers who have been using the last-in, first-out (LIFO) inventory method may request that a positive adjustment resulting from the discontinuance of the last-in, first-out (LIFO) inventory method be spread ratably over a period of ten years.

.02 The words "positive adjustment" as used in this Revenue Procedure mean the excess of (1) the inventory valuation at the beginning of the year of change under the new method over (2) the inventory valued at LIFO cost at the beginning of the year of change.

Sec. 2. Background.

.01 A taxpayer who changes the method of accounting employed in keeping his books shall, before computing his income upon such new method for purposes of taxation, secure the consent of the Commissioner. A change in method of accounting includes a change in the over-all method of accounting for gross income or deductions, or a change in the treatment of a material item. See section 1.446-1(e)(2)(ii) of the Income Tax Regulations.

.02 In order to secure the Commissioner's consent to a change of a taxpayer's method of accounting, the taxpayer must file an application on Form 3115, Application for Change in Accounting Method, with the Commissioner of Internal Revenue, Washington, D.C. 20224, within 180 days after the beginning of the taxable year in which it is desired to make the change. See section 1.446-1(e)(3) of the regulations.

.03 Revenue Procedure 71-16, C.B. 1971-1, 682, and Revenue Procedure 71-16, Amendment I, C.B. 1971-2, 527, provide that, under certain conditions, any positive adjustment resulting from the discontinuance of the LIFO inventory method may be spread over a period of more than 10 taxable years but in no event more than 20 taxable years. To those who do not qualify for treatment under Revenue Procedure 71-16, the provisions of this Revenue Procedure may be utilized.

Sec. 3. Procedure.

.01 In those situations not qualifying for treatment under the provisions of Revenue Procedure 71-16, as amended, and in which a taxpayer requests permission from the Service to discontinue the LIFO inventory method, the taxpayer may, at the same time, request permission to allocate, over a period of up to 10 taxable years, any positive adjustment resulting from the change.

.02 If such a taxpayer has used the LIFO method for two or more taxable years immediately preceding the taxable year of change, the positive adjustment will be spread over twice the number of taxable years the taxpayer has used the LIFO method but in no event more than ten taxable years.

.03 The taxpayer's request relating to the ratable allocation of the positive adjustment shall be made by a statement attached to the Form 3115, Application for Change in Accounting Method.

.04 This Revenue Procedure in no way changes any other determining factors which the Commissioner may take into consideration in granting permission for the discontinuance of the LIFO inventory method.

Sec. 4. Effective Date.

This Revenue Procedure shall be effective for taxable years beginning after December 31, 1968.

Sec. 5. Effect on Other Documents.

Revenue Procedure 69-11, C.B. 1969-1, 401, is superseded.