Rev. Proc. 75-30

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 its inventories, and the Federal Trade Commission (FTC) requires that the taxpayer furnish certain financial information to it. Sec. 2. Scope.

The scope of this Revenue Procedure is limited to those taxpayers who are required by the FTC to furnish to it certain financial information concerning a change from the first-in, first-out (FIFO) inventory method 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 Section 6(b) of the Federal Trade Commission Act, 15 U.S.C.A. section 46 (1973), vests in the FTC authority to require a corporation engaged in commerce to file with the FTC in such form as the FTC may prescribe, annual or special reports or answers in writing to specific questions concerning the corporation's business, organization, conduct, etc. Some taxpayers are required to furnish certain financial information to the FTC to be used in the compilation of the FTC's Quarterly Financial Report (QFR).

.03 In 38 Fed. Reg. 18720 (1973), under the "Rules and Procedures for the Use of Confidential Individual Company Data Collected Under the FTC's Quarterly Financial Statistic Program" adopted by the FTC, it is stated that "all such QFR data are considered to be exempt from the disclosure provisions of the Freedom of Information Act. Penalties under Section 10 of the Act provide for fines up to five thousand dollars ($5,000) or imprisonment not exceeding one year for unauthorized release of such information."

.04 Certain of the information required to be submitted by the taxpayer to the FTC concerns the taxpayer's change in its inventory valuation method from the FIFO method to the LIFO method. The effect of a change in an inventory valuation method poses serious problems for the QFR, which is a valuable statistical report for measuring quarter to quarter changes in the financial structure of an industry. For this measurement to be meaningful, comparable data must be assured. In the event that a change in accounting method will materially distort one quarter's results, the FTC must be able to evaluate and adjust the data accordingly. Therefore, the FTC requires the necessary information to assess the quarterly impact of the FIFO to LIFO adjustment on cost of goods sold. The necessary information required by the FTC includes:

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

(2) The amount of the adjustment to cost of goods sold resulting from the FIFO to LIFO inventory change, broken down into the various quarters involved.

(3) The amount of the LIFO adjustment caused by the change in reflecting operating costs and expenses.

.05 The information to be furnished to the FTC will not be furnished by the taxpayer to any other persons or government agencies.

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 required information to the FTC 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 Also released as TIR 1377, dated May 16, 1975.