Rev. Proc. 79-37

Section 1. Purpose

The purpose of this Revenue Procedure is to clarify Rev. Proc. 72-29, 1972-1 C.B. 757, by setting forth certain situations to which the financial disclosure requirements in section 5.01 of Rev. Proc. 72-29 will not apply.

Sec. 2. Background

In Rev. Proc. 72-29, the Service set forth the procedure to be used in cases involving the LIFO inventory reporting requirements of section 472(c) and (e) of the Code and certain corporate business combinations in which inventories of an acquired company are valued in accordance with the principles set forth in Accounting Principles Board Opinion No. 16 (A.P.B. 16). Section 5 of Rev. Proc. 72-29 provides that when application of the principles of A.P.B. 16 results in a difference for any taxable year between taxable income for federal income tax purposes and net income for financial accounting purposes due to the use of the LIFO inventory method by the acquiring corporation with respect to the LIFO inventories of the acquired corporation, the difference must be disclosed in the financial statements and in the federal income tax returns of the acquiring corporation.

Section 2 of Rev. Proc. 72-29 cites the following as examples to which Section 5 applies: (1) a statutory merger to which the provisions of section 368(a)(1)(A) of the Code apply, but that, under A.P.B. 16, is to be treated as a "purchase" of assets by the acquiring corporation for financial accounting purposes; and (2) a transaction that is treated as a purchase for federal income tax purposes, but that, under A.P.B. 16, is to be treated by the acquiring corporation as a "pooling of interests."

Sec. 3. Application

.01 The provisions of section 5.01 of Rev. Proc. 72-29 may be read as applying to the following situations: (1) a transaction that is a reorganization to which the provisions of section 368(a)(1) of the Code apply, which under A.P.B. 16 is to be treated by the acquiring corporation as a "pooling of interests" and (2) a transaction treated as a purchase both for federal income tax purposes and financial accounting purposes (under A.P.B. 16).

.02 The disclosure requirement of Rev. Proc. 72-29 does not apply to Situations (1) and (2) of Section 3.01 of this Revenue Procedure because the sequential layering will be the same in both situations for federal income tax and financial accounting purposes even though certain inventory carrying values may not be the same because of different computational or allocation rules used for A.P.B. 16 and federal income tax purposes. See Rev. Rul. 76-379, 1976-2 C.B. 138, which held that a taxpayer's change of its costing method for tax purposes which did not affect the sequential layering provisions of section 472(b)(1) and (3) of the Code does not result in the use of a method other than the LIFO method for purposes of section 472(c) and (e).

Sec. 4. Effect on Other Documents

Rev. Proc. 72-29 is clarified.