IRS PROVIDES ALTERNATIVE LIFO METHOD FOR AUTO DEALERS.

Rev. Proc. 92-79

                              CONTENTS

This revenue procedure provides an alternative last-in, first- out (LIFO) inventory computation method (the "Alternative LIFO Method") for taxpayers engaged in the trade or business of retail sales of new automobiles or new light-duty trucks ("automobile dealers"). Procedures are also providing for certain automobile dealers to obtain expeditious consent to change their method of accounting to the Alternative LIFO Method. Procedures are provided as well for certain automobile dealers that use the Inventory Price Index ("IPI") computation method to obtain expeditious consent to change to the methods described in section 5 of this revenue procedure with respect to their LIFO inventories of parts and accessories, used automobiles, and used trucks.

An automobile dealer complying with this revenue procedure will be deemed to have obtained the consent of the Commissioner of Internal Revenue to change its method of accounting from its present LIFO inventory method to the Alternative LIFO Method and, in the case of an automobile dealer using the IPI computation method, to the methods described in section 5 of this revenue procedure, as applicable.

SEC. 2. SCOPE

01 APPLICABILITY TO AUTOMOBILE DEALERS. The Alternative LIFO Method is available to any automobile dealer engaged in the business of retail sales of new automobiles or new light-duty trucks for its LIFO inventories of new automobiles and new light-duty trucks. Light- duty trucks are trucks with a gross vehicle weight of 14,000 pounds or less, which are also referred to as class 1, 2, or 3 trucks.

Except as provided in section 2.02 below, an automobile dealer described in the preceding paragraph may use the expeditious consent procedures provided in this revenue procedure, regardless of whether the automobile dealer:

(1) has recently received and executed an accounting method ruling letter to change its LIFO method of accounting; or

(2) is under examination as of September 8, 1992, or comes under examination on or before December 31, 1992. Special rules may apply to an automobile dealer that is under examination as of September 8, 1992. See section 5 of this revenue procedure.

An automobile dealer to which the expeditious consent procedures of this revenue procedure apply may not use Rev. Proc. 92-20, 1992-20 I.R.B. 10 (or its successor), or Rev. Proc. 84-74, 1984-2 C.B. 736, to change to the Alternative LIFO Method for its new automobiles and new light-duty trucks for a year of change provided in this revenue procedure.

02 AUTOMOBILE DEALERS TO WHICH THE EXPEDITIOUS CONSENT PROCEDURES DO NOT APPLY. The procedures provided in this revenue procedure for obtaining expeditious consent do not apply to any automobile dealer that:

(1) At the time for filing the Form 3115, Application for Change in Accounting Method, is before an appeals office of the Service with respect to an examination of its federal income tax return(s) for any year unless the automobile dealer has obtained an agreement from the appeals officer that there is not objection to the proposed change in method of accounting and attaches the agreement to the Form 3115;

(2) At the time for filing the Form 3115, is before any federal court with respect to an income tax issue arising in any taxable year, unless the automobile dealer has obtained an agreement from counsel for the Government that there is no objection to the proposed change in method of accounting and attaches the agreement to the Form 3115;

(3) At the time for filing the Form 3115, is the subject of a criminal investigation or proceeding concerning (i) directly or indirectly the automobile dealer's federal tax liability for any year, or (ii) the possibility of false or fraudulent statements made by the automobile dealer with respect to any issue relating to its federal tax liability for any year; or

(4) Uses the IPI computation method for goods other than new automobiles, new light-duty trucks, parts and accessories, used automobiles, and used trucks. For example, if the automobile dealer uses the IPI computation method for its LIFO inventory and its LIFO inventory includes new medium-duty trucks (such as beverage delivery and wrecker trucks), the expeditious consent procedures in this revenue procedure do not apply to the automobile dealer. An automobile dealer in this situation may, however, request to change to the Alternative LIFO Method for its new automobiles and new light- duty trucks under Rev. Proc. 92-20 (or its successor).

SEC. 3. BACKGROUND

01 IN GENERAL. Section 472(a) of the Internal Revenue Code provides that a taxpayer may use the LIFO inventory method of inventorying goods if, among other requirements, the change to, and use of, the method is in accordance with such regulations as the Secretary may prescribe as necessary in order that the use of the method may clearly reflect income.

Section 1.472-8(a) of the Income Tax Regulations provides that any taxpayer may elect to determine the cost of its LIFO inventories under the dollar-value LIFO method of accounting, provided such method is used consistently and clearly reflects income in accordance with the rules of that section.

Section 1.472-8(e)(1) of the regulations permits the use of a "link-chain" method of computing the LIFO value of a dollar-value pool if the "double-extension" method and an "index" method would be impractical or unsuitable in view of the nature of the inventory in the dollar-value pool. Further, in applying a link-chain method, an index may be computed by "double extending" a representative portion of the inventory in a dollar-value, link-chain pool at both the current-year cost and the prior-year cost. Additionally, an index may be computed under a link-chain method using other sound and consistent statistical methods.

Section 1.446-1(c)(2)(ii) of the regulations provides that the Commissioner may authorize a taxpayer to use a method of accounting not specifically authorized by the regulations, if, in the opinion of the Commissioner, income is clearly reflected by the use of such method.

Section 446(e) of the Code and section 1.446-1(e) of the regulations state that, except as otherwise provided a taxpayer must obtain the consent of the Commissioner to change a method of accounting for federal income tax purposes.

Rev. Proc. 92-20, provides general procedures under section 1.446-1(e) of the regulations for obtaining consent of the Commissioner to change a method of accounting. Rev. Proc. 92-20 superseded Rev. Proc. 84-74 and is effective for Forms 3115 filed on or after March 23, 1992.

Except as otherwise provided in this revenue procedure, the principles of Rev. Proc. 92-20 (or its successor) apply to a change in method of accounting made under this revenue procedure to the extent those principles are applicable to an automatic change in method of accounting. Further, the definitions of terms (e.g., the "under examination" definition) in Rev. Proc. 92-20 (or its successor) apply to any such terms used in this revenue procedure.

The Commissioner may determine that certain categories of methods of accounting will be changed using a cut-off method. Under the cut-off method, only the items arising on or after the beginning of the year of change are accounted for under the new method of accounting. Any items arising prior to the year of change continue to be accounted for under the former method of accounting. Because no items are duplicated or omitted from income when a cut-off method is used to effect a change in method of accounting, no adjustment is necessary pursuant to section 481(a) of the Code. See section 9.01 of Rev. Proc. 92-20.

02 ACCEPTABLE METHODS. Under existing LIFO inventory provisions, there are three general dollar-value LIFO methods:

(1) Section 474 of the Code provides an elective simplified dollar-value LIFO method for eligible small businesses. In general, a taxpayer is an eligible small business for any taxable year if its average annual gross receipts for the three preceding years do not exceed $5,000,000.

The simplified dollar-value LIFO method under section 474 of the Code is based on a so-called link-chain method of computing the LIFO value of an inventory pool. Under section 474, inventory pools are established by the major categories in the applicable Government price index, and an annual index for each pool is obtained from that Government price index. Therefore, under section 474, an eligible automobile dealer uses a single inventory pool for new automobiles and new trucks under the major category, transportation equipment, in the Producer Price Index ("PPI") published by the Bureau of Labor Statistics ("BLS").

Under this link-chain method, two price indexes are computed for each pool, an annual index and a cumulative index. The annual index represents the change in price level of goods in the ending inventory of the pool for the current year from the price level of comparable goods for the prior year. Under section 474 of the Code, the annual index for computing the LIFO value of an automobile dealer's single inventory pool is obtained using the price change from the preceding taxable year for the major index category, transportation equipment, from the PPI.

The cumulative index represents the price level change from the beginning of the base year to the end of the current year and is the product of each of the annual indexes. The cumulative index is used to convert the total current-year cost in an inventory pool at the close of the taxable year to base-year dollars by dividing the total current-year cost by the accumulative index, and also to determine the value of any incremental increase in the pool to be added to the ending inventory of the preceding year by multiplying that increment by the cumulative index.

(2) Section 1.472-8(e)(3) of the regulations provides another simplified dollar-value LIFO method, the IPI computation method, which is available to all taxpayers. An automobile dealer using the IPI computation method must use that method in determining the value of all goods for which the automobile dealer has elected to use the LIFO method. Under the IPI computation method, special inventory pooling rules permit an automobile dealer to establish a single inventory pool for new automobiles and new trucks under the major category of the applicable Government price index published by the BLS. See section 1.472-8(e)(3)(iv) and Rev. Proc. 84-57, 1984-2 C.B. 496.

The IPI computation method under section 1.472-8(e)(3) of the regulations is also based on a link-chain method of computing the LIFO value of an inventory pool. The annual index for the pool is generally computed using a stated percentage of the percent change in the applicable detailed index(es) for the major category of the applicable Government price index. The stated percentage is 80 percent unless a taxpayer qualifies as an eligible small business under section 474 of the Code, in which case the stated percent is 100 percent.

(3) If an automobile dealer does not desire to use either the simplified dollar-value LIFO method for certain small businesses provided in section 474 of the Code (if the taxpayer is eligible) or the IPI computation method provided in section 1.472-8(e)(3) of the regulations, the automobile dealer may use the general dollar-value LIFO inventory rules contained in section 1.472-8 of the regulations. Under these general rules, an automobile dealer establishes inventory pools for each separate trade or business under section 1.472-8(c) by major lines, types, or classes of goods (e.g., one separate pool for all new automobiles and another separate pool for all new trucks). See Fox Chevrolet, Inc. Maryland v. Commissioner, 76 T.C. 708 (1981), acq., 1984-2 C.B. 1, and Richardson Investments, Inc., and Subsidiaries v. Commissioner, 76 T.C. 736 (1981).

An automobile dealer may use the double-extension method, an index method, or a link-chain method, to compute the LIFO value of its inventory pools. Under all three of these methods, automobile dealers use their own cost data to compute the index for each pool. Because of the nature of the items in their pools, automobile dealers generally use a link-chain method. The annual index for each pool under the link-chain method is computed by "double extending" (that is, pricing) the vehicles (or "items") in each inventory pool as of the close of the taxable year at the automobile dealer's own current year cost and at the automobile dealer's own prior-year cost. For each pool, the total current-year cost of the vehicles in ending inventory is divided by the total prior-year cost of the vehicles in ending inventory to compute the annual index for the current year. The vehicles used to determine the dealer's own prior-year cost of vehicles in the current year's ending inventory must be comparable to the vehicles used to compute the current-year cost of vehicles in the current year's ending inventory. For purposes of this revenue procedure, this is referred to as the section 1.472-8 "comparability requirement."

03 NEW ALTERNATIVE METHOD. In addition to the three general dollar-value LIFO methods briefly described in section 3.02, this revenue procedure provides an additional dollar-value LIFO method for automobile dealers, the Alternative LIFO Method. This method is described in section 4 of this revenue procedure.

SEC. 4. ALTERNATIVE LIFO METHOD

01 IN GENERAL. The Alternative LIFO Method is a comprehensive dollar-value, link-chain LIFO method of accounting that encompasses several LIFO sub-methods and may only be used by an automobile dealer engaged in the trade or business of retail sales of new automobiles or new light-duty trucks to value its inventory of new automobiles and new light-duty trucks.

The comprehensive Alternative LIFO Method is designed to simplify the dollar-value computations of automobile dealers. Under the authority of section 1.446-1(c)(2)(ii) of the regulations, the Commissioner will waive strict adherence of the section 1.472-8 comparability requirement in applying the Alternative LIFO Method, provided a taxpayer uses the compensating sub-methods described in this section, which, in the opinion of the Commissioner, are necessary to ensure that the Alternative LIFO Method clearly reflects income. These new methods include requirements (1) that the current- year cost of a new item be used as the prior year cost for the new item, and (2) that the automobile dealer use manufacturer's base model codes to define items for purposes of section 1.472-8. Generally, the manufacturer's base model codes used in defining items and identifying new items under the Alternative LIFO Method have an average life of approximately five to seven years.

The Alternative LIFO Method includes, by definition, all of its sub-methods. Individual sub-methods used alone, or in combination with some but not all of the sub-methods of the Alternative LIFO Method, may not clearly reflect income. Therefore, use of the Alternative LIFO Method is conditioned upon an automobile dealer computing its LIFO inventory using all of the sub-methods, definitions, and special rules provided in section 4.02, and the computational methodology provided in section 4.03.

The Alternative LIFO Method will be accepted by the Commissioner as an appropriate method of computing an inventory index, and the use of the Alternative LIFO Method to compute the value of the inventory pool or pools will be accepted as accurate, reliable, and suitable. The automobile dealer's computations under the Alternative LIFO Method are, however, subject to verification by the District Director upon examination of the automobile dealer's return.

02 SUB-METHODS, DEFINITIONS, AND SPECIAL RULES.

(1) LIFO POOLS. For each separate trade or business, (i) all new automobiles (regardless of manufacturer), including those used as demonstrators, must be included in one dollar-value LIFO pool and (ii) all new light-duty trucks (regardless of manufacturer), including those used as demonstrators, must be included in another separate dollar-value LIFO pool.

(2) SPECIFIC IDENTIFICATION INCREMENT METHOD. The current-year cost of the items making up a pool must be determined by reference to the actual cost of the specific new automobiles or new light-duty trucks in ending inventory. Therefore, the actual cost of the specific vehicles on hand at year end will be the current-year cost of such vehicles.

(3) ITEM OF INVENTORY. An item of inventory ("item category") must be determined using the entire manufacturer's base model code number that represents the most detailed description of the base vehicles' characteristics, such as model line, body style, trim level, etc. The manufacturer's base model code numbers are almost always used as part of the vehicle identification on each dealer invoice (e.g., domestic model, trim level, 4-door sedan has a specific model code; foreign model, 4-door sedan, trim level, 5-speed has a specific model code). In the case of conversion vans, an item of inventory must be determined using both (i) the entire manufacturer's base model code, as described in the preceding sentence, and (ii) the most detailed conversion package designation.

(4) COST OF THE VEHICLE USED FOR PURPOSES OF COMPUTING THE POOL INDEX. The actual base vehicle cost of each of the specific vehicles in ending inventory is used to compute the index under the Alternative LIFO Method. The base vehicle cost of each vehicle is not adjusted for any options, accessories, or other costs. The pool index computed from only the base vehicle cost of vehicles is applied to the total vehicle cost, including options, accessories, and other costs, of all vehicles in the pool at the end of the taxable year.

(5) DEFINITION OF A NEW ITEM. A new item category, which is an item category not considered in existence in the prior taxable year, is one of the following: (i) any new or reassigned manufacturer's model code, as described in section 4.02(3), that is caused by a change in an existing vehicle, or (ii) a manufacturer's model code, as described in section 4.02(3), created or reassigned because the classified vehicle did not previously exist. Additionally, if there is no change in a manufacturer's model code, but there has been a change to the platform (i.e., the piece of metal at the bottom of the chassis that determines the length and width of the vehicle and the structural set-up of the vehicle) that results in a change in track width or wheel-base, whether or not the same model name was previously used by the manufacturer, a new item category is created.

(6) TREATMENT OF A NEW ITEM NOT IN EXISTENCE IN THE PRIOR YEAR. The automobile dealer must use the current-year base vehicle cost of the new item category as the prior-year base vehicle cost of that item category.

(7) ITEM IN EXISTENCE IN THE PRIOR YEAR, BUT NOT STOCKED. If an item in ending inventory was not stocked by the automobile dealer at the end of the prior year, but was in existence in the prior year, the automobile dealer must determine the prior-year base vehicle cost for that item by reconstructing what the base vehicle cost for the item category would have cost using a manufacturer's price list that provides dealer purchase prices. For each such item category, the manufacturer's price list that must be used by the automobile dealer is the list in effect as of the beginning of the last month of the prior taxable year.

03 COMPUTATIONAL METHODOLOGY.

The rules of this section 4.03 are applied to compute the LIFO value for each pool of an automobile dealer's ending inventory under the Alternative LIFO Method:

STEP 1. Obtain the actual invoice for each vehicle in the automobile dealer's ending inventory.

STEP 2. For each pool, group all of the invoices from Step l by item category, as defined in section 4.02(3) of this revenue procedure.

STEP 3. For each item category, add together the dealer's base vehicle costs of all vehicles within each item category, from Step 2.

STEP 4. Within each pool, compute an average base vehicle cost for each item category by dividing the result from Step 3 for each item category by the number of vehicles in the item category. This average base vehicle cost for each item will be used in Step 6 of the succeeding year's computations using the Alternative LIFO Method.

STEP 5. For each pool, compute the total current-year base vehicle cost of the pool by adding together the separate item category totals from Step 3.

STEP 6. For each pool, compute the total base vehicle cost of the ending inventory at prior-year's base vehicle cost. First, multiply the number of vehicles in the current year's ending inventory for each item category by the average base vehicle cost of the same item category from Step 4 of the preceding year's inventory calculation. If the same item was not in the prior year's ending inventory, see sections 4.02(6) and 4.02(7). Then, add together the total prior-year base vehicle cost of all of the item categories.

STEP 7. For each pool, compute the current-year (annual) index by dividing the amount from Step 5 by the amount from Step 6.

STEP 8. For each pool, compute the cumulative index by multiplying the current-year index from Step 7 by the cumulative index at the end of the preceding year (from Step 8 of the preceding year's computation).

STEP 9. For each pool, compute the total current-year total- vehicle cost by adding together the total invoice cost, including installed options, accessories, and other inventoriable cost(s), of all of the vehicles in inventory at the end of the current year.

STEP 10. For each pool, compute the total cost of the current- year's ending inventory at base-year cost by dividing the total current-year total-vehicle cost of all of the vehicles in ending inventory, from Step 9, by the cumulative index from Step 8.

STEP 11. For each pool, determine if there is an increment for the current year by comparing the total cost of the pool's current- year ending inventory at base-year cost, from Step 10, with the total cost of the pool's preceding year's ending inventory at base-year cost, using the amount from Step 10 of the preceding year's calculation. If the amount from Step 10 of the current year's calculation is greater, there is an increment.

STEP 12. For each pool, value the current year's increment at current-year cost by multiplying the increment amount from Step 11 by the cumulative index from Step 8.

STEP 13. If there is no increment for a pool, but, rather, a liquidation (also referred to as a decrement), reduce the LIFO layers in reverse chronological order until the liquidation is fully absorbed.

STEP 14. For each pool, add together the current year's increment, if any, at current-year cost and the prior years' increments at each prior year's current-year cost to compute the total LIFO value for the pool.

SEC. 5. PROCEDURES FOR CHANGING TO THE ALTERNATIVE LIFO METHOD ON OR BEFORE DECEMBER 31, 1992

01 AUTOMOBILE DEALER FOR WHICH A LIFO ISSUE IS NOT PENDING AS OF SEPTEMBER 8, 1992 -- SPECIAL TRANSITION RULES IN EFFECT THROUGH DECEMBER 31, 1992.

(1) YEAR OF CHANGE. In the case of an automobile dealer for which a LIFO issue is not pending, as defined in the following paragraph, as of September 8, 1992, the year of change is the first taxable year ending after September 28, 1992, provided the automobile dealer files a Form 3115 with the National Office, pursuant to the provisions of section 5.01(3), at any time during the period beginning September 8, 1992, and ending December 31, 1992 (even if the automobile dealer is under examination or may come under examination during this period). Any Form 3115 requesting permission to change to the Alternative LIFO Method that is filed on or before December 31, 1992, including those filed before September 28, 1992, must be for a year of change that is the automobile dealer's first taxable year ending after September 28, 1992. Therefore, the early filing provisions of sections 5.01(3) and 14.02 of Rev. Proc. 92-20 are inapplicable for any Form 3115 filed on or before December 31, 1992, including any Form 3115 filed before September 28, 1992, for a change to the Alternative LIFO Method.

For purposes of this revenue procedure, an issue is pending if the automobile dealer has received written notification from an examining agent indicating that an adjustment is being or will be proposed with respect to the automobile dealer's use of the particular LIFO inventory method or sub-method. This will generally occur after the examining agent has gathered information sufficient to identify a particular erroneous LIFO inventory method or sub- method and to determine that a proposed examination adjustment is appropriate and justified, although the amount of the adjustment may not yet be determined. If there is disagreement between the automobile dealer and the district director as to whether there is a LIFO issue pending as of September 8, 1992, a technical advice request may be submitted to the National Office in accordance with Rev. Proc. 92-2, 1992-2 I.R.B. 39.

(2) IPI COMPUTATION METHOD CHANGES. An automobile dealer that uses the IPI computation method must also change from the IPI computation method to another acceptable method for its goods other than new automobiles and new light-duty trucks. For parts and accessories, the automobile dealer must change to the dollar-value, index method, with all parts and accessories within each separate trade or business in a separate LIFO pool. For used vehicles, the automobile dealer must change to the dollar-value, link-chain method, with all used automobiles within each separate trade or business in one LIFO pool and all used trucks within each separate trade or business in another separate LIFO pool.

(3) MANNER OF EFFECTING THE CHANGE. An automobile dealer described in this section 5.01 and desiring a change to the Alternative LIFO Method under the provisions of this revenue procedure must complete a current Form 3115, including the attachments required by this revenue procedure. The required attachments to the Form 3115 include the separate written statement in section 9.01 of this revenue procedure and, in the case of an automobile dealer changing from the IPI computation method, a schedule setting forth the classes of goods for which the automobile dealer has elected to use the LIFO method and the accounting method changes being made under the provisions of this revenue procedure for each class of goods.

The original of the completed Form 3115, including attachments, must be attached to the automobile dealer's timely filed (including extensions) original federal income tax return for the year of change.

A copy of the completed Form 3115, including attachments, must be filed with the National Office, addressed to the Commissioner of Internal Revenue, Attention: CC:IT&A, P.O. Box 7616, Benjamin Franklin Station, Washington, D.C. 20044, on or before December 31, 1992. The automobile dealer must also attach an extra acknowledgement copy of page 1 of the Form 3115 to the copy filed with the National Office. The copy of page 1 of the Form 3115 will be date-stamped by the National Office and returned to the automobile dealer.

If the automobile dealer is under examination as of September 8, 1992, or is contacted for examination during the period beginning September 9, 1992, and ending December 31, 1992, the automobile dealer must give a copy of the completed Form 3115, including attachments, and a copy of the National Office date-stamped acknowledgement copy of page 1 of the Form 3115, to the examining agent promptly upon receipt of the National Office date-stamped copy of page 1 of the Form 3115.

02 AUTOMOBILE DEALER UNDER EXAMINATION AND FOR WHICH A LIFO ISSUE IS PENDING AS OF SEPTEMBER 8, 1992.

(1) YEAR OF CHANGE. In the case of an automobile dealer under examination and for which a LIFO issue is pending, as defined in section 5.01(1), as of September 8, 1992, the year of change is the most recent taxable year that is being examined by the Service as of September 8, 1992, but not later than the most recent taxable year for which a federal income tax return had been filed as of the date the examination (in which the issue is pending) began, provided the Form 3115 is filed with the National Office, pursuant to the provisions of section 5.02(3), on or before December 31, 1992.

(2) IPI COMPUTATION METHOD CHANGES. If the automobile dealer uses the IPI computation method, the automobile dealer must also change from the IPI computation method to another acceptable method for its goods other than new automobiles and new light-duty trucks, as provided in section 5.01(2).

(3) MANNER OF EFFECTING THE CHANGE. The automobile dealer must complete a current Form 3115, including attachments required under section 5.01(3).

A copy of the completed Form 3115, including attachments, must be filed with the National Office, addressed to the Commissioner of Internal Revenue, Attention: DC:IT&A, P.O. Box 7616, BenJamin Franklin Station, Washington, D.C. 20044, at any time on or before December 31, 1992. The automobile dealer must also attach an extra acknowledgement copy of page 1 of the Form 3115 to the copy filed with the National Office. The copy of page 1 of the Form 3115 will be date-stamped by the National Office and returned to the automobile dealer.

An automobile dealer described in this section 5.02 and desiring a change to the Alternative LIFO Method under the provisions of this revenue procedure must file the original of the completed Form 3115, including attachments, with the examining agent when the copy of the Form 3115, including attachments, is filed with the National Office. Upon receipt of the National Office date-stamped copy of page 1 of the Form 3115, the automobile dealer must promptly provide a copy to the examining agent.

SEC. 6. PROCEDURES FOR CHANGING TO THE ALTERNATIVE LIFO METHOD AFTER DECEMBER 31, 1992

01 AUTOMOBILE DEALERS NOT UNDER EXAMINATION.

(1) YEAR OF CHANGE. If, after December 31, 1992, but before the close of the automobile dealer's first taxable year ending after December 31, 1992, the automobile dealer is not under examination on the date the Form 3115 is filed with the National Office, pursuant to the provisions of section 6.01(3), the year of change is the automobile dealer's first taxable year ending after December 31, 1992.

If an automobile dealer desires to change to the Alternative LIFO Method for a taxable year later than the first taxable year ending after December 31, 1992, the automobile dealer may only request to change to the Alternative LIFO Method under the applicable provisions of Rev. Proc. 92-20 (or its successor).

(2) IPI COMPUTATION METHOD CHANGES. If the automobile dealer uses the IPI computation method, the automobile dealer must also change from the IPI computation method to another acceptable method for its goods other than new automobiles and new light-duty trucks, as provided in section 5.01(2) of this revenue procedure.

(3) MANNER OF EFFECTING THE CHANGE. The automobile dealer must complete a current Form 3115, including attachments required under section 5.01(3) of this revenue procedure.

The original and copy of the completed Form 3115, including attachments, must be filed as provided in section 5.01(3) of this revenue procedure, except that the copy of the Form 3115 must be filed with the National Office on or before the last day of the year of change.

(4) ACKNOWLEDGEMENT. A Form 3115 filed pursuant to this section 6.01 will not ordinarily be acknowledged by the National Office. However, at the automobile dealer's request, the National Office will acknowledge the filing of a Form 3115 filed pursuant to this section if the automobile dealer provides to the Service an extra copy of page 1 of the completed Form 3115 and a stamped, self-addressed envelope. The Service will date-stamp and return the copy of page 1 of the completed Form 3115 to the automobile dealer.

02 AUTOMOBILE DEALERS UNDER EXAMINATION. Except as provided in section 6.01 above, if the automobile dealer desires to file a Form 3115 requesting to change to the Alternative LIFO Method after December 31, 1992, the automobile dealer may only request to change to the Alternative LIFO Method under the applicable provisions of Rev. Proc. 92-20 (or its successor).

SEC. 7. FILING STATEMENT

To assist in processing a Form 3115 filed under this revenue procedure, reference to the applicable section of section 5 or 6 of the revenue procedure must be made a part of the Form 3115 by either typing or legibly printing the following statement at the top of page 1 of the Form 3115: "FILED UNDER [insert applicable section 5.01, 5.02, or 6.01] OF REV. PROC. 92-79."

SEC. 8. CONSENT

In accordance with section 1.446-1(e)(3)(ii) of the regulations, with respect to a change in method of accounting for LIFO inventories, the requirement to file an application on Form 3115 within a 180-day period is waived, and under section 1.446- 1(e)(2)(i), the consent of the Commissioner is hereby granted to any automobile dealer within the scope of this revenue procedure to change its method of accounting from its present LIFO inventory method to the Alternative LIFO Method. If an automobile dealer uses the IPI computation method, consent is also granted to change from the IPI computation method to the methods described in section 5 of this revenue procedure. This consent is granted for the taxable year for which an automobile dealer requests a change (year of change) by filing a current Form 3115 in the manner described in section 5 or 6 of this revenue procedure. This consent is conditioned, however, upon an automobile dealer using all of the sub-methods, definitions, and special rules, and the computational methodology, of the Alternative LIFO Method provided in section 4 of this revenue procedure.

The Alternative LIFO Method may not be used for automobile parts, truck parts, or accessories that are not an integral part of a motor vehicle. Further, this revenue procedure does not apply to changes in methods of accounting that could be made by an automobile dealer that does not use the LIFO method (e.g., a method governed by section 471 or section 263A of the Code). A automobile dealer desiring a change in accounting method to which this revenue procedure does not apply, must use other applicable procedures to effect a change in method of accounting (e.g., Rev. Proc. 92-20 or its successor).

SEC. 9. CONDITIONS OF CONSENT

01 SEPARATE WRITTEN STATEMENT. In addition to including all the information required on the Form 3115, the automobile dealer must attach to the Form 3115 the following separate written statement: "Under penalties of perjury, [insert name of the automobile dealer] agrees to all of the conditions of consent, contained in section 9 of Rev. Proc. 92-79, to change to the Alternative LIFO Method."

02 CONDITIONS. The conditions of consent to which the automobile dealer must agree are as follows:

(1) that the automobile dealer keeps its books and records for the year of change and for later taxable years on the LIFO inventory method and that it uses the LIFO inventory method for all reports, including consolidated financial statements, if any, and statements for credit purposes, in conformity with the provisions of section 1.472-2(e) of the regulations;

(2) that the automobile dealer values its inventory of new automobiles and new light-duty trucks as of the end of the year of change and for later taxable years under the Alternative LIFO Method, as provided in section 4 of this revenue procedure, unless it obtains permission to change to another recognized method;

(3) that the automobile dealer changing from the IPI computation method for its inventory of parts and accessories, used automobiles and used trucks values its inventory of parts and accessories, used automobiles and used trucks as of the end of the year of change and for later taxable years under the methods provided in section 5 of this revenue procedure, unless it obtains permission to change to another recognized method;

(4) that the conversion from the specific goods method, if applicable, to the dollar-value method is made in accordance with section 1.472-8(f)(2) of the regulations;

(5) that the automobile dealer files Form 970 with its federal income tax return for the year of change (or, in the case of an automobile dealer for which a LIFO issue is pending as of September 8, 1992, files Form 970 with the examining agent as an additional attachment to the completed Form 3115) and otherwise complies with the provisions of section 472(d) of the Code and section 1.472-3 of the regulations (also see Rev. Rul. 76-282, 1976-2 C.B. 137) to extend the LIFO election (i) to include any new automobiles and new light-duty trucks (e.g., demonstrators) to which the LIFO election did not previously apply but that are required to be included in LIFO pools under the Alternative LIFO Method, and (ii) in the case of an automobile dealer changing from the IPI computation method, to include any parts and accessories, used automobiles and used trucks, to which the LIFO election did not previously apply but that are required to be included in LIFO pools under section 5 of this revenue procedure, as of the beginning of the year of change;

(6) that the automobile dealer effects the change to the Alternative LIFO Method, and in the case of an automobile dealer changing from the IPI computation method to the methods provided in section 5 of this revenue procedure, using the cut-off method. Under the cut-off method, the value of the automobile dealer's new automobile and new light-duty truck inventory, and in the case of an automobile dealer changing from the IPI computation method, the parts and accessories, used automobile and used truck inventory, at the beginning of the year of change shall be the same as the value of such inventory at the end of the preceding taxable year plus market value restorations, if any, required pursuant to condition (5), above;

(7) that the automobile dealer combines and/or separates the dollar-value inventory pool or pools, including any pool resulting from condition (4) above, if applicable, to conform to the inventory pooling rules provided in section 4 of this revenue procedure and, in the case of an automobile dealer changing from the IPI computation method, to the inventory pooling rules provided in section 5 of this revenue procedure, in accordance with the provisions of section 1.472-8(g)(2) of the regulations;

(8) that in effecting the changes provided in this revenue procedure, any layers of inventory increments previously determined and the LIFO value of such increments shall be retained. Instead of using the earliest taxable year for which the automobile dealer adopted the LIFO method for any items in the inventory pool or pools, the year of change shall be used as the base year in determining the LIFO value of the inventory pool or pools for the year of change and later taxable years (i.e., the cumulative index at the beginning of the year of change shall be 1.00). The base-year costs of layers of increments in the pool or pools at the beginning of the year of change shall be restated in terms of the new base-year costs, using the year of change as the new base year; and

(9) that the automobile dealer maintain and retain complete records of the computations of the LIFO inventory under the Alternative LIFO Method, as well as copies of the actual purchase invoice for each vehicle used in the computation.

SEC. 10. PROTECTION FOR YEARS PRIOR TO THE YEAR OF CHANGE

If an automobile dealer timely files a Form 3115 under the procedures provided in this revenue procedure and effects the change to the Alternative LIFO Method in accordance with all of the requirements and conditions of this revenue procedure, an examining agent may not propose that the automobile dealer change the same method of accounting for a year prior to a year of change required under this revenue procedure.

SEC. 11. COMPLIANCE WITH REQUIREMENTS AND CONDITIONS

If an automobile dealer changes its method of accounting from a LIFO inventory method to the Alternative LIFO Method, and, if an automobile dealer changes from the IPI computation method to the methods provided in section 5 of this revenue procedure, as applicable, without complying with all the requirements and conditions of this revenue procedure, the automobile dealer will be deemed to have initiated the change in method of accounting without obtaining the permission of the Commissioner as required under section 446(e) of the Code.

SEC. 12. EFFECT ON A PENDING FORM 3115

If an automobile dealer has a pending timely filed Form 3115 with the National Office as of September 28, 1992, including a pending Form 3115 filed under the early filing provisions of section 5.01(3) or 14.02(2)(b) of Rev. Proc. 92-20, wherein the automobile dealer is requesting an accounting method change from one LIFO method (or sub-method) to another LIFO method (or sub-method) for new automobiles and new light-duty trucks, the automobile dealer will be given the opportunity to change to the Alternative LIFO Method as provided in this revenue procedure. The National Office will return these Forms 3115 to the automobile dealers with instructions. Any user fee that was submitted with such a Form 3115 will be returned or refunded to the automobile dealer.

SEC. 13. OTHER PROCEDURAL MATTERS

01 SIGNATURE REQUIREMENTS. The signature of the person requesting the change in method of accounting must appear in the space provided for it on the Form 3115. For example, a duly authorized officer must sign on behalf of a corporation, a duly authorized officer of the common parent on behalf of a member of a consolidated group, a general partner on behalf of a partnership, a trustee on behalf of a trust, or an individual on behalf of a sole proprietorship. See the signature requirements set forth in the General Instructions for Form 3115.

02 AUTHORIZED AGENT OF THE AUTOMOBILE DEALER. If an agent is authorized to represent the automobile dealer before the Service, to receive the original or a copy of correspondence concerning the request, or to perform any other act(s) regarding the Form 3115 filed on behalf of the automobile dealer, a properly executed current Form 2848, Power of Attorney and Declaration of Representative, reflecting such authorization should be attached to the Form 3115. A automobile dealer's representative without a properly executed current Form 2848 authorizing the representative to represent the automobile dealer before the Service will not be given any information about the application.

A date-stamped acknowledgement copy of page one of the copy of the Form 3115 that is filed with the National Office, as provided in section 5 or 6, will only be sent to the automobile dealer, and a copy will not be sent to any representative, unless the Form 2848 directs that all original correspondence be sent to the representative in lieu of the automobile dealer.

03 USER FEE. No user fee is required for a Form 3115 filed pursuant to this revenue procedure.

SEC. 14. EFFECTIVE DATE

The provisions of this revenue procedure are effective September 28, 1992.

SEC. 15. ELECTING LIFO AND ADOPTING THE ALTERNATIVE LIFO METHOD

An automobile dealer that adopts the Alternative LIFO Method provided in this revenue procedure at the time the automobile dealer makes an election to use (or extend) the dollar-value LIFO inventory method must complete and file a statement of election made on a current Form 970, Application To Use LIFO Method, pursuant to the instructions for Form 970, or in such other manner as may be acceptable to the Commissioner. The use of the Alternative LIFO Method should be clearly indicated on the Form 970, or an attachment to the Form 970, and reference should be made to this revenue procedure. Appropriate LIFO sub-method elections that are an integral part of the Alternative LIFO Method, which are contained on the Form 970, must be so selected on the Form 970 upon adoption of the Alternative LIFO Method.

SEC. 16. INQUIRIES

Inquiries regarding this revenue procedure may be addressed to the Commissioner of Internal Revenue, Attention: CC:IT&A, 1111 Constitution Avenue, N.W., Washington, DC 20224.

SEC. 17. DRAFTING INFORMATION

The principal author of this revenue procedure is Richard Berken of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Berken on 202-622-5020 (not a toll-free call).