SECTION 5. CHANGING PACKAGE

DESIGN COSTS METHOD

.01 Automatic change. A taxpayer wanting to change its method of accounting for package design costs must follow the provisions in Rev. Proc. 97-37.

.02 Section 481(a) adjustment. (1) Change to the capitalization method. If the taxpayer is changing its method of accounting for package design costs to the capitalization method, the § 481(a) adjustment (which will be positive) will restore to income the total amounts deducted or amortized in tax years prior to the year of change with respect to all package designs (or modifications to designs) subject to capitalization and not abandoned as of the first day of the tax year of change, less the amounts that would have been amortized during the tax years prior to the year of change with respect to designs (or modifications

1997–33 I.R.B. 13 August 18, 1997

equipment, in the Producer Price Index (“PPI”) published by the Bureau of Labor Statistics (“BLS”).

(c) 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 § 474, 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.

(d) 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 cumulative 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) Inventory price index computa- tion method.

(a) Section 1.472-8(e)(3) provides another simplified dollar-value LIFO method, the inventory price index computation (IPIC) method, which is available to all taxpayers. An automobile dealer using the IPIC 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 IPIC 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 § 1.472–8(e)(3)(iv) and Rev. Proc. 84–57, 1984–2 C.B. 496.

(b) The IPIC method under § 1.472–8(e)(3) is also based on a linkchain 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 ap