Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 472.—Last-in, First-out Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department stores. The June 1998 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, June 30, 1998.

Rev. Rul. 98–42

The following Department Store Inventory Price Indexes for June 1998 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with

reference to, June 30, 1998.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups - soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent Change Groups June June from June 1997 1997 1998 to June 1998 ¹

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541.0 513.9 –5.0
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644.1 618.6 –4.0
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651.0 659.3 1.3
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 904.0 906.7 0.3
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642.5 623.1 –3.0
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539.3 567.7 5.3
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295.7 308.3 4.3
8. Women’s and Girls’Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569.4 536.2 –5.8
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . . 415.3 410.0 –1.3
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625.0 616.6 –1.3
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589.8 599.1 1.6
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 494.5 494.6 0.0
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1002.1 970.3 –3.2
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752.1 776.0 3.2
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 913.5 948.5 3.8
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673.2 689.3 2.4
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592.4 604.0 2.0
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 808.1 818.6 1.3
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243.5 236.7 –2.8
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76.2 71.9 –5.6
21. Recreation and Education ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109.5 104.8 –4.3
22. Home Improvements ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132.8 133.1 0.2
23. Auto Accessories ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.0 107.2 –0.7

Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602.5 600.1 –0.4

Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465.9 463.6 –0.5

Groups 21 – 23: Misc. Goods ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2 108.9 –2.9

Store Total ³ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554.8 550.7 –0.7

1Absence of a minus sign before percentage change in this column signifies price increase. 2Indexes on a January 1986=100 base. 3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

1998–35 I.R.B. 5 August 31, 1998

DRAFTING INFORMATION

The principal author of this revenue ruling is Stan Michaels of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Michaels on (202) 622-4970 (not a tollfree call).

Section 584.—Common Trust Funds

26 CFR 1.584–2: Income of participants in common trust fund.

Employees’ trust’s unrelated busi- ness taxable income. An employees’ trust’s proportionate share of the income of a common trust fund is unrelated business taxable income (UBTI) to the extent that it would have been if the investment producing the income had been made directly by the employees’ trust. Rev. Rul. 67–301 modified.

Rev. Rul. 98–41

In Rev. Rul. 67–301, 1967–2 C.B. 146, an employees’ trust, formed under § 401(a) of the Internal Revenue Code and exempt under § 501(a), invested in a common trust fund that is exempt under § 584. Rev. Rul. 67–301 concludes, in part, that the income of the common trust fund is not unrelated business taxable income (UBTI) in the hands of the employees’ trust.

Section 1.584–2(c)(3) of the Income Tax Regulations provides that for taxable years beginning on or after September 22, 1980, any amount of income or loss of the common trust fund that is included in the computation of a participant’s taxable income for the taxable year shall be treated as income or loss from an unrelated trade or business to the extent that the amount would have been income or loss from an unrelated trade or business if the investments of the common trust fund had been made directly by the participant.

The discussion of UBTI in Rev. Rul. 67–301 is inconsistent with § 1.584– 2(c)(3). Therefore, Rev. Rul. 67–301 is modified to provide that the employees’ trust’s proportionate share of the income of the common trust fund is UBTI to the extent that it would have been if the investment producing the income had been made directly by the employees’ trust.

EFFECT ON OTHER REVENUE RULINGS