SECTION 3. PROCEDURE

Except as provided in section 3.02(3) of this revenue procedure, a § 198 election must be made on or before the due date (including extensions) for filing the income tax return for the taxable year in which the QER expenditures are paid or incurred.

.01 Time for Making the Election.

.02 Section 198(b)(1) generally defines a “qualified environmental remediation expenditure” as any expenditure that is otherwise chargeable to the capital account, and that is paid or incurred in connection with the abatement or control of hazardous substances as a qualified contaminated site. However, under § 198(b)(2) a QER expenditure does not include any expenditure for property subject to an allowance for depreciation, except that the portion of the allowance for depreciation of such property that is otherwise allocated to a qualified contaminated site is treated as a QER expenditure.

.02 Manner of Making the Election.

.03 Section 198(c)(1)(A) defines a “qualified contaminated site” as any area:

(1) Individuals. Individuals must include the total amount of § 198 expenses on the line for “Other Expenses” on Schedule C, E, or F (as appropriate) for Form 1040, U.S. Individual Income Tax Return. Wherever the schedule requires that the taxpayer separately identify each expense included in “Other Expenses,” the taxpayer must write “Section 198 Election” on the line on which the § 198 expense amounts separately appear.

(2) All other entities. Persons other than individuals (including S corporations, partnerships, and trusts) must include the total amount of § 198 expenses

(i) that is held by the taxpayer for use in a trade or business or for the production

September 14, 1998 8 1998–37 I.R.B.

on the line for “Other Deductions” (or the equivalent thereof) on their appropriate federal income tax return. On a schedule attached to the return that separately identifies each expense included in “Other Deductions” (or the equivalent thereof), the taxpayer must write “Section 198 Election” on the line on which the § 198 expense amounts separately appear.

(3) Transition rule. Taxpayers that claim a deduction for QER expenditures, paid or incurred after August 5, 1997, on a return filed on or before October 14, 1998, will be deemed to have made a § 198 election with respect to those expenditures, even if no reference to § 198 is contained on the return. If a taxpayer did not claim a deduction for such QER expenditures on such return, the taxpayer may make the § 198 election for those expenditures for the taxable year covered by the return only by filing an amended return (within the applicable period of limitations) that complies with section 3.02(1) and (2) of this revenue procedure.

.03 Section 1.472–8(e)(1) authorizes three methods for computing the LIFO value of a dollar-value inventory pool: (1) the double-extension method, (2) an index method, and (3) the link-chain method.

.04 Section 1.472–8(e)(3)(i) authorizes the use of the IPIC method to compute the LIFO value of a dollar-value inventory pool. An inventory price index computed in the manner provided in § 1.472–8(e)(3) will be accepted by the Commissioner as an appropriate method of computing an index, and the use of such index will be accepted as accurate, reliable, and suitable.

.05 Section 1.472–8(e)(3)(ii) provides that an inventory price index computed under the IPIC method must be a stated percentage of the percent change in the selected consumer or producer price index or indexes. The stated percentage for a taxpayer in a taxable year in which it is an eligible small business is 100 percent of the percent change in the selected price indexes. The stated percentage for all other taxpayers is 80 percent of the percent change in the selected price indexes. If it is necessary to select more than one specific consumer or producer price index for an inventory pool, the stated percentage of the percent change is the stated percentage of the weighted average percent change for such indexes. Such weighed average is computed by reference to the relative amounts of current-year costs in the inventory pool for each index category of goods.

.06 Section 1.472–8(e)(3)(iii) describes the process for selecting consumer and producer price indexes under the IPIC method. Inventory items in each of the taxpayer’s pools are classified according to the detailed listings in the appropriate tables of the CPI or PPI (formerly known as Producer Prices and Price Indexes ) and assigned to various index categories. § 1.472–8(e)(3)(iii)(B). Indexes and weights published by the United States Bureau of Labor Statistics (BLS) are used to compute the percent change for each index category to which inventory items have been assigned. Id. In many cases, the selected index for an index category must be converted into a cost price index prior to the computation of the percent change for the index category. § 1.472– 8(e)(3)(iii)(C). In the case of a taxpayer

.03 Scope of Election.

If, for any taxable year, the taxpayer pays or incurs more than one QER expenditure, the taxpayer may make a § 198 election for any one or more of such expenditures for that year. Thus, the taxpayer may make a § 198 election with respect to a QER expenditure even though the taxpayer chooses to capitalize other such expenditures (whether or not they are of the same type or paid or incurred with respect to the same qualified contaminated site). A § 198 election for one year has no effect for other years. Thus, a taxpayer must make a § 198 election for each year in which the taxpayer intends to deduct QER expenditures.

.04 Revocation.

A § 198 election is revocable only with the prior written consent of the Commissioner. To obtain the Commissioner’s consent, a taxpayer must submit a request for a private letter ruling in accordance with the provisions of Rev. Proc. 98–1, 1998–1 I.R.B. 7 (or its successor). The taxpayer may submit a request for revocation for any taxable year for which the period of limitations for filing a claim for credit or refund of overpayment of tax has not expired.