SECTION 5. CHANGING TO THE

USED VEHICLE ALTERNATIVE LIFO METHOD

.01 In general . A change to the Used Vehicle Alternative LIFO Method is a change in method of accounting to which the provisions of § 446 and the regulations thereunder apply.

.02 Automatic change to the Used Vehicle Alternative LIFO Method . Except as provided in section 5.03(2) of this revenue procedure (which applies only to certain taxpayers that use the Inventory Price Index Computation (IPIC) method), a used vehicle dealer that wants to change to the Used Vehicle Alternative LIFO Method must follow the automatic change in accounting method provisions in Rev. Proc. 99–49 (or its successor), with the following modifications:

(1) the scope limitations in section 4.02 of Rev. Proc. 99–49 do not apply, provided the change is made for the first or second taxable year ending on or after December 31, 2000, unless the taxpayer’s method of valuing its LIFO inventories of used automobiles or used light-duty trucks is an issue pending within the meaning of section 6.01(6) of Rev. Proc. 2000–38, 2000–40 I.R.B. 310. If the taxpayer is under examination, before an appeals office, or before a federal court with respect to any income tax issue, the taxpayer must provide a copy of the Form 3115, Application for Change in Accounting Metho d, to the examining agent, appeals officer, or counsel for the government, as appropriate, at the same time that it files the copy of the Form 3115 with the national office; (2) a change to the Used Vehicle Alternative LIFO Method under the provisions of Rev. Proc. 99–49 must be effected on a cut-off method, which requires that the value of the taxpayer’s

used automobile and used light-duty truck inventory at the beginning of the year of change must be the same as the value of that inventory at the end of the preceding taxable year, plus cost restorations, if any, required pursuant to section 5.04(5) of this revenue procedure. However, if the taxpayer has previously improperly accounted for a bulk bargain purchase, the taxpayer, as part of a change to the Used Vehicle Alternative LIFO Method, must first change its method of accounting to comply with Hamilton Industries, Inc. v. Commis- sioner, 97 T.C. 120 (1991), and compute a § 481(a) adjustment for that part of the change ( see Announcement 91–173, 1991–47 I.R.B. 29); (3) in effecting a change to the Used Vehicle Alternative LIFO Method under Rev. Proc. 99–49, any LIFO inventory cost increments previously determined and the value of those increments must be retained. Instead of using the earliest taxable year for which the taxpayer adopted LIFO as the base year, the year of change must be used as the new base year in determining the value of all existing LIFO cost increments for the year of change and later taxable years. (The cumulative index at the beginning of the year of change will be 1.00.) The base-year cost of all LIFO cost increments at the beginning of the year of change must be restated in terms of new base-year costs, using the year of change as the new base year, and the indexes for previously determined inventory increments must be recomputed accordingly. The new base-year cost of a pool is equal to the total current-year cost of all the vehicles in the pool;

(4) when filing Form 3115, taxpayers are reminded to complete all applicable parts of the form, including Part I of Schedule B, and, in lieu of the label required by section 6.02(3) of Rev. Proc. 99–49, are instructed to write “Filed under Rev. Proc. 2001–23” at the top of the form; and,

(5) taxpayers must comply with the additional conditions stated in section 5.04 of this revenue procedure. .03 Procedure for IPIC taxpayers with used vehicles as well as other goods in inventory .

(1) Automatic change . A used vehicle dealer using the IPIC method that also has parts and accessories, new automo

2001–10 I.R.B. 787 March 5, 2001

(2) the used vehicle dealer must maintain and retain complete records of index computations under the Used Vehicle Alternative LIFO Method, including relevant used vehicle guides, and complete records of the current-year cost of vehicles held in ending inventory for each open year, including purchase invoices for each vehicle purchased and used vehicle guides used to cost trade-ins consistent with the requirements of § 1.472–8(d);

(3) the used vehicle dealer must combine and/or separate its dollar-value LIFO pool(s) in accordance with § 1.472–8(g)(2) to conform with the pooling requirements of section 4.02(3) of this revenue procedure, including any pool(s) resulting from section 5.04(4) of this revenue procedure;

(4) the used vehicle dealer must convert from a specific-goods LIFO method, if applicable, to the Used Vehicle Alternative LIFO Method in accordance with § 1.472–8(f)(2); and,

(5) the used vehicle dealer must elect to adopt or extend LIFO, and comply with the cost restoration provisions of § 472(d) and § 1.472–3 ( see also Rev. Rul. 76–282, 1976–2 C.B. 137), for any used automobiles or used light-duty trucks to which a LIFO election did not previously apply but that are required to be included in dollar-value LIFO pools under the Used Vehicle Alternative LIFO Method.