Part III. Administrative, Procedural, and Miscellaneous

close of the taxable year as being: first, those included in the opening inventory of the taxable year, in the order of acquisition and to the extent thereof; and second, those acquired during the taxable year. Section 472(b) and § 1.472–2 require taxpayers using the LIFO method to inventory their goods at cost.

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

.04 Section 1.472–8(e)(1) provides for the use of a “link-chain” method of computing the value of a dollar-value LIFO pool if the taxpayer can demonstrate that the use of either an index method or the double-extension method would be impractical or unsuitable in view of the nature of inventory in the dollar-value LIFO pool. Adequate records must be maintained by the taxpayer to support the appropriateness, accuracy, and reliability of a link-chain method.

.05 Section 1.472–3(d) provides that whether or not the taxpayer’s application for the adoption and use of the LIFO inventory method should be approved, and whether or not such method, once adopted, may be continued, and the propriety of all computations incidental to the use of such method, will be determined by the Commissioner in connection with the examination of the taxpayer’s income tax returns.

.06 Section 446(e) and § 1.446–1(e) (2)(i) provide that, except as otherwise provided, a taxpayer must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Section 1.446–1(e) (3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the terms and conditions deemed necessary to permit a taxpayer to obtain consent to change a method of accounting in accordance with § 446(e).