SECTION 4. REPLACEMENT COST

METHOD

.01 In General . A taxpayer that is within the scope of this revenue procedure is permitted to use the replacement cost method to approximate the actual cost of its vehicle parts inventory. Under the replacement cost method, a taxpayer must determine the cost of the vehicle parts in its inventory by reference to the replacement cost of the vehicle parts as defined in section 4.02 of this revenue procedure, determine the replacement cost using a standard price list as defined in section 4.03 of this revenue procedure, and satisfy the book conformity requirement as described in section 4.04 of this revenue procedure. Taxpayers within the scope of this revenue procedure may use the replacement cost method in conjunction with either the first-in, first-out inventory method or the LIFO inventory method. Taxpayers that use the replacement cost method provided by this section 4 and that are subject to the provisions of § 263A must include in inventory costs the additional amounts that are

required by §§ 1.263A–1 and 1.263A–3 ( e.g., freight costs).

.02 Replacement Cost . Replacement cost means the amount provided in a standard price list at which a vehicle part may be purchased by the taxpayer on the date of the inventory. If, on the date of the inventory, the vehicle part is not provided in a standard price list, the replacement cost for the part is equal to the last amount provided in a standard price list ( i.e., the price at which the part was last offered for purchase in a standard price list).

.03 Use of Standard Price List . A “standard price list” is a price list that is widely recognized and used for business purposes in the automobile dealer industry and that is used by the taxpayer in the ordinary course of its business to purchase the vehicle parts for which it is determining the cost.

.04 Book Conformity . A taxpayer satisfies the book conformity requirement if it determines the cost of vehicle parts in its inventory using the replacement cost of the vehicle parts as defined in section 4.02 when it ascertains the income, profit, or loss of its trade or business for purposes of its books, records, and reports (including financial statements) to its shareholders, partners, other proprietors, beneficiaries, and creditors.