SECTION 2. BACKGROUND

If the assets of a business are purchased for a lump sum or if a corporation acquires the stock of another corporation and makes an election pursuant to § 338 with respect to the acquisition, the purchase price (actual or deemed) must be allocated among the assets acquired to determine the basis of each of the assets. In making the allocation, a taxpayer must determine the fair market value of any inventory items acquired. This revenue procedure describes methods that may be used to determine the fair market value of inventory items for purposes of the purchase price allocation.

In the situations set forth in this revenue procedure, the quantity of inventory to be valued generally would be different from the quantity usually purchased. In addition, the fair market value of the goods in process and finished goods on hand must be determined in light of what a willing purchaser would pay and a willing seller would accept for the inventory at the various stages of completion, when the former is not under any compulsion to buy and the

class of property for the taxable year that included September 11, 2001.

.03 Increased Section 179 Expensing for Liberty Zone Property . If a taxpayer timely filed its federal tax return for the taxable year that included September 11, 2001, and did not elect on that return to expense the increased § 179 amount provided by § 1400L(f) for § 179 property that is Liberty Zone property placed in service by the taxpayer after September 10, 2001, during the taxable year that included September 11, 2001, but wants to do so, the taxpayer must file an amended federal tax return (or a qualified amended return) on or before December 31, 2003, for the taxable year that included September 11, 2001, and any affected subsequent taxable year, and attach to the amended federal tax return for the taxable year that included September 11, 2001, the election and any necessary information required by § 1.179–5 of the Income Tax Regulations. The taxpayer must also include the statement “Filed Pursuant to Rev. Proc. 2003–50” at the top of any amended federal tax return (or qualified amended return).

.04 Changing Selection of Section 179 Property .

(1) Application . If a taxpayer timely filed its federal tax return for the taxable year that included September 11, 2001, and, on that return, made a § 179 election for property, the taxpayer may change the selection of the § 179 property on that return if:

(a) on that return, the taxpayer did not deduct the 30-percent additional first year depreciation for any property or did not elect out of the 30-percent additional first year depreciation;

(b) the taxpayer made the § 179 election for property placed in service after September 10, 2001; and

(c) the taxpayer now wants to claim the 30-percent additional first year depreciation for that same property and apply the § 179 election to other property placed in service by the taxpayer in the taxable year that included September 11, 2001.

(2) Time and manner of changing se- lection . A taxpayer described in section 3.04(1) of this revenue procedure changes the selection of the § 179 property by filing

an amended federal tax return (or a qualified amended return) on or before December 31, 2003, for the taxable year that included September 11, 2001, and any affected subsequent taxable year, and attaching to the amended federal tax return for the taxable year that included September 11, 2001, the election and any necessary information required by § 1.179–5. The taxpayer must also include the statement “Filed Pursuant to Rev. Proc. 2003–50” at the top of any amended federal tax return (or qualified amended return).

.05 Liberty Zone Leasehold Improve- ment Property . If a taxpayer timely filed its federal tax return for the taxable year that included September 11, 2001, and did not depreciate on that return Liberty Zone leasehold improvement property placed in service by the taxpayer after September 10, 2001, during the taxable year that included September 11, 2001, as 5-year property for purposes of § 168 using the straight-line method of depreciation, the taxpayer must depreciate the Liberty Zone leasehold improvement property as 5-year property by either filing an amended federal tax return (or qualified amended return) or a Form 3115 within the time and in the manner prescribed in section 3.01 of this revenue procedure for claiming the 30-percent additional first year depreciation for a class of property for the taxable year that included September 11, 2001.