Part I. Rulings — Internal Revenue Bulletin 2005-9

Section 472.—Last-in, First-out Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department stores. The December 2004 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, December 31, 2004.

Rev. Rul. 2005–12

The following Department Store Inventory Price Indexes for December 2004 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory

methods for tax years ended on, or with reference to, December 31, 2004.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups - soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups Dec. 2003 Dec. 2004

Percent Change from Dec. 2003

to Dec. 2004 ¹

Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473.7 495.2 4.5
Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543.9 527.4 -3.0
Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629.7 650.7 3.3
Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 847.8 841.5 -0.7
Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586.4 577.4 -1.5
Women’s Underwear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509.6 517.2 1.5
Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344.1 339.2 -1.4
Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . 551.3 565.6 2.6
Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . 362.7 352.5 -2.8
Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535.1 535.8 0.1
Men’s Furnishings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583.4 569.9 -2.3
Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429.0 414.2 -3.4
Jewelry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848.0 866.2 2.1
Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799.6 792.2 -0.9
Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976.5 992.1 1.6
Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612.9 602.0 -1.8
Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595.1 592.5 -0.4
Housewares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 710.6 708.0 -0.4
Major Appliances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206.8 199.9 -3.3
Radio and Television. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.8 40.3 -8.0
Recreation and Education ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.5 78.3 -3.9
Home Improvements ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.4 131.7 5.0
Automotive Accessories ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.1 112.9 0.7

Groups 1–15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555.8 552.5 -0.6 Groups 16–20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386.8 378.5 -2.1 Groups 21–23: Misc. Goods ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.5 92.2 -1.4

Store Total ³ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495.1 490.1 -1.0

1Absence of a minus sign before the percentage change in this column signifies a price increase. 2Indexes on a January 1986 = 100 base. 3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco and contract departments.

2005–9 I.R.B. 628 February 28, 2005

Administration (Administrative Provisions and Judicial Practice Division).

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. In §1.448–1T, paragraph (b)(1)(iii) is revised to read as follows:

§1.448–1T Limitation on the use of the cash receipts and disbursements method of accounting (temporary).

- - - (b) - * (1) - * (iii) Tax shelter within the meaning of section 6662(d)(2)(C).

§§1.6661–1 through 1.6661–6

[Removed]

Par. 3. Sections 1.6661–1 through 1.6661–6 are removed.

Part 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. Par. 5. In §602.101, paragraph (b) is amended by removing the entries for “1.6661–3” and “1.6661–4” from the table.

Mark E. Matthews, Deputy Commissioner for Services and Enforcement .

Approved December 9, 2004.

Gregory F. Jenner, Acting Assistant Secretary of the

Treasury (Tax Policy) .

(Filed by the Office of the Federal Register on January 4, 2005, 8:45 a.m., and published in the issue of the Federal Register for January 5, 2005, 70 F.R. 704)

DRAFTING INFORMATION

The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622–7924 (not a toll-free call).

Section 6661.—Substantial Understatement of Liability

26 CFR 1.448–1T: Limitation on the use of the cash receipts and disbursements method of accounting (temporary).

T.D. 9174

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602

Substantial Understatement of Income Tax Liability

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document removes regulations relating to the addition to tax in the case of a substantial understatement of income tax liability and corrects an obsolete cross reference. The Internal Revenue Code (Code) provision imposing the addition to tax and cited in the cross reference was repealed in 1989. The changes made by this document will not affect taxpayers because the addition to tax does not apply to returns with a due date after December 31, 1989 (determined without regard to extensions).

DATES: The changes made by this document are effective January 5, 2005.

FOR FURTHER INFORMATION CONTACT: Audra M. Dineen, (202) 622–4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

Section 6661 of the Code, as in effect before its repeal in 1989, imposed an addition to tax equal to 25 percent of the amount of the underpayment of tax attributable to any substantial understatement of income tax liability for a taxable year. Sections 1.6661–1 through 1.6661–6 of the Income Tax Regulations (26 CFR Part 1) provided rules for determining whether an addition to tax should be imposed and for computing the amount of any such addition.

The Omnibus Budget Reconciliation Act of 1989, Public Law 101–239 (103 Stat. 2106), repealed section 6661 effective for tax returns due after December 31, 1989 (determined without regard to extensions) and substituted, in section 6662, an accuracy-related penalty applicable to those returns. The repeal of section 6661 has rendered §§1.6661–1 through 1.6661–6 obsolete. This Treasury decision removes those provisions and corrects an obsolete cross reference to section 6661 in the regulations under section 448 (relating to the limitation on the use of the cash method of accounting).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. In addition, because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this document has been submitted to the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of this document is Audra M. Dineen of the Office of Associate Chief Counsel, Procedure and

February 28, 2005 629 2005–9 I.R.B.