SECTION 2. BACKGROUND

.01 Section 472(a) of the Internal Revenue Code provides generally that a taxpayer may use the LIFO method of inventorying goods if, among other requirements, the change to, and use of, the method is in accordance with such regulations as the Secretary may prescribe as necessary in order that the use of the method may clearly reflect income.

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

.03 Section 1.472–8(b)(1) requires manufacturers and processors to establish one pool for each natural business unit unless the taxpayer elects under § 1.472–8(b)(3) to establish multiple pools. In addition, § 1.472–8(b)(1) requires that where the manufacturer or processor is also engaged in the wholesaling or retailing of goods purchased from others, any pooling of the LIFO inventory of such purchased goods for the

wholesaling or retailing operations shall be determined in accordance with the rules of § 1.472–8(c) (concerning pools of resellers).

.04 Section 1.472–8(c)(1) requires, in relevant part, a reseller to establish dollarvalue pools based on major lines, types, or classes of goods.

.05 Section 1.472–8(g)(1) provides that any change in method of pooling authorized by § 1.472–8 and used in computing the taxpayer’s LIFO inventories under the dollar-value LIFO method shall be treated as a change in method of accounting. Any method of pooling that is authorized by § 1.472–8 shall be used for the year of adoption and for all subsequent taxable years unless a change is required by the Commissioner in order to clearly reflect income, or unless permission to change is granted by the Commissioner as provided in § 1.446–1(e). If the taxpayer changes from one method of pooling to another method of pooling, the ending LIFO inventory for the taxable year preceding the year of change shall be restated under the new method of pooling.

.06 Section 1.472–8(g)(2)(i) provides, in relevant part, that a taxpayer who has been using the dollar-value LIFO method and who is permitted or required to change its method of pooling shall combine or separate the LIFO value of its inventory for the base year and each yearly layer of increment in order to conform to the new pool or pools. The combination or separation of the LIFO value of the taxpayer’s inventory for the base year and each yearly layer of increment shall be made in accordance with the appropriate method in § 1.472–8(g)(2), unless the use of a different method is approved by the Commissioner. Section 1.472–8(g)(2)(ii) provides rules that a taxpayer must apply when separating a pool. Sections 1.472–8(g)(2)(iii) and (iv) provide alternative rules that a taxpayer must apply when combining pools. These sections also contain examples showing the application of the rules for taxpayers that use double-extension LIFO.

.07 A taxpayer generally may obtain automatic consent under § 446(e) and § 1.446–1(e)(2)(i) to change to a method of accounting listed in the APPENDIX of Rev. Proc. 2002–9, 2002–1 C.B. 327, as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, as modified

2008–12 I.R.B. 664 March 24, 2008

(1) Description . Under the VehiclePool Method, a reseller with new vehicles ( i.e., new cars, new light-duty trucks, and new crossover vehicles, including SUVs, vans, minivans, and other similar vehicles) may establish a New Vehicle pool for all new vehicles. In addition, under this method, a reseller with used vehicles ( i.e., used cars, used light-duty trucks, and used crossover vehicles, including SUVs, vans, minivans, and other similar vehicles) may establish a Used Vehicle pool for all used vehicles. No pool established under this revenue procedure may include a vehicle with a gross vehicle weight that exceeds 14,000 pounds. (2) Change to the Vehicle-Pool Method . (a) Pursuant to section 6.01 of Rev. Proc. 2002–9 (or successor), a reseller within the scope of this revenue procedure and Rev. Proc. 2002–9, as modified by this revenue procedure, is granted the Commissioner’s consent to change to the Vehicle-Pool Method described in section 4.01(1) of this revenue procedure, provided the reseller follows the provisions of Rev. Proc. 2002–9, with the following modifications:

(i) The scope limitation in section 4.02(6) of Rev. Proc. 2002–9 does not apply for the reseller’s first taxable year ending on or after December 31, 2007; and

(ii) The designated automatic accounting method change number for a change in method of accounting to the Vehicle-Pool Method made pursuant to this revenue procedure is “112.” A reseller also concurrently changing to the Alternative LIFO Method under Rev. Proc. 97–36 or the Used Vehicle Alternative LIFO Method under Rev. Proc. 2001–23 should file a single Form 3115, Application for Change in Accounting Method, for both changes and enter both designated numbers on its Form 3115. For example, a reseller concurrently changing to the Alternative LIFO Method and the Vehicle-Pool Method should enter both “58 and 112” on its Form 3115.

(b) A reseller that changes its pooling method under this revenue procedure must make the change on a cut-off basis (see section 2.06 of Rev. Proc. 2002–9) and must comply with § 1.472–8(g). Instead of using the earliest taxable year for which the reseller adopted the LIFO method for any items in a pool, the reseller must use the year of change as the base year when

cars and trucks appeal to different types of purchasers. “The market for [cars] is comprised in the main of persons among the general public who desire to acquire a means of transporting themselves between locations, usually within their community and occasionally on extended outings to more distant locales. Trucks, on the other hand, are more often bought for business use. They are used principally for transporting property.” 76 T.C. at 725. Second, the court observed that the nature of the operation of trucks is quite different from that of cars. “Due to their size, weight, and in some instances mechanical complexity, greater experience or training is occasionally required to operate trucks designed to haul property. Furthermore, the evidence in this case reveals that trucks are a more expensive investment than is the average [car]. The registration and other legal requirements for the operation of trucks also tend to be much more stringent than those for [cars].” 76 T.C. at 725. Finally, the court rejected the argument that light-duty trucks are acquired by the same class of consumers and are used interchangeably for the same purposes as cars. “While economy and lightduty trucks are certainly closer to automobiles than are heavy-duty trucks, and it is always difficult to draw a fine line, we believe that smaller trucks have more in common with other types of trucks than they do with [cars]. In any event, if light-duty trucks are a hybrid, they are far from fully interchangeable with [cars]. The line is difficult to draw, but is more appropriately drawn between trucks and cars than between different classes of trucks.” 76 T.C. at 726. In Richardson Investments, the Tax Court, citing Fox Chevrolet as controlling authority, rejected a Ford dealer’s argument that it may assign cars and trucks to a single “transportation” pool. Noting that this taxpayer did not include used vehicles and recreational vehicles in the same pool, the court also noted that Ford Motor Company’s advertising campaign distinguished between the commercial nature of Ford trucks (“built tough”) and the personal nature of Ford Granadas (“look and ride like a Mercedes”).

.11 The Treasury Department and the Internal Revenue Service recognize that the distinctions between cars and light-duty trucks have diminished significantly since Fox Chevrolet and Richardson

Investments were decided. For example, during the 1970s, most cars were purchased to transport people for personal purposes, and most trucks were purchased to transport property for business purposes. Today, however, manufacturers advertise that their light-duty trucks offer the ride, handling, and amenities of cars plus the additional seating and cargo capacity that larger families need to transport themselves and their personal-use property. Furthermore, people do not need a special operator’s license to drive light-duty trucks on highways. Moreover, the distinctions between cars and light-duty trucks that existed during the 1970s have been reduced significantly by the creation of “crossover” vehicles, which share some characteristics of both cars and light-duty trucks ( e.g., SUVs, minivans, and similar vehicles, formerly denoted as “hybrid”). Because of these changes, sales of light-duty trucks have greatly increased relative to sales of cars. Also, today federal regulators treat cars and light-duty trucks with greater similarity in regulations promulgated under both the Energy Policy and Conservation Act of 1975 (49 U.S.C. 32902), which sets fuel economy standards, and the Clean Air Act (42 U.S.C. 7521), which sets emissions standards.