26 U.S. Code § 473 - Qualified liquidations of LIFO inventories
(a) General rule
If, for any liquidation year—
(1) there is a qualified liquidation of goods which the taxpayer inventories under the LIFO method, and
(2) the taxpayer elects to have the provisions of this section apply with respect to such liquidation,
then the gross income of the taxpayer for such taxable year shall be adjusted as provided in subsection (b).
(b) Adjustment for replacements
If the liquidated goods are replaced (in whole or in part) during any replacement year and such replacement is reflected in the closing inventory for such year, then the gross income for the liquidation year shall be—
(1) decreased by an amount equal to the excess of—
(c) Qualified liquidation defined
For purposes of this section—
(1) In general
The term “qualified liquidation” means—
(A) a decrease in the closing inventory of the liquidation year from the opening inventory of such year, but only if
(2) Qualified inventory interruption defined
(A) In general
The term “qualified inventory interruption” means a regulation, request, or interruption described in subparagraph (B) but only to the extent provided in the notice published pursuant to subparagraph (B).
(B) Determination by Secretary
Whenever the Secretary, after consultation with the appropriate Federal officers, determines—
(i) that— has made difficult or impossible the replacement during the liquidation year of any class of goods for any class of taxpayers, and
(ii) that the application of this section to that class of goods and taxpayers is necessary to carry out the purposes of this section,
he shall publish a notice of such determinations in the Federal Register, together with the period to be affected by such notice.
(d) Other definitions and special rules
For purposes of this section—
(1) Liquidation year
The term “liquidation year” means the taxable year in which occurs the qualified liquidation to which this section applies.
(2) Replacement year
The term “replacement year” means any taxable year in the replacement period; except that such term shall not include any taxable year after the taxable year in which replacement of the liquidated goods is completed.
(3) Replacement period
The term “replacement period” means the shorter of—
(B) the period specified by the Secretary in a notice published in the Federal Register with respect to that qualified inventory interruption.
Any period specified by the Secretary under subparagraph (B) may be modified by the Secretary in a subsequent notice published in the Federal Register.
(4) LIFO method
The term “LIFO method” means the method of inventorying goods described in section 472.
(A) In general
An election under subsection (a) shall be made subject to such conditions, and in such manner and form and at such time, as the Secretary may prescribe by regulation.
(e) Replacement; inventory basis
For purposes of this chapter—
If the closing inventory of the taxpayer for any replacement year reflects an increase over the opening inventory of such goods for such year, the goods reflecting such increase shall be considered, in the order of their acquisition, as having been acquired in replacement of the goods most recently liquidated (whether or not in a qualified liquidation) and not previously replaced.
(2) Amount at which replacement goods taken into account
In the case of any qualified liquidation, any goods considered under paragraph (1) as having been acquired in replacement of the goods liquidated in such liquidation shall be taken into purchases and included in the closing inventory of the taxpayer for the replacement year at the inventory cost basis of the goods replaced.
(f) Special rules for application of adjustments
(1) Period of limitations
(A) an adjustment is required under this section for any taxable year by reason of the replacement of liquidated goods during any replacement year, and
(B) the assessment of a deficiency, or the allowance of a credit or refund of an overpayment of tax attributable to such adjustment, for any taxable year, is otherwise prevented by the operation of any law or rule of law (other than section 7122, relating to compromises),
then such deficiency may be assessed, or credit or refund allowed, within the period prescribed for assessing a deficiency or allowing a credit or refund for the replacement year if a notice for deficiency is mailed, or claim for refund is filed, within such period.
(g) Coordination with section 472
The Secretary shall prescribe such regulations as may be necessary to coordinate the provisions of this section with the provisions of section 472.
Source(Added Pub. L. 96–223, title IV, § 403(a)(1),Apr. 2, 1980, 94 Stat. 302.)
Pub. L. 96–223, title IV, § 403(a)(3),Apr. 2, 1980, 94 Stat. 304, as amended by Pub. L. 99–514, § 2,Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendments made by paragraphs (1) and (2) [enacting this section] shall apply to qualified liquidations (within the meaning of section 473(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) in taxable years ending after October 31, 1979.”