This article covers instructions for completing Form 970, which is filed with a taxpayer’s income tax return to elect to use the Last-In, First-Out (LIFO) inventory method under Section 472 of the Internal Revenue Code. Also discussed are procedures for changing from the LIFO method and laws pertaining to the LIFO recapture amount applicable to C corporations.
What is Form 970?
Form 970 is used to elect to use the last-in, first-out (LIFO) inventory method, as described in section 472 of the Internal Revenue Code. It should be filed with your income tax return, and if you file without making the election, you can make the election with an amended return within 12 months. Once in effect, the LIFO method is irrevocable unless the IRS allows you to switch to another method. Additionally, C corporations must include a LIFO recapture amount if they used LIFO for their last tax year, or transferred LIFO inventory assets in a nonrecognition transaction. For more information, refer to the relevant regulations and forms.
IRS Form 970 – Who Needs to Fill It Out?
Form 970 must be completed by those who wish to use the LIFO inventory method as described by Section 472 of the Internal Revenue Code. It is filed directly with an individual’s income tax return and can also be done via an election statement. Form 970 must be completed and filed either with the individual’s return or, if already filed, within 12 months of the original return with an amended return. Allowable changes from the LIFO method must be requested and approved by the IRS, and C corporations must include a LIFO Recapture Amount if they used the LIFO method in their last tax year or transferred LIFO inventory assets. For additional information, regulation 1.1363-2 and Rev. Proc. 94-61, 1994-2 C.B. 775 should be consulted.
Step-by-Step: Form 970 Instructions For Filling Out the Document
Form 970 is used to elect the last-in, first-out (LIFO) inventory method described in section 472. To complete the form, Parts I, II, and VI must be filled out, with Parts III, IV, and V to be completed if applicable. File the form with your tax return for the first tax year you intend to use LIFO, or if you already filed your return, file an amended return within 12 months of the original with Form 970 attached. Note that once LIFO is adopted, it is irrevocable unless the IRS allows a change. Corporations must also account for possible LIFO recapture, as detailed in Rev. Proc. 94-61 and other sources.
| Information Required for IRS Form 970 | Details |
|---|---|
| Form Purpose | Electing the last-in, first-out (LIFO) inventory method |
| Required Parts | Parts I, II, and VI must be completed; Parts III, IV, and V if applicable |
| Filing Deadline | File with your tax return for the first tax year you intend to use LIFO |
| Irrevocability | LIFO adoption is generally irrevocable |
| LIFO Recapture | Corporations must account for possible LIFO recapture |
Do You Need to File Form 970 Each Year?
Yes, Form 970 must be filed with your income tax return in order to elect to use the last-in, first-out (LIFO) inventory method. Also, if you have already filed your return for the tax year in which you wish to use the LIFO method without making the election, you can make the election by filing an amended return within 12 months of the date you filed your original return. Once adopted, the LIFO method is irrevocable without approval from the IRS. A C corporation must also include in gross income a LIFO recapture amount if it meets certain criteria. Refer to Regulations section 1.1363-2 and Rev. Proc. 94-61, 1994-2 C.B. 775 for additional information.
Download the official IRS Form 970 PDF
On the official IRS website, you will find a link to download Form 970. However, to make it easier for you, we are providing the link in our article, which comes directly from the official irs.gov website! Click to download: Form 970
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