rp-08-23.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 446; 472; 1.446-1; 1.472-1; 1.472-8)

Rev. Proc. 2008-23
SECTION 1. PURPOSE
This revenue procedure provides an alternative dollar-value last-in, first-out
(LIFO) pooling method, the Vehicle-Pool Method, for retail dealers and wholesale
distributors (collectively, “resellers”) of cars and light-duty trucks. This revenue
procedure also provides the exclusive procedures for obtaining automatic consent to
change to the Vehicle-Pool Method. In addition, this revenue procedure modifies Rev.
Proc. 97-36, 1997-2 C.B. 450, and Rev. Proc. 2001-23, 2001-1 C.B. 784, as modified by
Announcement 2004-16, 2004-1 C.B. 668, to provide the permissible method of pooling
for crossover vehicles for resellers of cars and light-duty trucks that do not use the
Vehicle-Pool Method.
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,

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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 dollar-
value 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

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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 and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696,
and as amplified, clarified and modified by Rev. Proc. 2002-54, 2002-2 C.B. 432.
.08 Under the “Alternative LIFO Method” provided in Rev. Proc. 97-36 and listed

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in section 10.03 of the APPENDIX of Rev. Proc. 2002-9, a retail dealer of new cars or
new trucks (”automobile dealer”) must establish one pool for all new cars and a
separate pool for all new light-duty trucks (two-pools rule). For this purpose, “light-duty
truck” means a truck with a gross vehicle weight that does not exceed 14,000 pounds.
These light-duty trucks sometimes are referred to as “class 1,” “class 2,” and “class 3”
trucks.
.09 Under the “Used Vehicle Alternative LIFO Method” provided in Rev. Proc.
2001-23, 2001-1 C.B. 784, as modified by Announcement 2004-16, 2004-1 C.B. 668,
and listed in section 10.04 of the APPENDIX of Rev. Proc. 2002-9, a reseller of used
cars or used light-duty trucks (“used vehicle dealer”) must establish one pool for all used
cars and a separate pool for all used light-duty trucks (two-pools rule). Again, “light-duty
truck” means a truck with a gross vehicle weight that does not exceed 14,000 pounds
(i.e., class 1, class 2, or class 3 truck). Furthermore, “used car” and “used light-duty
truck” mean previously titled vehicles, excluding demonstrator vehicles. A taxpayer may
choose to assign a used sport-utility vehicle (“SUV”) or a used “hybrid” vehicle (e.g., van
and minivan) to either its used car pool or its used light-duty truck pool. Once the
taxpayer has assigned one used SUV or one used hybrid vehicle to a pool, the taxpayer
must assign all used SUVs and all used hybrid vehicles to that same pool in subsequent
years.
.10 The two-pools rule found in both Rev. Proc. 97-36 and Rev. Proc. 2001-23 is
based on the opinions in Fox Chevrolet, Inc. Maryland v. Commissioner, 76 T.C. 708
(1981), acq., 1984-2 C.B. 1, in which tax years from 1972 through 1974 were at issue,

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and Richardson Investments, Inc., and Subsidiaries v. Commissioner, 76 T.C. 736
(1981), in which tax years 1971, 1972, and 1974 were at issue. After acknowledging
the similarities of cars and trucks, the court in Fox Chevrolet focused on their
differences in deciding that cars and trucks do not constitute a single class of goods
under § 1.472-8(c)(1). First, the court noted that 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 light-duty 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

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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

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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.
SECTION 3. SCOPE
Any reseller of cars or light-duty trucks that is subject to the dollar-value LIFO
pooling rules of § 1.472-8(c)(1), Rev. Proc. 97-36, or Rev. Proc. 2001-23 may use the
Vehicle-Pool Method, as described section 4.01(1) of this revenue procedure. Also, any
reseller of cars or light duty trucks that has crossover vehicles and that uses the
Alternative LIFO Method under Rev. Proc. 97-36 or the Used Vehicle Alternative LIFO
Method under Rev. Proc. 2001-23 must use the method of pooling for crossover
vehicles under Rev. Proc. 97-36 or Rev. Proc. 2001-23, as described in section 4.02(1)
of this revenue procedure if the reseller does not choose to use the Vehicle-Pool
Method described in section 4.01(1) of this revenue procedure.
SECTION 4. APPLICATION
.01 Vehicle-Pool Method
.
(1) Description. Under the Vehicle-Pool 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

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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

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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 determining the LIFO value of that pool
for the year of change and subsequent taxable years (i.e., the cumulative index at the
beginning of the year of change will be 1.00). The reseller must restate the base-year
cost of all layers of increment in a pool at the beginning of the year of change in terms
of new base-year cost. For an example of establishing a new base year, see § 1.472-
8(e)(3)(iv)(B)(1
)(ii).
.02 Method of Pooling for Crossover Vehicles under Rev. Proc. 97-36 and Rev.
Proc. 2001-23.
(1) Description. A reseller of cars and light duty trucks that uses the
Alternative LIFO Method under Rev. Proc. 97-36 or the Used Vehicle Alternative LIFO
Method under Rev. Proc. 2001-23 and that maintains separate new car and new truck
pools or separate used car and used truck pools, or both, (in lieu of the Vehicle Pool
Method described in section 4.01(1) of this revenue procedure) must assign new
crossover vehicles to either the new car pool or the new truck pool, whichever is more
reasonable under all the facts and circumstances, and must assign used crossover
vehicles to either the used car pool or the used truck pool, whichever is more
reasonable under all the facts and circumstances.

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(2) Change to the method of pooling for crossover vehicles under Rev.
Proc. 97-36 and Rev. Proc. 2001-23. A reseller within the scope of this revenue
procedure that wants to change to the method of pooling for crossover vehicles under
Rev. Proc. 97-36 and Rev. Proc. 2001-23, as provided in section 4.02(1) of this revenue
procedure, must use the provisions of Rev. Proc. 97-27, 1997-1 C.B. 680, as modified
and amplified by Rev. Proc. 2002-19, 2002-1 C.B. 696, as amplified and clarified by
Rev. Proc. 2002-54, 2002-2 C.B. 432, and as modified by Rev. Proc. 2007-67, 2007-48
I.R.B 1072.
SECTION 5. AUDIT PROTECTION
A reseller’s use of the Vehicle-Pool Method in accordance with section 4.01(1) of
this revenue procedure on a federal income tax return filed before March 7, 2008, will
not be raised as an issue by the Service. In addition, if a reseller’s use of the Vehicle-
Pool Method in accordance with section 4.01(1) of this revenue procedure on a federal
income tax return filed before March 7, 2008, is an issue under consideration in an
examination, in an appeals office, or before the Tax Court, the issue will not be further
pursued by the Service. However, the audit protection granted by this section 5 extends
only to the question of whether the reseller has established the appropriate number of
pools under § 1.472-8(c)(1). Thus, this section 5 does not prohibit the Service from
raising or pursuing other inventory-related issues in an examination, in an appeals
office, and before the Tax Court.
SECTION 6. EFFECT ON OTHER DOCUMENTS
.01. Changes to Rev. Proc. 97-36
.

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(1) Rev. Proc. 97-36 is modified to permit an automobile dealer to establish a
New Vehicle pool for inventories of new cars, new crossover vehicles, and new light-
duty trucks.
(2) Rev. Proc. 97-36 is modified to require an automobile dealer that maintains
separate new car and new truck pools under section 4.02(1) of Rev. Proc. 97-36 to
assign new crossover vehicles to either the new car pool or the new truck pool,
whichever is more reasonable under all the facts and circumstances.
.02. Changes to Rev. Proc. 2001-23
.
(1) Rev. Proc. 2001-23 is modified to permit a used vehicle dealer to
establish a Used Vehicle pool for inventories of used cars, used crossover vehicles, and
used light-duty trucks.
(2) Section 4.02(3) of Rev. Proc. 2001-23 is modified to require a used
vehicle dealer that maintains separate used car and used truck pools to assign used
crossover vehicles to either the used car pool or the used truck pool, whichever is more
reasonable under all the facts and circumstances.
SECTION 7. EFFECTIVE DATE
In general, this revenue procedure is effective for taxable years ending on or
after December 31, 2007. However, sections 4.02, 6.01(2) and 6.02(2) of this revenue
procedure are effective for taxable years ending on or after March 7, 2008.
SECTION 8. DRAFTING INFORMATION

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The principal author of this revenue procedure is Leo F. Nolan II of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue procedure contact Leo F. Nolan II at (202) 622-4970 (not a toll free call).