Qualified LIFO Liquidation Adjustment

§ 473. Qualified liquidations of LIFO inventories(a) General ruleIf, 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 replacementsIf 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—(A) the aggregate replacement cost of the liquidated goods so replaced during such year, over (B) the aggregate cost of such goods reflected in the opening inventory of the liquidation year, or (2) increased by an amount equal to the excess of—(A) the aggregate cost reflected in such opening inventory of the liquidated goods so replaced during such year, over (B) such aggregate replacement cost. (c) Qualified liquidation definedFor purposes of this section—(1) In generalThe 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 (B) the taxpayer establishes to the satisfaction of the Secretary that such decrease is directly and primarily attributable to a qualified inventory interruption. (2) Qualified inventory interruption defined(A) In generalThe 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 SecretaryWhenever the Secretary, after consultation with the appropriate Federal officers, determines—(i) that—(I) any Department of Energy regulation or request with respect to energy supplies, or (II) any embargo, international boycott, or other major foreign trade interruption,  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 rulesFor purposes of this section—(1) Liquidation yearThe term “liquidation year” means the taxable year in which occurs the qualified liquidation to which this section applies. (2) Replacement yearThe 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.