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Title 26 — Internal Revenue CodeRelease 119-73not60

§474 Simplified Dollar-value Lifo Method for Certain Small Businesses

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter E— Accounting Periods and Methods of Accounting › Part II— METHODS OF ACCOUNTING › Subpart D— Inventories › § 474

Last updated Apr 5, 2026|Official source

Summary

Allows eligible small businesses to use an easier dollar-value LIFO way to value inventory for tax purposes. Under the method, the business keeps separate inventory pools for each major category in the government price index and adjusts each pool based on how that index component changed from the prior tax year. The applicable index is the Producer Price Index (PPI), except retailers using the retail method use the Consumer Price Index (CPI). A major category means, for PPI, the 2‑digit industry groups in the Producer Prices Data Report, and for CPI, the general spending categories in the CPI Detailed Report. A business is eligible if its average annual gross receipts for the three preceding tax years do not exceed $5,000,000. If companies are in a controlled group, they count together when checking receipts. The election can be made without IRS consent, applies to the year chosen and later years while eligible, and when starting or stopping the method you must set up pools as required, keep the total beginning inventory dollar amount equal to the prior year’s ending amount, and treat that year as a new base year under section 472 rules.

Full Legal Text

Title 26, §474

Internal Revenue Code — Source: USLM XML via OLRC

(a)An eligible small business may elect to use the simplified dollar-value method of pricing inventories for purposes of the LIFO method.
(b)For purposes of this section—
(1)The simplified dollar-value method of pricing inventories is a dollar-value method of pricing inventories under which—
(A)the taxpayer maintains a separate inventory pool for items in each major category in the applicable Government price index, and
(B)the adjustment for each such separate pool is based on the change from the preceding taxable year in the component of such index for the major category.
(2)The term “applicable Government price index” means—
(A)except as provided in subparagraph (B), the Producer Price Index published by the Bureau of Labor Statistics, or
(B)in the case of a retailer using the retail method, the Consumer Price Index published by the Bureau of Labor Statistics.
(3)The term “major category” means—
(A)in the case of the Producer Price Index, any of the 2-digit standard industrial classifications in the Producer Prices Data Report, or
(B)in the case of the Consumer Price Index, any of the general expenditure categories in the Consumer Price Index Detailed Report.
(c)For purposes of this section, a taxpayer is an eligible small business for any taxable year if the average annual gross receipts of the taxpayer for the 3 preceding taxable years do not exceed $5,000,000. For purposes of the preceding sentence, rules similar to the rules of section 448(c)(3) shall apply.
(d)For purposes of this section—
(1)(A)In the case of a taxpayer which is a member of a controlled group, all persons which are component members of such group shall be treated as 1 taxpayer for purposes of determining the gross receipts of the taxpayer.
(B)For purposes of subparagraph (A), persons shall be treated as being component members of a controlled group if such persons would be treated as a single employer under section 52.
(2)(A)The election under this section may be made without the consent of the Secretary.
(B)The election under this section shall apply—
(i)to the taxable year for which it is made, and
(ii)to all subsequent taxable years for which the taxpayer is an eligible small business,
(3)The term “LIFO method” means the method provided by section 472(b).
(4)(A)In the case of a year of change under this section—
(i)the inventory pools shall—
(I)in the case of the 1st taxable year to which such an election applies, be established in accordance with the major categories in the applicable Government price index, or
(II)in the case of the 1st taxable year after such election ceases to apply, be established in the manner provided by regulations under section 472;
(ii)the aggregate dollar amount of the taxpayer’s inventory as of the beginning of the year of change shall be the same as the aggregate dollar value as of the close of the taxable year preceding the year of change, and
(iii)the year of change shall be treated as a new base year in accordance with procedures provided by regulations under section 472.
(B)For purposes of this paragraph, the year of change under this section is—
(i)the 1st taxable year to which an election under this section applies, or
(ii)in the case of a cessation of such an election, the 1st taxable year after such election ceases to apply.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1986—Pub. L. 99–514 amended section generally, substituting provisions relating to election by eligible small business to use simplified dollar-value method of pricing inventories for purposes of LIFO method for provisions relating to election by eligible small business which uses dollar-value method of pricing inventories under method provided by section 472(b) of this title to use one inventory pool for any trade or business of such eligible small business.

Statutory Notes and Related Subsidiaries

Effective Date

of 1986 Amendment Pub. L. 99–514, title VIII, § 802(c), Oct. 22, 1986, 100 Stat. 2350, provided that: “(1) In general.—The

Amendments

made by this section [amending this section] shall apply to taxable years beginning after December 31, 1986. “(2) Treatment of taxpayers who made elections under existing section 474.—The

Amendments

made by this section shall not apply to any taxpayer who made an election under section 474 of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act [Oct. 22, 1986]) for any period during which such election is in effect. Notwithstanding any provision of such section 474 (as so in effect), an election under such section may be revoked without the consent of the Secretary.”

Effective Date

Pub. L. 97–34, title II, § 237(c), Aug. 13, 1981, 95 Stat. 253, provided that: “The

Amendments

made by this section [enacting this section] shall apply to taxable years beginning after December 31, 1981.”

Reference

Citations & Metadata

Citation

26 U.S.C. § 474

Title 26 — Internal Revenue Code

Last Updated

Apr 5, 2026

Release point: 119-73not60