IRS written determination 202625005

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 202625005
Release Date: 6/18/2026
Index Number: 472.05-00

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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. ------------
Telephone Number:
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Refer Reply To:
CC:ITA:B06
PLR-115055-25
Date:
March 19, 2026

LEGEND

Representative = ----------------------
Taxpayer = ---------------------------------------------------------------------------------------
-----------------------

Dear --------------:

We received Taxpayer’s request for a ruling in a letter from Representative dated
August 12, 2025. Taxpayer is an S Corporation. Taxpayer is in the business of
operating convenience stores and gas stations. Taxpayer’ maintains inventories
consisting of food and beverage items and gasoline finished goods.

For Federal income tax and financial accounting purposes, Taxpayer uses the last-in,
first-out (“LIFO”) method of accounting to identify inventory. Taxpayer issues financial
statements that are prepared on the basis of Generally Accepted Accounting Principles
(“GAAP”). Taxpayer’s financial statements present income using a lower of LIFO cost
or market basis to value its inventory.

Taxpayer represents that it enters into sales hedges on its gasoline finished goods
inventory (“Sales Hedge”) in order to reduce the financial risk associated with changing
sales prices. As described, these Sales Hedges generally provide a fixed price at which
assets (i.e., gasoline finished goods) will be sold to protect a seller against future price
decreases. The Sales Hedge can be favorable to the seller if the market price of the
asset decreases because the seller would be able to sell the assets at a higher price
than the price the seller would receive without the hedge. Conversely, a Sales Hedge
can be unfavorable to the seller if the market price of the asset increases because the

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seller would be obligated to sell the assets at a lower price than it would receive without
the hedge.

Taxpayer represents that it uses fair value hedge accounting under GAAP to measure
its Sales Hedges at fair value on its financial statements. Each reporting period,
Taxpayer is required to mark derivative instruments (i.e., Sales Hedges) to market for
financial accounting purposes. Thus, unrealized gains and losses on the hedging
instruments are reflected in Taxpayer’s income statement.

Taxpayer uses the LIFO method of accounting for identifying physical inventory for
Federal income tax and financial accounting purposes. As it relates to its Sales
Hedges, Taxpayer accounts for changes in the fair value of its inventory in an inventory
asset account separate from its LIFO inventory account on its balance sheet whereas
unrealized gains and losses on the Sales Hedges are accounted for in a separate sales
account. In accordance with GAAP, the results of Taxpayer’s Sales Hedges must be
recognized in the income statement line item related to the risk being hedged. Thus,
Taxpayer reports cost of sales on a LIFO basis and unrealized gains and losses on the
inventory in sales. Taxpayer represents that its accounting for its Sales Hedges does
not affect its calculations of cost of sales or earnings under LIFO.

RULING REQUESTED

Taxpayer’s use of fair value hedge accounting for Sales Hedges on its inventory,
including the recognition of unrealized gains or losses related to the change in sales
prices of the underlying hedged asset (i.e., inventory), does not violate the LIFO
conformity requirement under §§ 472(c) and (e)(2) of the Internal Revenue Code.

LAW AND ANALYSIS

Applicable Law

Section 472(c) provides that a taxpayer who elects to use the LIFO inventory method for
Federal income tax purposes must establish to the satisfaction of the Secretary that it
has used no method other than LIFO in inventorying such goods to ascertain the
income, profit, or loss of the first taxable year for which LIFO is to be used, for the
purpose of a report or statement covering such taxable year to shareholders, partners,
or other proprietors, or to beneficiaries, or for credit purposes.

Section 472(e)(2) imposes a requirement similar to that contained in section 472(c) for
taxable years subsequent to the year of the LIFO election.

Section 1.472-2(e)(1) of the Income Tax Regulations provides, in part, that the taxpayer
must establish to the satisfaction of the Commissioner that the taxpayer, in ascertaining
the income, profit, or loss for the taxable year for which the LIFO inventory method is
first used, or for any subsequent taxable years, for credit purposes or for purposes of

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reports to shareholders, partners, or other proprietors, or to beneficiaries, has not used
any inventory method other than that referred to in § 1.472-1 or at variance with the
requirements of § 1.472-2(c).

Section 1.472-2(e)(1)(i) provides that the taxpayer’s “use of an inventory method other
than LIFO for purposes of ascertaining information reported as a supplement to or
explanation of the taxpayer’s primary presentation of the taxpayer’s income, profit, or
loss, for a taxable year in credit statements or financial reports” is not considered at
variance with the requirements of § 1.472-2(e)(1).

Section 1.472-2(e)(1)(ii) provides that the “use of an inventory method other than LIFO
to ascertain the value of the taxpayer’s inventory of goods on hand for purposes of
reporting the value of such inventories as assets” is not considered at variance with the
requirements of § 1.472-2(e)(1).

Section 1.472-2(e)(1)(v) provides that the taxpayer’s “use of the lower of LIFO cost or
market method to value LIFO inventories for purposes of financial reports and credit
statements” is not considered at variance with the requirements of § 1.472-2(e)(1).
However, § 1.472-2(e)(1)(v) also provides that “a taxpayer may not use market value in
lieu of cost to value inventories for purposes of financial reports or credit statements.”

Section 1.472-2(e)(3) provides specific rules related to the exception of the conformity
requirement for supplemental or explanatory information.

Section 1.472-2(e)(3)(i) provides that information reported on the face of a taxpayer’s
financial income statement for a taxable year is not considered a supplement to or
explanation of the taxpayer’s primary presentation of the taxpayer’s income, profit, or
loss for the taxable year in credit statements or financial reports. For purposes of
paragraph (e)(3) of this section, the face of an income statement does not include notes
to the income statement presented on the same page as the income statement, but only
if all notes to the financial income statement are presented together.

Section 1.472-2(e)(3)(ii) provides, in part, that information reported in notes to a
taxpayer’s financial income statement is considered a supplement to or explanation of
the taxpayer’s primary presentation of income, profit, or loss for the period covered by
the income statement if all notes to the financial income statement are presented
together and if they accompany the income statement in a single report.

Section 1.472-2(e)(3)(iii) provides that information reported in an appendix or
supplement to a taxpayer’s financial income statement is considered a supplement to or
explanation of the taxpayer’s primary presentation of income, profit, or loss for the
period covered by the income statement if the appendix or supplement accompanies
the income statement in a single report and the information reported in the appendix or
supplement is clearly identified as a supplement to or explanation of the taxpayer’s
primary presentation of income, profit, or loss as reported on the face of the taxpayer’s

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income statement. For purposes of paragraph (e)(3)(iii) of this section, information is
considered to be clearly identified as a supplement to or explanation of the taxpayer’s
primary presentation of income, profit, or loss as reported on the face of the taxpayer’s
income statement if the information either-

(A) Is reported in an appendix or supplement that contains a general statement
identifying all such supplemental or explanatory information;

(B) Is identified specifically as supplemental or explanatory by a statement
immediately preceding or following the disclosure of the information;

(C) Is disclosed in the context of making a comparison to corresponding information
disclosed both on the face of the taxpayer’s income statement and in the
supplement or appendix; or

(D) Is a disclosure of the effect on an item on the face of the taxpayer’s income
statement of having used the LIFO method.

For example, the restatement of cost of goods sold based on an inventory method other
than LIFO is considered to be clearly identified as supplemental or explanatory
information if the supplement or appendix containing the restatement contains a general
statement that all information based on such inventory method is reported in the
appendix or supplement as a supplement to or explanation of the taxpayer’s primary
presentation of income, profit, or loss as reported on the face of the taxpayer’s income
statement.

Section 1.472-2(e)(4) provides that the use of an inventory method other than LIFO to
ascertain the value of the taxpayer’s inventories for purposes of reporting the value of
the inventories as assets is not considered the ascertainment of income, profit, or loss
and therefore is not considered at variance with the requirement of paragraph (e)(1) of
this section. Therefore, a taxpayer may disclose the value of inventories on a balance
using a method other than LIFO to identify the inventories, and such a disclosure will
not be considered at variance with the requirement of paragraph (e)(1) of this section.

Analysis

Taxpayer elected the LIFO method of accounting for Federal income tax purposes and
became subject to the LIFO conformity requirements. See §§ 472(c) and (e)(2);
§ 1.472-2(e)(1). The purpose of the LIFO conformity requirement is to ensure that
taxpayers only use the LIFO method for tax purposes when that method conforms as
nearly as possible to the best accounting practice in the taxpayer’s trade or business.
See H.R. Rep. No. 432, 98th Cong., 2d Sess. 1380 (1984).

Taxpayer will account for inventories using the LIFO method in its financial statements.
Taxpayer represents that it values inventories in its financial statements on a lower of

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LIFO cost or market basis. Per § 1.472-2(e)(1)(v), Taxpayer’s use of lower of LIFO cost
or market to value LIFO inventories for purposes of its financial statements does not
violate the LIFO conformity requirements.

Regarding Taxpayer’s accounting for its Sales Hedges, Taxpayer represents that the
adjustment to inventory on its balance sheet does not result in valuing LIFO inventory at
market as part of its LIFO inventory calculation and does not result in the reporting of
LIFO inventory earnings on a non-LIFO basis. As Taxpayer’s adjustment to the balance
sheet does not affect its calculation of LIFO inventory earnings, this adjustment is
permitted under § 1.472-2(e)(4).

RULING

Based upon the facts and representations submitted by Taxpayer, it is ruled that, for
Federal income tax purposes, Taxpayer’s use of fair value hedge accounting for Sales
Hedges on its inventory does not violate the LIFO conformity requirement set forth in
§§ 472(c) and (e)(2).

No opinion is expressed or implied as to (1) whether the LIFO inventory method used
for Federal income tax purposes conforms to the provisions of § 472 and the regulations
thereunder; (2) whether Taxpayer’s hedge accounting conforms to GAAP and its
propriety for Federal income tax purposes; and (3) whether or not an other hedge
arrangement Taxpayer may be involved in, specifically purchase hedges or hedges
based on purchase price, if any, violate LIFO conformity.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to Taxpayer’s authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, if Taxpayer files its returns electronically, this requirement may be satisfied
by attaching a statement that provides the date and control number of the letter ruling to
its return.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

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Sincerely,

Andrew S. Braden
Senior Counsel, Branch 6
(Income Tax & Accounting)

Enc.:

cc:
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