[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1363-2]

[Page 736-737]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1363-2  Recapture of LIFO benefits.

    (a) In general. A C corporation must include the LIFO recapture 
amount (as defined in section 1363(d)(3)) in its gross income--
    (1) In its last taxable year as a C corporation if the corporation 
inventoried assets under the LIFO method for its last taxable year 
before its S corporation election becomes effective; or
    (2) In the year of transfer by the C corporation to an S corporation 
of the LIFO inventory assets if paragraph (a)(1) of this section does 
not apply and the C corporation--
    (i) Inventoried assets under the LIFO method during the taxable year 
of the transfer of those LIFO inventory assets; and
    (ii) Transferred the LIFO inventory assets to the S corporation in a 
nonrecognition transaction (within the meaning of section 7701(a)(45)) 
in which the transferred assets constitute transferred basis property 
(within the meaning of section 7701(a)(43)).
    (b) Payment of tax. Any increase in tax caused by including the LIFO 
recapture amount in the gross income of the C corporation is payable in 
four equal installments. The C corporation must pay the first 
installment of this payment by the due date of its return, determined 
without regard to extensions, for the last taxable year it operated as a 
C corporation if paragraph (a)(1) of this section applies, or for the 
taxable year of the transfer if paragraph (a)(2) of this section 
applies. The three succeeding installments must be paid--
    (1) For a transaction described in paragraph (a)(1) of this section, 
by the corporation (that made the election under section 1362(a) to be 
an S corporation) on or before the due date for the corporation's 
returns (determined

[[Page 737]]

without regard to extensions) for the succeeding three taxable years; 
and
    (2) For a transaction described in paragraph (a)(2) of this section, 
by the transferee S corporation on or before the due date for the 
transferee corporation's returns (determined without regard to 
extensions) for the succeeding three taxable years.
    (c) Basis adjustments. Appropriate adjustments to the basis of 
inventory are to be made to reflect any amount included in income under 
this section.
    (d) Effective dates. (1) The provisions of paragraph (a)(1) of this 
section apply to S elections made after December 17, 1987. For an 
exception, see section 10227(b)(2) of the Revenue Act of 1987.
    (2) The provisions of paragraph (a)(2) of this section apply to 
transfers made after August 18, 1993.

[T.D. 8567, 59 FR 51106, Oct. 7, 1994]