Coggin Automotive Corporation - Page 18

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                    (3) LIFO recapture amount.–-For purposes of this                  
               subsection, the term “LIFO recapture amount” means the                 
               amount (if any) by which–-                                             
                         (A) the inventory amount of the                              
                    inventory asset under the first-in, first-out                     
                    method authorized by section 471, exceeds                         
                         (B) the inventory amount of such assets                      
                    under the LIFO method.                                            
          Any increase in tax resulting from the application of section               
          1363(d) is required to be paid in four equal installments beginning         
          in the last taxable year for which the corporation was a C                  
          corporation.  See sec. 1363(d)(2).                                          
               In enacting section 1363(d), Congress was concerned that a             
          corporation maintaining its inventory under LIFO might circumvent           
          the built-in gain rules of section 1374 to the extent the                   
          corporation did not liquidate its LIFO layers during the 10 years           
          following its conversion from a C corporation to an S corporation.5         

               5 H. Rept. 100-391 (Vol. II), at 1098 (1987), in relevant              
          part, states:                                                               
                    The committee is concerned that taxpayers                         
                    using the LIFO method may avoid the built-in                      
                    gain rules of section 1374.  It believes that                     
                    LIFO method taxpayers, which have enjoyed the                     
                    deferral benefits of the LIFO method during                       
                    their status as a C corporation, should not                       
                    be treated more favorably than their FIFO                         
                    (first-in, first-out) counterparts.  To                           
                    eliminate this potential disparity in                             
                    treatment, the committee believes it is                           
                    appropriate to require a LIFO taxpayer to                         
                    recapture the benefits of using the LIFO                          
                    method in the year of conversion to S status.                     

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