Form   1125-A                                             Cost of Goods Sold
(Rev. November 2018)                                                                                                              OMB No. 1545-0123
                                                ▶
Department of the Treasury                        Attach to Form 1120, 1120-C, 1120-F, 1120S, or 1065. 
Internal Revenue Service                   ▶ Go to www.irs.gov/Form1125A for the latest information.  
Name                                                                                                                 Employer identification number

1      Inventory at beginning of year   . .     . . . .   .     . . . . . . .      .   .    .  .   . . .        1
2      Purchases  .         . . . . .  .  .     . . . .   .     . . . . . . .      .   .    .  .   . . .        2
3      Cost of labor  .       . . . .  .  .     . . . .   .     . . . . . . .      .   .    .  .   . . .        3
4      Additional section 263A costs (attach schedule)  . .     . . . . . . .      .   .    .  .   . . .        4
5      Other costs (attach schedule)   .  .     . . . .   .     . . . . . . .      .   .    .  .   . . .        5
6      Total. Add lines 1 through 5 .  .  .     . . . .   .     . . . . . . .      .   .    .  .   . . .        6
7      Inventory at end of year  .  .  .  .     . . . .   .     . . . . . . .      .   .    .  .   . . .        7
8      Cost of goods sold.      Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2 or the 
       appropriate line of your tax return. See instructions  . . . . . . . .      .   .    .  .   . . .        8
9a     Check all methods used for valuing closing inventory:
       (i)   Cost
       (ii)  Lower of cost or market
       (iii) Other (Specify method used and attach explanation.) ▶
b      Check if there was a writedown of subnormal goods        . . . . . . .      .   .    .  .   . . . .      .  . .       . .  . .    ▶
c      Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970)    . .       . .  . .    ▶
d      If the LIFO inventory method was used for this tax year, enter amount of closing inventory computed 
       under LIFO .         . . . . .  .  .     . . . .   .     . . . . . . .      .   .    .  .   . . .        9d
e      If property is produced or acquired for resale, do the rules of section 263A apply to the entity? See instructions  . .    Yes     No
f      Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If “Yes,” 
       attach explanation       . . .  .  .     . . . .   .     . . . . . . .      .   .    .  .   . . . .      .  . .       .    Yes     No

Section references are to the Internal              merchandise is an income-producing                 Small business taxpayer. A small 
Revenue Code unless otherwise noted.                factor. See Regulations section 1.471-1. If      business taxpayer is a taxpayer that (a) has 
                                                    inventories are required, you generally          average annual gross receipts of $25 
What's New                                          must use an accrual method of accounting         million or less (indexed for inflation) for the 
Small business taxpayers. For tax years             for sales and purchases of inventory items.      3 prior tax years, and (b) is not a tax shelter 
beginning after December 31, 2017, the              Exception for certain taxpayers. A small         (as defined in section 448(d)(3)). See Pub. 
following apply.                                    business taxpayer (defined below),  can          538.
• A small business taxpayer (defined                adopt or change its accounting method to         Uniform capitalization rules. The uniform 
below), may use a method of accounting for          account for inventories in the same manner       capitalization rules of section 263A 
inventories that either: (1) treats inventories     as material and supplies that are non-           generally require you to capitalize, or 
as nonincidental materials and supplies, or         incidental, or conform to its treatment of       include in inventory, certain costs incurred 
(2) conforms to the taxpayer's financial            inventories in an applicable financial           in connection with the following.
accounting treatment of inventories.                statement (as defined in section 451(b)(3)),     • The production of real property and 
• A small business taxpayer is not required         or if it does not have an applicable financial   tangible personal property held in inventory 
to capitalize costs under section 263A.             statement, the method of accounting used         or held for sale in the ordinary course of 
                                                    in its books and records prepared in             business.
General Instructions                                accordance with its accounting                   • Real property or personal property 
                                                    procedures. See section 471(c)(3).               (tangible and intangible) acquired for resale.
Purpose of Form                                     A small business taxpayer claiming               • The production of real property and 
Use Form 1125-A to calculate and deduct             exemption from the requirement to keep           tangible personal property for use in its 
cost of goods sold for certain entities.            inventories is changing its method of            trade or business or in an activity engaged 
Who Must File                                       accounting for purposes of section 481.          in for profit.
                                                    For additional guidance on this method of 
Filers of Form 1120, 1120-C, 1120-F,                accounting, see Pub. 538, Accounting               A small business taxpayer (defined 
1120S, or 1065, must complete and attach            Periods and Methods. For guidance on             above) is not required to capitalize costs 
Form 1125-A if the applicable entity reports        changing to this method of accounting, see       under section 263A. See section 263A(i). 
a deduction for cost of goods sold.                 Form 3115 and the Instructions for Form            See the discussion on section 263A 
Inventories                                         3115.                                            uniform capitalization rules in the 
                                                                                                     instructions for your tax return before 
Generally, inventories are required at the                                                           completing Form 1125-A. Also see 
beginning and end of each tax year if the                                                            Regulations sections 1.263A-1 through 
production, purchase, or sale of                                                                     1.263A-3. See Regulations section 
                                                                                                     1.263A-4 for rules for property produced in 
                                                                                                     a farming business.

For Paperwork Reduction Act Notice, see instructions.                              Cat. No. 55988R                           Form 1125-A (Rev. 11-2018)

Form 1125-A (Rev. 11-2018)                                                                                                          Page  2 
Specific Instructions                          Per-unit retain allocations. A cooperative     Filers that use erroneous valuation 
                                               is allowed to deduct from its taxable          methods must change to a method 
Line 1. Inventory at Beginning of              income amounts paid during the payment         permitted for federal income tax purposes. 
Year                                           period for the tax year as per-unit retain     Use Form 3115 to make this change. See 
If you are changing your method of             allocations to the extent paid in money,       the Instructions for Form 3115. Also see 
accounting for the current tax year, you       qualified per-unit retain certificates, or     Pub. 538. 
must refigure last year's closing inventory    other property with respect to marketing       Line 9a. Method of valuing closing 
using the new method of accounting. Enter      occurring during the tax year. A per-unit      inventory. On line 9a, check the method(s) 
the result on line 1. If there is a difference retain allocation is any allocation from a     used for valuing inventories. Under lower of 
between last year's closing inventory and      cooperative to a patron for products           cost or market, the term “market” (for 
the refigured amount, attach an                marketed for him without reference to the      normal goods) means the current bid price 
explanation and take it into account when      cooperative net earnings. A qualified per-     prevailing on the inventory valuation date 
figuring any section 481(a) adjustment.        unit retain certificate is any per-unit retain for the particular merchandise in the 
                                               certificate that the distributee has agreed    volume usually purchased by the filer. For a 
Line 2. Purchases                              to take into account at its stated dollar      manufacturer, market applies to the basic 
Reduce purchases by items withdrawn for        amount.                                        elements of cost—raw materials, labor, and 
personal use. For a partnership, the cost of   Nonqualified per-unit retain certificates      burden. If section 263A applies, the basic 
these items should be shown on Schedule        redeemed this year. Include the amount         elements of cost must reflect the current 
K and Schedule K-1 as distributions to         paid in money or other property (except        bid price of all direct costs and all indirect 
partners.                                      amounts already included as per-unit retain    costs properly allocable to goods on hand 
                                               certificates) to patrons to redeem             at the inventory date.
Line 4. Additional Section 263A                nonqualified per-unit retain certificates. No  Inventory may be valued below cost 
Costs                                          deduction is allowed at the time of            when the merchandise is unsalable at 
If you elected a simplified method of          issuance for a nonqualified per-unit retain    normal prices or unusable in the normal 
accounting, enter on line 4 the balance of     certificate. However, the cooperative may      way because the goods are subnormal due 
section 263A costs paid or incurred during     take a deduction in the year the certificate   to damage, imperfections, shopwear, 
the tax year not includible on lines 2, 3, and is redeemed, subject to the stated dollar      change of style, odd or broken lots, or 
5.                                             amount of the certificate. See section 1383.   other similar causes, including second-
If you elected the simplified production       Also see the instructions for  Form 1120-C,    hand goods taken in exchange. The goods 
method, additional section 263A costs are      line 30h, for a special rule for figuring the  may be valued at the bona fide selling 
generally those costs, other than interest,    cooperative's tax in the year of redemption    price, minus the direct cost of disposition 
that were not capitalized under your           of a nonqualified per-unit retain certificate. (but not less than scrap value). Bona fide 
method of accounting immediately prior to      Line 7. Inventory at End of Year               selling price means actual offering of 
the effective date of section 263A, but are                                                   goods during a period ending not later than 
now required to be capitalized under           See Regulations sections 1.263A-1 through      30 days after inventory date.
section 263A. For details, see Regulations     1.263A-3 for details on figuring the amount 
section 1.263A-2(b).                           of additional section 263A costs to be         Lines 9c and 9d.LIFO  method. If this is 
                                               included in ending inventory.                  the first year the Last-in, First-out (LIFO) 
If you elected the simplified resale                                                          inventory method was either adopted or 
method, additional section 263A costs are      Line 8. Cost of Goods Sold                     extended to inventory goods not previously 
generally those costs incurred with respect    Enter the amount from line 8 on your tax       valued under the LIFO method provided in 
to the following categories.                   return as follows. Filers of Form 1120,        section 472, attach Form 970, Application 
• Off-site storage or warehousing.             1120-C, 1120S, and 1065, enter cost of         To Use LIFO Inventory Method, or a 
• Purchasing.                                  goods sold on page 1, line 2. Filers of Form   statement with the information required by 
                                               1120-F, enter cost of goods sold on            Form 970. Check the LIFO box on line 9c. 
• Handling, such as processing,                Section II, line 2.                            On line 9d, enter the amount of total 
assembling, repackaging, and transporting.                                                    closing inventories computed under 
• General and administrative costs (mixed      Lines 9a Through 9f. Inventory                 section 472. Estimates are acceptable.
service costs).                                Valuation Methods                              If you changed or extended your 
Line 5. Other Costs                            Inventories can be valued at:                  inventory method to LIFO and had to write 
Enter on line 5 any costs paid or incurred     • Cost,                                        up the opening inventory to cost in the year 
                                                                                              of election, report the effect of the write-up 
during the tax year not entered on lines 2     • Cost or market value (whichever is lower),   as other income, on your applicable return, 
through 4. Attach a statement listing details  or                                             proportionately over a 3-year period that 
of the costs.                                  • Any other method approved by the IRS         begins with the year of the LIFO election.
                                               that conforms to the requirements of the 
Special Rules for Cooperatives                 applicable regulations cited below.
Cooperatives are allowed to deduct certain 
per-unit retain allocations. Include these 
costs on line 5. Attach a statement listing 
details of per-unit retain allocations paid in:
• Qualified per-unit retain certificates,
• Money or other property (except 
nonqualified per-unit certificates), and
• Nonqualified per-unit retain certificates 
redeemed this year.

Form 1125-A (Rev. 11-2018)                                                                                                        Page  3 
Note: Entities using the LIFO method that     information. We need it to ensure that you   The time needed to complete and file 
make an S corporation election or transfer    are complying with these laws and to allow   this form will vary depending on individual 
LIFO inventory to an S corporation in a       us to figure and collect the right amount of circumstances. The estimated burden for 
nonrecognition transaction may be subject     tax.                                         business taxpayers filing this form is 
to an additional tax attributable to the LIFO You are not required to provide the          approved under OMB control number 
recapture amount. See the instructions for    information requested on a form that is      1545-0123 and is included in the estimates 
Form 1120, Schedule J, line 11.               subject to the Paperwork Reduction Act       shown in the instructions for their business 
Line 9e. If property is produced or           unless the form displays a valid OMB         income tax return.
acquired for resale and the rules of section  control number. Books or records relating    If you have comments concerning the 
263A apply to the corporation, cooperative,   to a form or its instructions must be        accuracy of these time estimates or 
partnership, or other applicable entity,      retained as long as their contents may       suggestions for making this form simpler, 
check the “Yes” box on line 9e.               become material in the administration of     we would be happy to hear from you. See 
                                              any Internal Revenue law. Generally, tax     the instructions for the tax return with 
Paperwork Reduction Act Notice. We            returns and return information are           which this form is filed.
ask for the information on this form to carry confidential, as required by section 6103.
out the Internal Revenue laws of the United 
States. You are required to give us the