26 CFR § 1.312-4 - Examples of adjustments provided in section 312(c).

---
identifier: "/us/cfr/t26/s1.312-4"
source: "ecfr"
legal_status: "authoritative_unofficial"
title: "26 CFR § 1.312-4 - Examples of adjustments provided in section 312(c)."
title_number: 26
title_name: "Internal Revenue"
section_number: "1.312-4"
section_name: "Examples of adjustments provided in section 312(c)."
chapter_name: "INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY"
subchapter_number: "A"
subchapter_name: "INCOME TAX"
part_number: "1"
part_name: "INCOME TAXES"
positive_law: false
currency: "2026-04-05"
last_updated: "2026-04-05"
format_version: "1.1.0"
generator: "[email protected]"
authority: "26 U.S.C. 7805, unless otherwise noted."
regulatory_source: "T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960; T.D. 9989, 89 FR 17606, Mar. 11, 2024, unless otherwise noted."
cfr_part: "1"
---


# 1.312-4 Examples of adjustments provided in section 312(c).

The adjustments provided in section 312(c) may be illustrated by the following examples:

|  |  |  |
| --- | --- | --- |
| “Fifo” basis of inventory | $50,000 |  |
| Less: “Lifo” basis of inventory | 46,000 |  |
| Gain recognized—addition to earnings and profits (section 311(b)) | $4,000 |  |
| Adjustment to earnings and profits required by section 312(b)(1)(A): |  |  |
| Fair market value of inventory | $55,000 |  |
| Less: “Lifo” basis plus adjustment under section 311(b) | 50,000 | 5,000 |
| Total increase in earnings and profits | 9,000 |  |
| Decrease in earnings and profits—under section 312(b)(1)(B)(i) | $55,000 |  |
| Less: Liability assumed | 35,000 |  |
| Net amount of distribution (decrease in earnings) | 20,000 |  |
| Net decrease in earnings and profits | 11,000 |  |