If your inventory market values went down significally, can you use LCM to adjust the inventory and record a loss? Please note, the method to value the inventory has been a Cost Method. The IRS states:

"The value of your inventory is a major factor in figuring your taxable income. The method you use to value the inventory is very important.

The following methods, described below, are those generally available for valuing inventory.


Cost.
Lower of cost or market.-LCM
Retail."



So, if LCM has not been used before, does that mean it can't be used this time due to inventory value reduction?

Yes, I believe that is permitted, but I am NOT sure.

I think if you have used cost in prior years the change to LCM would be a change in accounting methods which would require filing Form 3115. Some changes are automatic and some require approval and I do not know which one this change would fall under without hitting the books.