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.