AICPA wants changes in IRS proposed rules for valuing inventory

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The American Institute of CPAs has sent three recommendations to the Internal Revenue Service about modifying the IRS’s proposed regulations for inventory valuation.

The changes related to the IRS’s proposed Dollar-Value Last-In, First-Out (LIFO) Regulations: Inventory Price Index Computation (IPIC) Method Pool.

The IRS’s proposed regulations in REG-125946-10 aim to amend the IPIC method pooling rules to clarify that the rules are applied consistently with the general LIFO pooling rule so manufactured or processed goods and resale goods wouldn’t be included in the same dollar-value LIFO pool.

The AICPA suggested in a letter Monday that the IRS and the Treasury make the following three changes to lessen taxpayer compliance burdens and controversy during IRS audits:

• Permit the inclusion of resale goods in the same LIFO IPIC pool with manufactured or processed goods under the IPIC pooling rules;

• Offer test year, qualifying period, retest year, and extended qualifying period rules similar to the rules provided in Treasury Regulation Sections 1.263A-2(b)(4) and -3(d)(4) for using the historic absorption ratio; and

• Furnish an exception from the requirement to change pools as a result of the application of the 5-percent rules.

The dollar-value method of valuing LIFO inventories is a way of determining costs by using a base-year cost that’s expressed in terms of total dollars as opposed to the quantity and price of specific goods as the unit of measurement. Under the existing Treasury regulations, manufacturers or processors are required to establish one pool for each natural business unit unless the manufacturer or processor opts to set up multiple pools.

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