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Focus on Automotive: IRS Provides Safe Harbor LIFO

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Over the years as truck and crossover vehicles have become more popular; most dealers have seen a shift in their mix of inventory from cars to trucks. Most recently, this trend has begun to reverse.
March 10, 2008

IRS Provides Safe Harbor LIFO Pooling Method for Resellers of Cars and Light-Duty Trucks

Over the years as truck and crossover vehicles have become more popular; most dealers have seen a shift in their mix of inventory from cars to trucks. Most recently, this trend has begun to reverse. Historically dealers have been required to keep cars and trucks in separate LIFO pools. Shifts in mix of inventory have caused many dealers to recapture LIFO benefits when their mix shifted from cars to trucks and back.

The IRS has just issued a Revenue Procedure that will be of great benefit to dealers who use LIFO. It will allow dealers to combine their car and truck pools into one combined pool beginning in 2008. This Revenue Procedure applies to both new and used vehicles and creates a safe harbor alternative dollar-value last-in, first-out (LIFO) pooling method for resellers of cars and light-duty trucks—the Vehicle-Pool Method.

By taking advantage of this new opportunity, dealers should be much less likely to have to recapture LIFO benefits as long as their total vehicle inventory remains stable.

This change also resolves the confusion and subjectivity over which LIFO pool should include vans, sport utility vehicles, and other cross over vehicles (cars or trucks?).

Dealers can easily elect to take advantage of this new method by making and election on their 2008 tax returns..

If you have any questions about this revenue procedure or any other inventory accounting issues, we welcome the opportunity to discuss these topics with you in more detail.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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