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Texas Gulf Coast Region:
Candace Willingham

Midwest Region:
Diane Smith

Northeast Region:
Jennifer Weston

Southeast Region:
David DeGrand

South Central Region:
Jennifer Chin

Pacific Northwest Region:
Laura Collins

Upper Midwest Region:
Al Schmitt

IRS Addresses Parts LIFO Woes with Rev. Proc. 2002-17

Three years after the Mountain States Ford Truck Sales case went to the U.S. Tax Court, IRS finally addressed the parts LIFO concerns that has since plagued so many dealerships.

A SUMMARY OF MOUNTAIN STATES FORD COURT CASE
The Tax Court held that Mountain States Ford found that the taxpayer's replacement cost method was not in accordance with the method elected on its Form 970, Application to Use LIFO Inventory Method. The taxpayer's Form 970 indicated that it would determine the current-year cost of the items in its ending inventory by reference to the actual cost of the most recently purchased goods.

REVENUE PROCEDURE 2002-17 - THE FINAL RESOLUTION!
Subsequent to the Mountain State Ford decision, the Service has given consideration to the unique circumstances surrounding the use of replacement cost by automobile dealers.
Revenue Procedure 2002-17 permits automobile dealers to approximate the cost of their vehicle parts inventory using the replacement cost of the vehicle parts. A taxpayer currently using replacement cost method may continue to use this safe harbor method without filing a Form 3115.

We expect most dealerships have utilized replacement cost for their parts inventories; however, those that have not consistently or never utilized replacement cost may file a Form 3115 to take advantage of this safe harbor method. Contact your Account Manager for more details.

IRS' DEFINITION OF REPLACEMENT COST
Rev. Proc. 2002-17 states, "Replacement cost means the amount provided in a standard price list at which a vehicle part may be purchased by the taxpayer on the date of the inventory. If, on the date of the inventory, the vehicle part is not provided in a standard price list, the replacement cost for the part is equal to the last amount provided in a standard price list (i.e., the price at which the part was last offered for purchase in a standard price list)."

WHAT IF THE DEALERSHIP'S PARTS ARE NOT ON LIFO?
Now is the time to consider making an election. Call us for more information!