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Internal Revenue Service relieves dealers on parts LIFO

November 24, 2010

Dealers with the LIFO accounting method for their parts inventories gained relief from the Internal Revenue Service on March 11. Under Revenue Procedure 2002-17, new-car and -truck dealers may use replacement cost as a safe-harbor method to approximate the actual cost of their parts inventories. Dealers who were using the replacement cost method as of March 12 may continue to do so without filing for a change in accounting method.

Significantly, dealers who correctly used the replacement cost method as of March 12 receive audit protection for all tax years ending before Dec. 31, 2001, including years currently under audit. In sum, the IRS will not raise the issue in audits of past of future tax years and will not pursue the issue further if it has been raised in a pending audit for a tax year that ends before Dec. 31, 2001.

Dealers can check that they are properly using the safeharbor replacement cost method by reviewing Revenue Procedure 2002-17. The information is available on the Web sites of the National Automobile Dealers Association, and the IRS, The new revenue procedure is the culmination of an eightyear effort by the NADA, which began in 1994 with Legal Defense Fund assistance for a Western truck dealership