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IRS amends LIFo to clear line blurred by crossovers

November 16, 2010

The Last-In, First-Out accounting procedure (LIFO) used by many dealers has been amended by the Internal Revenue Service to provide a safe harbor pooling method for resellers of cars and light-duty trucks that weigh up to 14,000 pounds.


The change eliminates the administrative inconvenience, costs, and audit exposure that result from having to determine on a yearly basis whether crossover vehicles should be placed in the LIFO pool for cars or the LIFO pool for light duty trucks.


The Treasury Department and Internal Revenue Service recognize that the distinctions between cars and light-duty trucks have diminished significantly since the issue was last addressed in IRS guidance and by the courts.


Effective for tax years ending on or after Dec. 31, 2007, the revenue procedure provides a safe harbor pooling method, the Vehicle-Pool Method, for resellers of cars and light-duty trucks that weigh up to 14,000 pounds.


The Vehicle-Pool Method allows a reseller to establish a new-vehicle pool for inventories of new vehicles including new cars, new light-duty trucks, and new crossover vehicles including SUVs, minivans, and other similar vehicles; and a used-vehicle pool for inventories of used vehicles.


Revenue Procedure 2008-23, issued this month, also provides the procedures for a reseller subject to the LIFO pooling requirements to obtain automatic consent to change to the Vehicle-Pool Method.  


The Industry Issue Resolution program, launched by the IRS in 2001, tackles tax issues submitted by taxpayers, associations and other groups representing businesses. The objective is to resolve frequently disputed or burdensome tax issues.


Full details on the IIR program are at