The American Institute of CPAs (AICPA) has recommended changes to the Internal Revenue Service’s (IRS) proposed Dollar-Value Last-In, First-Out (LIFO) Regulations: Inventory Price Index Computation (IPIC) Method Pool.
The proposed regulations (REG-125946-10) would amend the IPIC method pooling rules to clarify that the rules are applied consistently with the general LIFO pooling rule so that manufactured or processed goods and resale goods are not included in the same dollar-value LIFO pool.
The AICPA recommended in its May 21 letter that the U.S. Department of the Treasury and the IRS make three changes to the proposed regulations to reduce the compliance burden on taxpayers and IRS exam controversy:
- Allow the inclusion of resale goods in the same LIFO IPIC pool with manufactured or processed goods under the IPIC pooling rules;
- Provide test year, qualifying period, retest year, and extended qualifying period rules similar to the rules provided in Treas. Reg. §§ 1.263A-2(b)(4) and -3(d)(4) for using the historic absorption ratio; and
- Provide 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 method of determining cost by using a base-year cost expressed in terms of total dollars rather than the quantity and the price of specific goods as the unit of measurement. Under Treas. Reg. § 1.472-8(b)(1), manufacturers or processors are required to establish one pool for each natural business unit unless the manufacturer or processor elects under Treas. Reg. § 1.472-8(b)(3) to establish multiple pools.