AICPA seeks IRS guidance on tax implications of FASB ASU related to cost of inventory

September 26, 2018

The American Institute of CPAs (AICPA) has requested that the Internal Revenue Service (IRS) issue guidance providing for an automatic method change for any accounting method change that is necessary to implement the effect of the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2017-07 on the costing of inventory for tax purposes.

FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, in March 2017, and it is effective in 2018.  ASU 2017-07 imposes financial statement disclosure requirements with respect to a company’s obligation to pay pension and other post-retirement benefits (OPEB) to company employees.  It also changed the calculation of the amount of a company’s pension and OPEB expense included in the cost of inventory or self-constructed property produced by the company.

In addition to the recommendation for an automatic method change, the AICPA recommended in its August 29 letter that the IRS permit taxpayers to implement the accounting method change using a cut-off transition method.  The AICPA further recommended that the IRS waive the five-year restriction on eligibility to use the automatic consent accounting method changes procedures.