AICPA requests LIFO safe harbor.
Author | Young, Elizabeth |
A company with last-in, first-out (LIFO) inventory that experiences a decrease in LIFO inventory would typically have additional taxable income related to the LIFO decrement. A LIFO decrement is the excess of the prior-period ending inventory over the currentperiod ending inventory. Decrements result in a reduction of increments or layers created in earlier years.
The various government restrictions implemented in response to the COVID-19 pandemic severely limited manufacturing capacity and caused major interruptions in foreign trade and the global supply chain. These restrictions made it extremely difficult for U.S. companies to replace their inventories in 2020, resulting in a significant reduction to inventory levels, and the difficulties continue into 2021. As a result of these circumstances, many companies will realize additional taxable income and unexpected tax liabilities, which may continue to hamper their recovery, as they may not have the cash readily available to pay taxes on the additional income.
Sec. 473 provides relief for eligible taxpayers that experience qualified liquidations of LIFO inventories. Sec. 473 applies if a business has had an interruption in the ability to obtain replacement inventory due to a trade embargo or other international event. Under Sec. 473, the company would have three additional years to replenish the liquidated inventory. Specifically, Sec. 473 authorizes Treasury to issue in the Federal Register a notice of determination that a qualified...
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