Automobile dealers' LIFO conformity.

• Author: Devlin, Frank
• Position: Last-in, first-out inventory accounting

Recently, the IRS issued two technical advice memorandums (TAMs) on the issue of LIFO conformity for automobile dealers. The rulings (which have not yet been released for publication) conclude that the issuance of 12 monthly statements, prepared on a FIFO basis, by a dealer to its manufacturer or finance subsidiary constitutes a conformity violation and subjects the dealer to a termination of the LIFO election. This most recent action by the Service is the latest episode in an ongoing examination program focusing on the use of LIFO by automobile dealers. Several other technical advice requests involving LIFO conformity are currently pending with the IRS National Office. In some cases, the factory financial statements, which follow a prescribed format required by the manufacturer, record a LIFO adjustment on the twelfth monthly report and present such adjustment either in the cost of goods sold section or as an "other deduction." However, it is our understanding that some IRS officials believe that a showing of a LIFO adjustment as an other deduction, rather than as an adjustment to cost of goods sold, may constitute a conformity violation. In addition, the use of an estimate of the LIFO adjustment anywhere on the factory financial statement may also constitute a conformity violation.

On July 18, 1995, members of the Inventory Working Group of the Tax Accounting Committee of the AICPA's Tax Division met with representatives from the National Automobile Dealers Association to discuss what steps could be taken at this time to convince the Service that the wholesale termination of LIFO for automobile dealers is not appropriate from...