Dollar-value LIFO pooling for automobile resellers.

• Author: Martin, Jim
• Position: Last-in first-out

In Rev. Proc. 2008-23, the IRS provides retail dealers and wholesale distributors of cars and light-duty trucks (collectively, automobile resellers) the option to use an alternative dollar-value last-in, first-out (LIFO) pooling method. Under the vehicle-pool method, automobile resellers may establish one new-vehicle pool for most new vehicles and one used-vehicle pool for most used vehicles. This taxpayer-favorable IRS guidance alters previously upheld IRS positions that required automobile resellers to use separate pools for cars and light-duty trucks.

Background

Under Regs. Sec. 1.472-8(a), a taxpayer may use the dollar-value LIFO method to account for inventories, with items grouped into a pool or pools. Regs. Sec. 1.472-8(c)(1) requires that resellers establish dollar-value pools based on major lines, types, or classes of goods.

Previous case law and IRS guidance required automobile resellers to establish two separate pools--one for cars and one for light-duty trucks. In Fox Chevrolet, Inc., 76 TC 708 (1981), the Tax Court noted that cars and light-duty trucks did not constitute a single class of goods because cars appealed to the general public, while trucks often were bought for business use; also, the registration and other legal requirements for the operation of trucks were more stringent than those for cars. In Richardson Investments, Inc., 76 TC 736 (1981), the Tax Court rejected a Ford dealer's argument that cars and light-duty trucks should be assigned to a single pool, noting that Ford's advertising campaign distinguished the commercial nature of Ford trucks and the personal nature of Ford cars.

Based on this case law, the IRS required automobile resellers to maintain separate pools for cars and light-duty trucks. For example, under the alternative LIFO method provided in Rev. Proc. 97-36, automobile resellers were required to establish one pool for all new cars and a separate pool for all new light-duty trucks. Likewise, under the used-vehicle alternative LIFO method provided in Rev. Proc. 200123, automobile resellers were required to establish separate pools for used cars and used light-duty trucks.

As a result of a submission to the IRS Industry Issue Resolution Program on behalf of the automobile industry, the IRS announced that it would publish guidance on dollar-value LIFO pooling for crossover vehicles (IR-2007-39). Crossover vehicles include SUVs, minivans, and pickup trucks used as substitutes for cars. The IRS...