Opportunity ... or trap?

• Author: Lazzaro, Lynn M.
• Position: IRS amnesty program - Brief Article

How the Service's "amnesty" available for taxpayers with aggressive LIFO methods will affect specific clients depends on their own LIFO calculation method, the LIFO tax benefits accumulated in the past, and their aversion to IRS audit risk.

Talk of amnesty generally refers to a taxpayer's ability to lock in cumulative LIFO tax benefits prior to a year in which it agrees to prospectively apply any IRS-mandated LIFO calculation method. The agreement with the Service would be initiated by filing an application for change in accounting method (Form 3115) pursuant to the rules of Rev. Proc. 92-20, issued in March 1992.

As the flowchart on page 614 indicates, the year of change to an IRS-mandated method, as well as the availability of amnesty for prior years' LIFO tax benefits, is determined by the date Form 3115 is filed, and whether the taxpayer is under audit at the time of filing. It is important to keep in mind than without amnesty, prior years' LIFO calculations may have to be reworked to the satisfaction...