The IRS Issued New Administrative Authority In Connection To Accounting Method Changes For Retail Inventory

The Internal Revenue Service (hereinafter “IRS”) has issued new administrative authority for changing a method of accounting for retail inventory. Newly issued Rev. Proc. 2014-48 provides the select procedures under which a taxpayer may obtain the IRS’s consent to change a method of accounting to comply with the final treasury regulations on the retail inventory method of accounting. The final treasury regulations clarify the computation of ending inventory values under the retail inventory method and provide alternative methods for taxpayers using the retail Lower of Cost or Market (hereinafter “LCM”) method of accounting to account for margin protection payments.

As set forth under Treas. Reg. § 1.471-8, a taxpayer may use the retail inventory method to compute the value of ending inventory at approximate cost (i.e., retail cost) or approximate LCM, by multiplying the retail selling prices of goods on hand at the end of the taxable year by a cost complement ratio. The cost complement is the value of beginning inventory plus the cost of purchases divided by the retail selling prices of beginning inventory and purchases. On Aug. 15, 2014, the IRS and the Treasury Department published final treasury regulations under Treas. Reg. § 1.471-8 in TD 9688 clarifying a taxpayer’s treatment of certain sales-based vendor allowances, margin protection payments, permanent markups and markdowns, and temporary markups and markdowns when determining the cost complement. The final treasury regulations and the revenue procedure apply for taxable years beginning on January 1, 2015.

About the Author
Peter J. Scalise serves as the National Partner-in-Charge of the Federal Tax Credits and Incentives Practice at SAX CPAs LLP. Peter is a highly distinguished member of the Accounting Today Top 100 Influencers and has approximately thirty years of progressive Big 4 and Top 100 public accounting firm experience developing, managing, and leading large scale tax advisory practices on a regional, national, and global level.
Peter also serves as a passionate philanthropist and a member of several Boards of Directors and Boards of Advisors for local, regional, and national charities in connection with poverty and hunger alleviation; economic development; environmental conservation; health and social services; supporting veteran and military service personnel along with preserving arts and cultural programs.

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