The AICPA has requested relief from the IRS and the Treasury Department to help LIFO taxpayers suffering increased tax liability as a result of layer erosion LIFO income that occurred from COVID-19 related inventory liquidations. As touched in our last blog, which can be found at DeFilipps Proposal for Section 473 Relief » LIFOPro Services & Software, this relief is being requested under Section 473 of the Tax Code. This essentially provides relief to taxpayers on LIFO who are facing steep tax bills as aftermath of repressed foreign trade that have prevented some companies from adequately restoring their inventory.
The government’s response to public health concerns due to the pandemic have led to supply shortages across the world. While it was deemed unsafe for most workers to be congregating in person over the last year, this was directly followed by constrained supply chains around the world for more than 12 months. These interruptions have also caused headaches for LIFO taxpayers to preserve their operational inventory. The AICPA is asking both the IRS + The Treasury Department to issue a notice of taxpayer relief under Section 473 due to qualified liquidation. The belief behind this is that these supply chain interruptions meet the credentials of qualified inventory interruption, found under Section 473(C)(2). The AICPA proposal seeks to provide LIFO taxpayers with an extension to replenish their inventories to pre-pandemic levels, thereby avoiding the additional tax liability occurring from layer erosion LIFO income that would have otherwise occurred if such relief weren’t made available
In summary, this working draft is still a work in progress. Attempting to find relief for those on LIFO who were negatively impacted by COVID-19 is an ongoing process. The AICPA is pursuing input on the working draft from preparers of financial statements, practitioners and other relevant parties. Feedback can be emailed to kim.kushmerick@aicpa-cima.com by July 12, 2021.
Portions of this blog were derived from an article written by Michael Cohn for AccountingToday.com.
Michael Cohn's Accounting Today Article Working Draft of AICPA Section 473 Relief