Turnkey Outsourcing Solutions

Tax & Financial Reporting Annual LIFO Calculation Requirements

• Taxpayers are required to annually calculate the ending LIFO inventory value beginning in the year that LIFO is adopted for tax purposes, and all subsequent periods that the LIFO method is used
• The IRS LIFO conformity rule requires taxpayers to present income on year end financial report/statements as determined under the LIFO method beginning with the first year that LIFO is used on the tax return (also applies for all subsequent year end financial reports/statements where the LIFO method is used for tax purposes)
• A LIFO adjusting journal entry must be made annually following the close of the year end, completion of the LIFO calculation & prior to preparing year end financial reports/statements to comply with the LIFO conformity rule

IRS LIFO Books & Records Requirement (See IRS Regs. §472-2(h))

• A taxpayer’s current LIFO value inventory is a historic accumulation of quantity & price changes from the taxpayer’s initial year of the LIFO election
• Therefore, the taxpayer must maintain supplemental & detailed LIFO inventory records that support the current value of the inventory & the clear reflection of income

The IRS may terminate a taxpayer’s LIFO election if the taxpayer fails to comply with any of the requirements listed above. See Rev. Proc. 79-23, Sec. 3.01.

Outsourcing Engagement Process Flow: First Year

Note: Best LIFO Practices & Review is an optional complimentary offering. It does not have to be performed to obtain a turnkey outsourcing solutions fee quote and/or engage LIFOPro for outsourcing solutions

Outsourcing Engagement Process Flow: Recurring Annual Engagements

• Pricing is based on company size & engagement scope
• Terms are for a one-year period & are free of multi-year commitments
• Recurring annual fee is guaranteed to remain the same for at least 3 years
• LIFOPro reports delivered electronically including comprehensive documentation of all LIFO amounts required to record adjusting general ledger & tax return entries (all reports can be delivered as either Excel/PDF files)
• Also includes:
  • Up to three interim LIFO estimates for companies using external indexes (using most recently published BLS inflation indexes & prior year end product mix & inventory balances)
  • Unlimited report revisions
  • Up to 40 hours of GAAP & IRS audit support
  • Copy of LIFOPro’s annual SOC 1 Type II report
  • Customized supplemental services requested by client

LIFOPro strives to provide the highest quality of services at the most competitive prices, and we promise to provide an outsourcing solution that fits your budget. Fees listed below are general estimates.

Non-Auto Dealer Outsourcing Engagement Recurring Annual Fee Schedule

Note: See Auto Dealer Outsourcing page for auto dealer fee schedule.

• IRS Forms preparation
  • IRS Form 970 Application to Use LIFO Inventory Method & statement   $   400 – $   900
  • IRS Form 3115 Change in Accounting Method & statement                         $1,000 – $2,500
• Services Delivery and Timing: Earlier of the following two dates:
  • Client’s requested LIFOPro report delivery deadline
  • Within 1 week of receipt of the documentation requested by LIFOPro
• Terms
  • Engagement Period: 1 year with optional annual renewal
  • Recurring annual calculation service fee lock period: 3 years

 Fee Ranges

• A range of fees are provided as they are dependent on the total inventory balance of the client, the scope of the engagement and the expected recurring billable hours required to complete the engagement
• LIFOPro guarantees to match the fees quoted by alternative LIFO service providers
• Inflation calculation services (for internal indexes) & BLS category assignment services (for external indexes or IPIC method) are billed as separate line items from LIFO calculation & LIFOPro report delivery. Accordingly, these are optional service items, and clients wishing to minimize outsourcing fees can exclude these services from outsourcing engagement scope.
• Fixed recurring annual calculation service fee amounts will be provided within a fee quote and/or engagement letter once the required information has been provided to LIFOPro
• In most cases, fees quoted will be on the low end of the ranges listed above as LIFOPro will use all commercially available efforts to achieve the most efficient calculation procedures. The following documentation and/or document formatting will assist LIFOPro in minimizing the recurring fees:
  • Files in Excel format (as opposed to PDF reports or Word documents)
  • “Flat files” where each item’s information resides on a single line/row (as opposed to reports where item information is located on multiple rows; aka text wrapping)
  • Existing inventory classifications or groupings (which often materially reduces the BLS category assignment fees for companies using the IPIC method)
• Fees quoted will likely be on the middle or higher end of the ranges listed above if material data manipulation efforts are required, such as:
  • Converting scanned PDF inventory reports to Excel format (material data manipulation efforts typically not required if the reports are non-scanned PDF reports)
  • Converting inventory reports containing item data on multiple rows into flat file
• Fee reductions will be applied in the following circumstances:
  • If LIFOPro performs separate financial reporting (book) and tax LIFO calculation services. For example, if separate book & tax LIFO calculations are required where each calculation would be quoted on a standalone basis at $2,500/year per calculation (or $5,000/year total), it is common for LIFOPro to discount the combined fee to $4,000/year for both calculations.
  • If LIFOPro performs multiple LIFO calculations for separate entities or locations
  • Where clients with multiple entities/locations are agreeable to receiving a single LIFO report package (as opposed to requiring separate LIFOPro report packages for each entity/location)

Onboarding: The following steps are included in the onboarding process for first-time clients:

• Client requests to proceed with an engagement with LIFOPro
• LIFOPro delivers engagement letter, document request & New client questionnaire
• Client executes engagement letter, completes New client questionnaire & returns to LIFOPro

Engagement commencement & Service performance

• First year
  • The engagement with LIFOPro will begin upon the client delivering their executed engagement letter & completed New client questionnaire to LIFOPro
  • The performance of our services will commence upon the client delivering the documents required to complete the client’s year end LIFO calculation
  • The client’s LIFOPro report package will be delivered at the earlier of the client’s requested LIFO report delivery date or within one week of receipt of the required documentation
  • LIFOPro will email an invoice 1 – 3 business days following delivery of client’s LIFOPro report
• Recurring
  • LIFOPro’s engagements have an initial term of one year commencing on the date of the executed engagement letter, and with automatically renew for successive one year terms thereafter on the anniversary thereof
  • Clients may opt out of the engagement by providing LIFOPro with notice prior to the engagement anniversary date
  • In the event of automatic renewal, LIFOPro guarantees for the recurring annual calculation service fee amount to remain fixed for a three year period
  • LIFOPro will issue notice of any fee increases after the conclusion of the third year of the engagement & prior to the commencement of the fourth year of the engagement

Sample LIFOPro Report Package - Internal Indexes
Sample LIFOPro Report Package - External Indexes (IPIC Method)
Sample LIFOPro Report Package - Auto Dealer: Using Alternative LIFO Method Method
Sample LIFOPro Report Package - Auto Dealer: Using IPIC Method