CPA Firm Partnership Playbook

• Allows firms to turn LIFO into a tax-savings asset & tool rather than a liability & nuisance by offloading annual LIFO planning & compliance tasks to us
• Turn LIFO into a firm strength rather than weakness by providing access to subject matter experts
• Allows firms to be preemptive with prospective or new clients regarding LIFO as opposed to merely reacting to LIFO issues when they arise
• Ensures your firm’s LIFO resources/offerings are at least comparable if not superior to competitors
• Allows firms to retain existing clients & attract new clients with LIFO needs
• Access to LIFO subject matter experts without having to develop/maintain those resources in-house
• Maximizes the overall tax benefits being made available to clients & ensures meaningful opportunities aren’t being missed
• Lowers the barrier to LIFO entry for clients by offering high-value, low-cost outsourcing solutions
• Allows firms to redirect the time & resources required to maintain/support clients who are on LIFO towards the firm’s most profitable services offerings by outsourcing this work to LIFOPro
• Guarantee LIFO calculation accuracy & eliminate IRS audit risk
• Minimizes time spent by firm on LIFO calculation review & testing procedures for audit clients

• LIFOPro offers a variety of partnership formats to best suit each CPA firm’s desired goals and their client’s wants/needs
• Most common partnership formats include:
  • Indirect format: Client directly engages with LIFOPro, but provides free resources/support to CPA firm
    • Designed for CPA firms seeking to offer their client’s LIFO resources & outsourcing solutions without having to build & maintain the resources to do so
    • Allows firms access to valuable complimentary LIFO resources, best practices feedback & training
    • Allows CPA firm clients to partner with a 3rd party LIFO service provider and subject matter expert
    • CPA firm typically provides an introduction or referral to LIFOPro & the firm’s recurring involvement is based on the client/firm’s preferences
    • Client typically engages LIFOPro & communicates directly regarding document receivables/deliverables & billing
  • Direct partnership: CPA firm directly engages with LIFOPro (wholesale – retail model)
    • Often used by firms seeking to generate or maximize revenues by building/enhancing a turnkey outsourcing solution LIFO service line
    • Allows firms to serve as their clients one-stop shop by providing them a complete range of accounting and tax services in addition to LIFO
    • CPA firm engages LIFOPro to obtain wholesale LIFO outsourcing solution on behalf of their client
    • CPA firm resells outsourcing solution to their client at a retail rate
    • Communication, document receivables/deliverables & billing occurs primarily or exclusively between CPA firm & LIFOPro
  • Referral format: CPA firm introduces client to LIFOPro
    • Designed for CPA firms who lack LIFO expertise/resources, but has clients with LIFO needs
    • Precludes CPA firm clients from seeking a LIFO solution from a competing firm, and ensures clients aren’t lost to competing firms who offer LIFO solutions
    • Can also be formatted where LIFOPro reimburses CPA firm a consulting fee to compensate firms for time spent on referral
    • CPA firm typically provides an introduction or referral to LIFOPro, but has minimal amount of involvement on a recurring basis
  • Multiple partnership formats can be used within a single firm to best suit needs of each client or firm location

• Identify firm clients that are already using the LIFO method
  • The following outreach steps should be performed:
    • Client should be informed that your firm has partnered with a LIFO subject matter expert that provides a turnkey outsourcing solution (or your firm has enhanced the LIFO service offerings to include a turnkey outsourcing solution)
    • Client should be informed that the LIFO service provider or your firm’s new service offerings makes LIFO as simple as possible
    • Client should be informed that they can obtain a complimentary best LIFO practices & calculation review & turnkey outsourcing solutions fee quote
  • Outreach/analysis sequence is flexible to best suit the wants/needs of your firm/client
    • LIFOPro offers to host a complimentary discovery call with the client and/or CPA firm (presentation can be tailored to exclude any discussion regarding fees if CPA firm is engaging LIFOPro directly & using wholesale-retail model)
    • Some firms/clients may prefer to obtain the LIFO election benefit analysis prior to having discovery call or may opt out of having a discovery call altogether
    • Firms are welcome to host their own discovery calls with clients without LIFOPro present
    • LIFOPro’s discovery call presentation slide deck: LIFOPro’s Offering Presentation Slide Deck
  • Outreach steps will likely depend on the CPA firm’s partnership format with LIFO
    • Firms directly engaging with LIFOPro (wholesale-retail model) may internally manage the outreach/analysis process to preclude the need for LIFOPro to communicate with their clients
    • Firms indirectly partnering with LIFOPro will likely connect their client with LIFOPro so the firm or LIFOPro can coordinate scheduling/hosting a discovery call and remain involved/aware regarding the progress of the LIFO analysis process
    • Other firms may prefer for LIFOPro to manage all aspects of the outreach/review process and will only need to provide an introduction or referral to their client/LIFOPro

• The following outreach steps should be performed for clients who are Top LIFO Election Candidates:
  • Client should be informed that meaningful tax savings could be obtained from electing LIFO (may be useful to include their estimated taxable income reduction or tax savings from LIFO calculated using LIFOPro’s Top LIFO Candidate List)
  • Clients should also be advised they can obtain a complimentary LIFO election benefit analysis
  • Client can optionally be advised they can attend a complimentary discovery call to learn more about LIFO and the opportunity
• Outreach/analysis sequence is flexible to best suit your firm/client
  • LIFOPro offers to host a complimentary discovery call with the client and/or CPA firm (presentation can be tailored to exclude any discussion regarding fees if CPA firm is engaging LIFOPro directly & using wholesale-retail model)
  • Some firms/clients may prefer to obtain the LIFO election benefit analysis prior to having discovery call or may opt out of having a discovery call altogether
  • Firms are welcome to host their own discovery calls with clients without LIFOPro present
  • LIFOPro’s discovery call presentation slide deck: How LIFO Works & LIFOPro’s Offerings
• Outreach steps will likely depend on the CPA firm’s partnership format with LIFO
  • Firms directly engaging with LIFOPro (wholesale-retail model) may internally manage the outreach/analysis process to preclude the need for LIFOPro to communicate with their clients
  • Firms indirectly partnering with LIFOPro will likely connect their client with LIFOPro so the firm or LIFOPro can coordinate scheduling/hosting a discovery call and remain involved/aware regarding the progress of the LIFO analysis process
  • Other firms may prefer for LIFOPro to manage all aspects of the outreach/analysis process and will only need to provide an introduction or referral to their client/LIFOPro

• LIFOPro will prepare a report summarizing our findings on the following areas:
  • LIFO calculation accuracy
    • Client’s historical documentation through the last period closed will be imported into LIFOPro’s software to confirm it is free of errors
    • Any errors found are documented, and a comparison of the as corrected vs. as presented LIFO reserves are provided
  • LIFO methods review
    • The LIFO methods elected by the client are reviewed, and LIFOPro confirms that the methods used comply with regulations
    • Any compliance issues are documented, and a comparison of the as corrected vs. as presented LIFO reserves are provided
  • Best LIFO practices feedback
    • LIFOPro review’s the client’s present methods and uses our knowledgebase to determine if there alternatives that the client could be using to provide a more beneficial/simplified approach could be used. Examples include:
      • Using the IPIC method for companies presently using an internal index
      • Expanding LIFO election scope to include additional inventories presently valued using a non-LIFO method
      • Using an alternative approach that would maximize tax deferral from LIFO, minimize administrative burden or eliminate/reduce IRS audit risk
    • Includes pro forma LIFO calculations for any proposed alternatives & comparisons of the proposed vs. present methods
  • Recommendations & action items
• Documentation requirements – All LIFO calculation documents for the most recent two periods closed
• LIFOPro will deliver the following within one week of receipt of the required documents:
  • Best LIFO Practices & Review Report
  • LIFOPro report package for the most recent period closed (using client’s actual historical documentation)
  • LIFOPro’s turnkey outsourcing solutions fee quote
• If desired, LIFOPro will host or attend a call to discuss report findings, recommendations & next steps

• Benefit Analysis Report Overview
  • Comprehensive case study delivered as PDF report to assist CPA firm & client with the LIFO due diligence process
  • Series of historical calculations made to forecast company-specific long-term LIFO tax benefits
  • LIFOPro’s proprietary inflation scoring system used to model company-specific expected risks vs. rewards of LIFO
  • Election year LIFO tax benefit & estimated amounts included for booking a LIFO journal entry (if applicable, journal entry using benefit analysis amounts should be made so financial reports can be issued on a LIFO basis & LIFO conformity rule compliance is met)
  • Includes LIFOPro’s findings & recommendations regarding whether a LIFO election should be made/deferred, and the most beneficial submethods to use if a LIFO election recommendation is made
  • Also includes a comprehensive Appendix containing LIFO election essentials, accounting for LIFO & FAQs
• Fee Quote Overview
  • Provided at the same time the client’s benefit analysis report is delivered
  • Includes services to be provided, deliverables timing, document requirements & detailed fee quote breakdown
  • Provides separate breakdowns for the election year vs. recurring fee amounts
  • Provides separate breakdowns for the various LIFO submethod alternatives (if applicable; i.e., internal vs. external indexes)
  • Also provides separate line items for optional services

• Onboarding: LIFOPro will deliver the following items within 3 business days of request to proceed with an engagement:
  • Engagement letter (fillable PDF form)
  • Year end calculation document request (Excel file)
    • Includes separate first year & recurring annual calculation document request lists
    • Year end document request will typically include the following items (dependent on type of business and whether year end or interim documents were provided):
      • Year end inventory report from accounting system (aka item detail, stock status or inventory valuation report)
      • Year end balance sheet or summarized trial balance schedule listing year end balances of all inventory-related subledger accounts
    • Sample templates or previously provided documents included in reference to requested items to assist firm/client in preparing the requested items
  • New Client Questionnaire – Sheet included in document request Excel file. One-time onboarding form used to confirm delivery timing, contact information & IRS forms preparation
• Engagement Performance
  • Performance of the engagement typically begins after the year end has been closed, after the required documents to complete the calculation are available & as soon as the firm or client delivers the required documents to LIFOPro
  • Some firms/clients will send preliminary or unaudited documents to LIFOPro to expedite LIFO report delivery & facilitate quick closes. When this occurs, LIFOPro will revise and deliver updated or final LIFO reports at no additional cost if changes exist between the preliminary/unaudited and final/audited information provided to us.
• Deliverables: LIFOPro guarantees to deliver the following by or before firm/client’s required report delivery date):
  • LIFO report package (PDF and/or Excel reports) – Contains all information required for financial reporting, audit/review & tax purposes (including all LIFO-related amounts required to book journal entries & prepare year end financial reports and tax returns)
  • IRS forms package – If applicable; for companies making accounting method changes or first-time LIFO elections
• Reporting/Implementation: Client can complete all remaining LIFO-related tasks upon receiving the deliverables listed above, including:
  • Client records LIFO journal entry using amounts provided in LIFO report package
  • Client prepares year end financial report using amounts provided in LIFO report package
  • Client/CPA firm prepares LIFO-related entries on tax return using amounts provided in LIFO report package (and attaches IRS forms package to tax return if accounting method changes are being made)

LIFOPro’s Responsibilities

• Preparing all aspects of the LIFO calculation & supporting documentation free of errors and in accordance with IRS Regs., including
  • Inflation calculation (including BLS category assignments for companies using the IPIC method)
  • Layer calculations
  • LIFO inventory value, LIFO reserve & LIFO reserve change calculations
• Prepare documentation (LIFOPro reports) that provide adequate books & records of the LIFO inventory value & all supporting computations
• Deliver LIFOPro report package that includes all amounts required for the client to complete the following:
  • Record this year’s LIFO journal entry which will adjust the year end inventory balance to its LIFO value
  • Prepare the year end annual financial report/statement on a LIFO basis
  • Prepare year end tax return on a LIFO basis
  • Net inventory method adjustments (if applicable; for auto dealers using net inventory method)
• Interim LIFO estimate preparation & delivery (if applicable)
• Preparing the book vs. tax LIFO Schedule M tax return entry value (if applicable)
• Preparing the §263A UNICAP cost Schedule M entry value (if applicable; using the client-provided absorption ratio)
• Preparing IRS forms & statements related to LIFO elections or accounting method changes (if applicable)
• Preparing supporting documentation related to any pro forma LIFO calculations, reviews or accounting method changes (if applicable)
• Up to 40 hours of audit support related to the services provided by LIFOPro

CPA Firm or Client Responsibilities

• Prepare & furnish the documents required by LIFOPro to complete our services
• Review LIFOPro report package and confirm all applicable amounts match the client’s books and records
• Record the annual LIFO adjusting journal entry
• Prepare the tax return on a LIFO basis
• Prepare annual financial reports/statements on a LIFO basis
• Notify LIFOPro of any LIFOPro report discrepancies discovered by the client or notify LIFOPro of adjustments made after LIFOPro report delivery that would affect the accuracy of the client’s LIFO inventory value (if applicable)
• Attach IRS forms & statements related to LIFO elections or LIFO accounting method changes to the tax return (if applicable)

LIFOPro Outsourcing Engagement Process Flow: First Year

LIFOPro Outsourcing Engagement Process Flow: Recurring Annual Calculation Services

• Complimentary Offerings
  • LIFO election benefit analysis (for clients not on LIFO)
    • Non auto dealers:
      • Current & prior period’s item detail reports
      • Completed LIFO election benefit analysis questionnaire
    • Auto dealers
      • Invoices for all vehicles on hand as of current period & as of prior year end
      • Completed auto dealer LIFO election benefit analysis questionnaire
  • Best practice & review (for clients already using LIFO): Prior two period’s LIFO calculation documentation
• Turnkey outsourcing solutions
  • Non-auto dealers: Current year end detail report
  • Auto dealers
    • Using alternative LIFO method: Invoices for all vehicles on hand as of current period & as of prior year end
    • Using IPIC method: Year end inventory balances by the following types: Cars, trucks, & parts
    • Supporting documentation of trade discounts, advertising expenses & other adjustments (if applicable; for dealers using net method)
  • All clients
    • Year end summarized trial balance or balance sheet inventory schedule showing all inventory-related general ledger accounts
    • Prior two period’s LIFO calculation documentation (if already on LIFO; first year only)
    • Completed New client onboarding questionnaire (first year only)
    • Executed engagement letter (first year only; EL includes fixed recurring service fees that are valid for three years)

Guides

• 2024 LIFO Opportunities & Strategies Guide
  
• 2024 Top LIFO Election Candidates Guide
• 2024 Top LIFO Election Candidates List & Client ID Tool
• LIFO Training & Audit Guide

Sample Reports

• Sample LIFOPro Reports – Internal Indexes
• Sample LIFOPro Reports – External Indexes (IPIC Method)
• Sample LIFOPro Reports – Auto Dealer: Alternative LIFO Method (ALM)
• Sample LIFOPro Reports – Auto Dealer: IPIC Method
• Sample LIFO Election Benefit Analysis Report
• Sample Best LIFO Practices & Methods Review Report

Sample LIFO Election Benefit Analysis Report Excerpt #1

Sample LIFO Election Benefit Analysis Report Excerpt #2

Sample LIFO Election Benefit Analysis Report Excerpt #3