Advantages of using the IPIC LIFO Method include:
Higher inflation indexes possible – Some companies have found CPI or PPI inflation rates to be consistently higher than their internal index inflation. For most large supermarket chains the advantage of using CPI vs. internal indexes has been substantial. An annual positive differential of 1% between CPI or PPI inflation and a company’s internal index inflation would reduce taxable income by $1 million annually for a company with $100 million in total inventory at FIFO cost at the beginning of a year.
Fewer pools possible – Supermarket chains not using IPIC LIFO are required to maintain as many as 12 pools. Supermarket chains using IPIC LIFO use between 3 and 6 pools because IPIC LIFO allows pooling based on the 8 different CPI Major Groups or 15 different 2-digit PPI codes and this is the number of pools typically required using this method. Having fewer pools will produce additional LIFO benefits because layer erosions are fewer since decreases in formerly separate pools will be offset by increases in others when pools are combined.
Index calculation simpler than internal index – Use of a published index precludes the need to calculate an internal index unless companies switch for tax LIFO only. Internal index calculations are usually a major undertaking and can be avoided if companies switch for book LIFO also. The IPIC LIFO weighted average index calculations can also be complicated if made manually but this problem is solved with automated LIFO software.
Treatment of “new items” in inventory – New items are inventory items that were purchased for the first time during the year and are on hand for the current year end. New items present a problem for internal index calculation because the inventory accounting system has no record of a prior year end unit price for the new item. The two methods for dealing with new items allowed by the IRS in calculating LIFO internal indexes are either potentially very time consuming or tend to understate the actual inflation. These problems go away completely using the IPIC method.
Simple way for manufacturers to use LIFO for labor and overhead inventories – It is fairly common for manufacturers to exclude labor and overhead inventories from the LIFO election scope because the IRS does not allow separate LIFO pools for these costs (this is called the components-of-cost method). This means that for labor and overhead inventories to be included in the LIFO election scope for LIFO internal index calculations, those costs must be added to the unit cost of each item. Unless a manufacturer uses standard cost accounting, inclusion of these labor and overhead costs for each item is not practical. This problem goes away using the IPIC method because W-I-P and finished goods inventory items, (raw materials, labor and overhead) are assigned to the appropriate PPI commodity code applicable to the ultimate finished good.
IRS audit exposure reduced for past years – Companies switching to the IPIC method are provided a “Safe Harbor” by the IRS with respect to methods used in years prior to the change. IRS audit exposure may be eliminated in these areas:
Easy means of switching from the double-extension method – The IRS has been reluctant to permit changes from this submethod to the link-chain method, especially for companies whose annual turnover of inventory items is not rapid. Taxpayers can make this change without IRS consent when electing the IPIC method and electing the link-chain submethod as an automatic approval change.
IPIC LIFO need not be also used for financial reporting – Companies may adopt IPIC for tax purposes while continuing to use internal indexes for book LIFO. Higher tax LIFO expense may result without increasing the amount of the book LIFO expense if the internal indexes used for financial reporting are less than the IPIC tax indexes.
Historical annual inflation rate averages through October ’24 for all 2 and 3-digit PPI commodity groupings are listed below (capitalized category description denotes a Major BLS PPI Commodity Group i.e. IPIC pool):
| PPI Code | BLS PPI Category Description | 1M 10/24 | YTD 10/24 | 1YR 10/24 | 3YR 10/24 | 5Y 10/24 | 10YR 10/24 | 20Y 10/24 |
|---|---|---|---|---|---|---|---|---|
| 01 | FARM PRODUCTS | 0.1% | 1.4% | 2.8% | 3.7% | 6.5% | 1.2% | 3.1% |
| 011 | Fruits & melons, fresh/dry vegs. & nuts | -0.5% | -1.2% | 8.4% | 2.0% | 2.0% | 2.2% | 1.9% |
| 012 | Grains | -1.3% | -17.7% | -17.6% | -10.4% | 0.4% | 0.8% | 3.4% |
| 013 | Slaughter livestock | 0.5% | 15.7% | 6.5% | 13.1% | 11.5% | 1.3% | 3.8% |
| 014 | Slaughter poultry | 1.6% | 1.3% | 13.2% | 6.1% | 10.7% | 1.7% | 3.8% |
| 015 | Raw cotton | 3.2% | -15.8% | -18.2% | -13.8% | 1.7% | -0.6% | 2.0% |
| 016 | Raw milk | 14.4% | 26.0% | 26.4% | 17.0% | 8.9% | 1.0% | 3.0% |
| 017 | Chicken eggs | -20.6% | 46.9% | 99.6% | 34.8% | 29.2% | 6.9% | 8.1% |
| 018 | Hay, hayseeds and oilseeds | -3.6% | -22.9% | -21.2% | -7.4% | 1.1% | -0.1% | 3.1% |
| 02 | PROCESSED FOODS AND FEEDS | -0.5% | 3.4% | 1.8% | 4.0% | 4.9% | 2.0% | 2.9% |
| 021 | Cereal and bakery products | 0.4% | -0.4% | -0.8% | 5.6% | 5.0% | 2.8% | 3.2% |
| 022 | Meats, poultry, and fish | -2.0% | 7.1% | 2.7% | 0.5% | 5.2% | 1.0% | 2.7% |
| 023 | Dairy products | -0.4% | 7.7% | 5.7% | 5.2% | 3.6% | 0.6% | 2.3% |
| 024 | Processed fruits and vegetables | 0.6% | 1.7% | 2.0% | 10.2% | 7.3% | 4.3% | 3.9% |
| 025 | Sugar and confectionery | 0.5% | 10.3% | 11.3% | 8.6% | 5.6% | 3.2% | 3.4% |
| 026 | Beverages and beverage materials | 0.8% | 3.8% | 2.6% | 6.1% | 4.5% | 2.9% | 2.6% |
| 027 | Fats and oils | 0.5% | -7.9% | -9.5% | -4.4% | 6.4% | 2.2% | 2.9% |
| 028 | Miscellaneous processed foods | -1.1% | 1.7% | 2.0% | 6.4% | 5.1% | 2.8% | 2.8% |
| 029 | Prepared animal feeds | 0.1% | -4.3% | -5.7% | 1.3% | 4.2% | 1.3% | 3.7% |
| 03 | TEXTILE PRODUCTS AND APPAREL | 0.5% | 1.2% | 0.4% | 3.2% | 4.3% | 2.5% | 2.2% |
| 031 | Synthetic fibers | 3.6% | 4.6% | -0.1% | 2.6% | 4.8% | 3.0% | 2.2% |
| 032 | Processed yarns and threads | -0.2% | 0.7% | -0.2% | 1.3% | 4.8% | 2.3% | 2.4% |
| 033 | Greige fabrics | -0.2% | -0.7% | -1.3% | 3.4% | 3.9% | 1.8% | 2.0% |
| 034 | Finished fabrics | 0.3% | 0.6% | 0.9% | 3.4% | 4.7% | 2.8% | 2.6% |
| 038 | Apparel & other fabricated textile prods | 0.2% | 1.9% | 1.7% | 3.9% | 3.3% | 2.2% | 1.9% |
| 039 | Miscellaneous textile products/services | -3.5% | -7.0% | -5.3% | 4.9% | 6.9% | 2.4% | 2.0% |
| 04 | HIDES, SKINS, LEATHER, AND RELATED PRODUCTS | 0.5% | -1.0% | -0.7% | -0.6% | 1.6% | -2.7% | 0.3% |
| 041 | Hides and skins, incl. cattle | 1.3% | -11.8% | -11.6% | -14.5% | -5.6% | -12.2% | -3.8% |
| 042 | Leather | 1.1% | -0.8% | -0.5% | -2.6% | 2.2% | -4.3% | -0.5% |
| 043 | Footwear | 0.2% | 1.9% | 2.0% | 5.8% | 4.0% | 2.9% | 2.8% |
| 044 | Other leather and related products | 0.1% | 1.7% | 1.9% | 3.9% | 3.1% | 2.4% | 2.1% |
| 05 | FUELS AND RELATED PRODUCTS AND POWER | 1.0% | -0.5% | -10.5% | -1.8% | 5.4% | 0.8% | 2.4% |
| 051 | Coal | -2.7% | 1.6% | -2.4% | 13.0% | 7.4% | 3.9% | 4.9% |
| 053 | Gas fuels | 10.2% | -14.0% | -16.1% | -25.7% | 3.9% | -5.8% | -3.6% |
| 055 | Utility natural gas | 0.2% | -5.2% | -0.6% | -1.4% | 7.4% | 2.7% | 1.7% |
| 056 | Crude petroleum (domestic production) | 10.8% | 5.5% | -17.7% | -4.0% | 6.6% | -1.3% | 1.8% |
| 057 | Petroleum products, refined | 3.1% | -1.6% | -17.5% | -3.3% | 5.1% | -0.4% | 2.9% |
| 058 | Asphalt and other petroleum and coal products, n.e.c. | -2.3% | -9.6% | -28.2% | -3.6% | 1.7% | -0.7% | 6.2% |
| 06 | CHEMICALS AND ALLIED PRODUCTS | 0.8% | 2.2% | 0.5% | 0.3% | 4.1% | 2.1% | 3.4% |
| 061 | Industrial chemicals | 1.3% | 2.7% | -2.4% | -2.5% | 4.5% | 0.6% | 2.9% |
| 062 | Paints and allied products | -0.1% | 0.5% | -0.2% | 6.5% | 6.4% | 3.8% | 4.1% |
| 063 | Drugs and pharmaceuticals | 0.2% | 2.3% | 2.4% | 2.8% | 2.4% | 3.7% | 4.4% |
| 064 | Fats and oils, inedible | -0.2% | 10.4% | 0.9% | -2.3% | 12.0% | 4.2% | 4.9% |
| 065 | Agricultural chemicals and chemical products | 0.2% | -0.2% | 2.5% | -0.8% | 6.0% | 1.8% | 3.4% |
| 066 | Plastic resins and materials | 3.5% | 3.7% | 3.0% | -6.0% | 3.8% | 0.3% | 2.3% |
| 067 | Other chemicals and allied products | -0.3% | 0.9% | 0.9% | 5.5% | 4.6% | 2.9% | 3.0% |
| 07 | RUBBER AND PLASTIC PRODUCTS | 0.1% | 1.3% | 1.4% | 3.4% | 5.4% | 2.9% | 3.2% |
| 071 | Rubber and rubber products | 0.3% | 2.4% | 2.2% | 4.5% | 4.7% | 2.4% | 3.0% |
| 072 | Plastic products | 0.1% | 1.0% | 1.2% | 3.1% | 5.7% | 3.1% | 3.2% |
| 08 | LUMBER AND WOOD PRODUCTS | 0.7% | 1.1% | 0.3% | 0.2% | 4.8% | 2.8% | 2.1% |
| 081 | Lumber | 1.1% | 7.3% | 3.9% | -3.9% | 4.3% | 1.9% | 1.1% |
| 082 | Millwork | 0.4% | 1.5% | 1.1% | 2.8% | 6.2% | 4.3% | 3.0% |
| 083 | Plywood | 1.0% | -4.2% | -5.1% | 1.5% | 6.8% | 2.5% | 1.8% |
| 084 | Other wood products | 0.8% | -3.3% | -1.7% | -1.1% | 3.4% | 2.6% | 2.2% |
| 085 | Logs, bolts, timber, pulpwood, woodchips and other roundwood products | -0.1% | -1.4% | -3.3% | -0.5% | 1.8% | 0.6% | 1.4% |
| 086 | Prefabricated wood buildings & components | 2.4% | 1.7% | 1.3% | 4.2% | 7.4% | 5.1% | 3.3% |
| 087 | Treated wood and contract wood preserving | 0.4% | -1.1% | -0.9% | 5.9% | 5.6% | 3.0% | 2.6% |
| 09 | PULP,PAPER, AND ALLIED PRODUCTS | 0.1% | 3.4% | 2.2% | 4.1% | 5.8% | 3.1% | 2.7% |
| 091 | Pulp, paper, and prod., ex. bldg. paper | -0.2% | 4.3% | 3.2% | 3.2% | 5.6% | 2.9% | 2.9% |
| 092 | Building paper & building board mill prods. | 0.3% | -10.1% | -22.1% | -7.3% | 7.6% | 4.4% | 2.4% |
| 094 | Publications, printed matter & printing material | 0.6% | 2.5% | 2.8% | 7.9% | 6.1% | 3.6% | |
| 10 | METALS AND METAL PRODUCTS | 0.7% | -0.7% | 1.3% | -1.7% | 7.4% | 3.7% | 3.4% |
| 101 | Iron and steel | 0.4% | -10.3% | -6.8% | -11.0% | 7.6% | 2.5% | 2.5% |
| 102 | Nonferrous metals | 2.7% | 9.3% | 11.4% | 2.0% | 7.8% | 3.9% | 4.4% |
| 103 | Metal containers | -0.4% | 0.6% | -0.1% | 5.7% | 6.7% | 4.0% | 3.3% |
| 104 | Hardware | 0.5% | 0.2% | 0.0% | 3.7% | 5.0% | 3.2% | 2.8% |
| 105 | Plumbing fixtures and fittings | 0.0% | 1.6% | 1.6% | 4.4% | 3.7% | 3.0% | 3.0% |
| 106 | Heating equipment | 0.1% | 2.3% | 2.5% | 6.9% | 7.3% | 5.0% | 4.3% |
| 107 | Fabricated structural metal products | -0.5% | -2.0% | -0.4% | 3.2% | 8.8% | 5.3% | 3.8% |
| 108 | Miscellaneous metal products | -0.1% | 2.5% | 2.8% | 4.9% | 5.3% | 3.2% | 2.6% |
| 11 | MACHINERY AND EQUIPMENT | 0.1% | 2.6% | 2.8% | 5.6% | 4.6% | 2.8% | 1.9% |
| 111 | Agricultural machinery and equipment | 0.5% | 0.7% | 0.3% | 6.1% | 6.2% | 3.8% | 3.3% |
| 112 | Construction machinery and equipment | 0.1% | 0.9% | 2.6% | 6.7% | 5.6% | 3.6% | 3.2% |
| 113 | Metalworking machinery and equipment | 0.6% | 3.4% | 3.8% | 6.2% | 4.9% | 3.1% | 2.5% |
| 114 | General purpose machinery and equipment | 0.0% | 3.2% | 3.0% | 7.7% | 6.7% | 4.4% | 3.8% |
| 115 | Electronic computers and computer equipment | -0.1% | 2.3% | 3.2% | 56.6% | 30.9% | 12.7% | 2.9% |
| 116 | Special industry machinery and equipment | 0.1% | 2.8% | 2.9% | 6.3% | 6.1% | 3.7% | 2.6% |
| 117 | Electrical machinery and equipment | 0.2% | 2.4% | 2.6% | 4.0% | 3.4% | 1.9% | 1.0% |
| 118 | Miscellaneous instruments | 0.1% | 3.4% | 3.7% | 6.3% | 4.5% | 3.1% | 2.4% |
| 119 | Miscellaneous machinery | -0.1% | 2.6% | 2.8% | 4.8% | 3.6% | 2.2% | 2.3% |
| 12 | FURNITURE AND HOUSEHOLD DURABLES | 0.4% | 1.5% | 1.6% | 4.0% | 4.6% | 3.1% | 2.5% |
| 121 | Household furniture | -0.2% | 1.4% | 2.0% | 3.2% | 4.4% | 3.1% | 2.7% |
| 122 | Commercial furniture | 0.0% | 2.9% | 3.2% | 6.0% | 6.3% | 4.2% | 3.3% |
| 123 | Floor coverings | 3.4% | 3.5% | 1.0% | 1.4% | 2.0% | 1.7% | 2.3% |
| 124 | Household appliances | 0.4% | -1.0% | -0.5% | 3.5% | 3.9% | 2.5% | 2.0% |
| 125 | Home electronic equipment | 0.0% | 1.5% | 1.6% | 3.8% | 3.8% | 2.1% | 0.0% |
| 126 | Other household durable goods | 0.0% | 1.1% | 1.3% | 3.7% | 4.4% | 2.8% | 2.2% |
| 13 | NONMETALIC MINERAL PRODUCTS | 0.0% | 3.8% | 3.7% | 7.6% | 6.3% | 4.4% | 4.0% |
| 131 | Glass | -0.5% | 1.4% | 2.2% | 4.3% | 4.5% | 3.6% | 2.3% |
| 132 | Concrete ingredients and related products | -0.1% | 6.7% | 6.6% | 9.0% | 7.0% | 5.5% | 4.7% |
| 133 | Concrete products | -0.3% | 3.4% | 2.9% | 9.1% | 7.2% | 5.3% | 4.3% |
| 134 | Clay construction products ex. refractories | -0.1% | 0.5% | 0.9% | 4.7% | 4.3% | 2.7% | 2.0% |
| 135 | Refractories | 0.5% | 1.7% | 2.0% | 5.5% | 4.4% | 3.6% | 3.9% |
| 136 | Asphalt felts and coatings | 2.2% | 2.4% | 2.4% | 6.8% | 7.5% | 3.8% | 5.5% |
| 137 | Gypsum products | 0.0% | 5.0% | 4.7% | 6.3% | 8.4% | 5.0% | 4.1% |
| 138 | Glass containers | 0.1% | 7.5% | 6.6% | 9.5% | 7.1% | 4.3% | 3.6% |
| 139 | Other nonmetallic minerals | 0.1% | 3.3% | 3.4% | 6.9% | 5.2% | 2.9% | 3.9% |
| 14 | TRANSPORTATION EQUIPMENT | 0.3% | 1.5% | 1.6% | 2.9% | 2.5% | 1.7% | 1.6% |
| 141 | Motor vehicles and equipment | 0.5% | 0.9% | 0.9% | 2.5% | 2.4% | 1.6% | 1.2% |
| 142 | Aircraft and aircraft equipment | 0.0% | 3.3% | 3.6% | 3.9% | 2.8% | 2.0% | 2.3% |
| 143 | Ships and boats | -0.2% | 1.5% | 1.7% | 3.6% | 3.2% | 2.4% | 2.5% |
| 144 | Railroad equipment | -0.8% | 0.2% | 0.2% | 1.4% | 1.2% | 0.9% | 2.0% |
| 149 | Transportation equipment, n.e.c. | 0.0% | -1.5% | -1.9% | 2.9% | 3.2% | 2.5% | 1.8% |
| 15 | MISCELLANEOUS PRODUCTS | 0.0% | 4.7% | 5.2% | 6.4% | 5.6% | 4.1% | 3.4% |
| 151 | Toys, sporting goods, small arms, etc. | 0.1% | 3.1% | 4.4% | 6.8% | 6.0% | 3.6% | 2.6% |
| 152 | Tobacco products, incl. stemmed & redried | 0.4% | 9.6% | 9.5% | 10.6% | 9.4% | 7.5% | 6.1% |
| 153 | Notions | 0.0% | -0.1% | 1.7% | 5.1% | 5.0% | 3.1% | 3.6% |
| 154 | Photographic equipment and supplies | -5.9% | -0.9% | -0.2% | 4.4% | 4.1% | 2.9% | 2.6% |
| 155 | Mobile homes | 0.1% | 1.5% | -0.6% | 2.9% | 8.3% | 6.2% | 4.7% |
| 156 | Medical, surgical & personal aid devices | -0.1% | 1.7% | 2.2% | 2.9% | 2.2% | 1.6% | 1.3% |
| 157 | Other industrial safety equipment | 0.2% | 3.6% | 3.8% | 6.5% | 5.6% | 3.2% | 2.4% |
| 159 | Other miscellaneous products | 0.5% | 5.0% | 5.9% | 7.3% | 6.3% | 4.3% | 3.1% |
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