NADA Wins Tax Relief for Dealers on Parts LIFO Success is Sweet After Long Struggle

NADA Wins Tax Relief for Dealers on Parts LIFO Success is Sweet After Long Struggle

The IRS has issued a favorable ruling that authorizes new car and truck dealers to use replacement cost instead of actual invoice cost to value their year-end parts inventory under the accounting method known as LIFO (Last In First Out). The new ruling will allow dealers to remain on parts LIFO without instituting costly tracking and accounting procedures.

This is a huge victory for dealers; NADA spent eight years and hundreds of thousands of dollars to convince the IRS that this was the right thing to do, said Bill Newman, NADA’s COO of Public and Legal Affairs. The ruling reflects a straightforward, common-sense approach; it recognizes the prevailing industry practice, and it’s in keeping with arguments made by NADA, added Newman.

The ruling (Revenue Procedure 2002-17) effectively reverses the IRS position in the 1999 Mountain State Ford case that required the year-end parts inventory to be valued using actual invoice cost. The revenue procedure also provides audit protection for dealers currently using the replacement cost method. We estimate that 30 to 35 percent of the NADA membership uses the LIFO accounting method for parts, and all of them will benefit directly from this ruling, said Newman.

This is the third favorable IRS ruling over the past four months that benefits auto and truck dealers exclusively. A copy of Revenue Procedure 2002-17, and a brief summary of its major provisions, is available on www.nada.org or via NADAês fax-on-demand by calling 800-778-7209. Request document #85.