I hate to post about unfinished legislation because it may not happen. So please bear this in mind.
However, I am hearing about some tax increases beyond 2010 that I'm being told are "imminent" in some shape, form, or fashion. Tax planning is almost impossible with this kind of thing going on.
One of the "imminent" changes is to repeal the LIFO method of inventory valuation. Those of you involved in manufacturing or merchandising already know what this means in bottom-line tax dollars.
Does anyone know about the huge LIFO reserves already on the books? In other words, if they repeal LIFO does this mean valuation only going forward, or does it also mean repayment of taxes by virtue of absorbing historical reserves?
Most of the CPAs know that if LIFO is elected for tax purposes, it must also be valued for financial statement purposes under GAAP. (The "LIFO conformity rule"). Since it is recognized for GAAP purposes as well, there should not be a deferred income tax liability resulting from LIFO.
My question should perhaps be restated with an example:
Mushmaker Patio Products has a Cost of Goods Sold of $500,000 for 2011 with its inventory valued conventionally, but under LIFO the COGS becomes $520,000. Repeal of LIFO thus means Mushmaker has an extra $20,000 in taxable income.
However, in addition to the effect on the current year, Mushmaker has a LIFO reserve of $320,000, which the accumulated effect of several years' LIFO adjustments. Does the repeal of LIFO mean;
a) only the current year of $20K is affected, and the $320,000 can remain undisturbed.
b) the total effect in 2011 is $340,000 because the repeal means recapturing the reserve in addition to the current year effect.
c) the current year of $20K is affected, and part of the $320,000 has to be recaptured over a number of years.
Remember, this is not yet law so you won't find it in TTB, or in Code/Regs, etc. But you might find it in pending legislation.
However, I am hearing about some tax increases beyond 2010 that I'm being told are "imminent" in some shape, form, or fashion. Tax planning is almost impossible with this kind of thing going on.
One of the "imminent" changes is to repeal the LIFO method of inventory valuation. Those of you involved in manufacturing or merchandising already know what this means in bottom-line tax dollars.
Does anyone know about the huge LIFO reserves already on the books? In other words, if they repeal LIFO does this mean valuation only going forward, or does it also mean repayment of taxes by virtue of absorbing historical reserves?
Most of the CPAs know that if LIFO is elected for tax purposes, it must also be valued for financial statement purposes under GAAP. (The "LIFO conformity rule"). Since it is recognized for GAAP purposes as well, there should not be a deferred income tax liability resulting from LIFO.
My question should perhaps be restated with an example:
Mushmaker Patio Products has a Cost of Goods Sold of $500,000 for 2011 with its inventory valued conventionally, but under LIFO the COGS becomes $520,000. Repeal of LIFO thus means Mushmaker has an extra $20,000 in taxable income.
However, in addition to the effect on the current year, Mushmaker has a LIFO reserve of $320,000, which the accumulated effect of several years' LIFO adjustments. Does the repeal of LIFO mean;
a) only the current year of $20K is affected, and the $320,000 can remain undisturbed.
b) the total effect in 2011 is $340,000 because the repeal means recapturing the reserve in addition to the current year effect.
c) the current year of $20K is affected, and part of the $320,000 has to be recaptured over a number of years.
Remember, this is not yet law so you won't find it in TTB, or in Code/Regs, etc. But you might find it in pending legislation.