Inventory & TCJA $25mm

[Lee Welter]

Final regulations on the availability of cash method and inventory requirements is still confusing me.

Taxpayers under $26 million are not required to keep inventory (exception to 471(a)) and are not subject to 263A capitalization. It seems that a reseller can expense inventory as NIMS (non-material incidental expenses) rather than capitalized when purchased and expensed when sold. In this case, it is an antiques reseller.

Any clarity on this issue?

[TaxGuyBill]

It seems that a reseller can expense inventory as NIMS (non-material incidental expenses)

Yes ... but Non-Incidental Materials are not deducted until sold. So the treatment is pretty much the same as inventory. No deduction until it is sold.


But then comes the wonderful De Minimis Election. If that is made, then ALL Materials and Supplies (including the non-incidental ones) are deducted. So if the De Minimis Election is made and cost of the items fall under that election, then the items can be deducted in the year purchased.

[ttbtaxes]

This inventory issue is very confusing. Didn't Prop. Reg.1.471-1(b)(4)(i), issued in mid-2020, throw a money wrench into things and preclude the use of the de minimis election with non-incidental supplies? Why this has to be this complicated is beyond me.

https://www.journalofaccountancy.com...taxpayers.html

(4) Inventory treated as non-incidental materials and supplies -

(i) In general. Inventory treated as non-incidental materials and supplies (section 471(c) materials and supplies) is recovered through costs of goods sold only in the taxable year in which such inventory is actually used or consumed in the taxpayer's business, or in the taxable year in which the taxpayer pays for or incurs the costs of the items, whichever is later. Sec. 471 materials and supplies are used or consumed in the taxable year in which the taxpayer provides the items to its customer. Inventory treated as non-incidental materials and supplies under this paragraph (b)(4) is not eligible for the de minimis safe harbor election under Sec. 1.263(a)-1(f)(2).

[Lee Welter]

The final regs (as explained in TTB Update) exempt Small Business under $26mm from UNICAP rules and §471 requirement to maintain inventories. Small business is allowed to use cash method, thus releasing them from accruals. In the tax double speak, I am still not sure if I can write off their inventory and expenses all new purchases of re-sale items.

[TaxGuyBill]

This inventory issue is very confusing. Didn't Prop. Reg.1.471-1(b)(4)(i), issued in mid-2020, throw a money wrench into things and preclude the use of the de minimis election with non-incidental supplies? Why this has to be this complicated is beyond me.

https://www.journalofaccountancy.com...taxpayers.html

(4) Inventory treated as non-incidental materials and supplies -

(i) In general. Inventory treated as non-incidental materials and supplies (section 471(c) materials and supplies) is recovered through costs of goods sold only in the taxable year in which such inventory is actually used or consumed in the taxpayer's business, or in the taxable year in which the taxpayer pays for or incurs the costs of the items, whichever is later. Sec. 471 materials and supplies are used or consumed in the taxable year in which the taxpayer provides the items to its customer. Inventory treated as non-incidental materials and supplies under this paragraph (b)(4) is not eligible for the de minimis safe harbor election under Sec. 1.263(a)-1(f)(2).

Oh, interesting. I missed that one. And it looks like that might not be a "proposed" Reg anymore, it looks like it might be "Final" (maybe as of as few weeks ago).

Thanks ttbtaxes for pointing that out!


In that case, the first paragraph in my original answer should be correct, but the second paragraph is wrong.

But what is the point of treating it as Incidental Supplies rather than Inventory? Both treatments result in that you can't deduct it until sold.