Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

method involves repricing all of the items on hand at the end of the year at the most recent price
paid for the item.
LEMON LAWS: The term given to state regulations which control durable good sales in order
to protect the consumer.
LIFO: An inventory cost flow assumption, where regardless of the actual physical flow of
goods, the most recent inventory costs of the period are treated as having been sold first and the
earliest inventory costs are those remaining in ending inventory.
LIFO INDEX: A measure of inflation that has occurred for the taxable year.
LIFO RESERVE: A tax deferral resulting from the difference between the LIFO and non-LIFO
values of an inventory.
LINK CHAIN METHOD: An alternative LIFO pricing method where all of the items in a pool
are priced at their current-year cost, restated in terms of the prior year’s cost, and indexed back to
the base year through the use of a cumulative price index.
LIQUIDATION: A liquidation of a LIFO pool occurs when the pool has a decrement.
LOWER OF COST OR MARKET (LCM): Method of valuing inventory.
MANUFACTURER’S STATEMENT: A financial report issued to the manufacturer on a
monthly basis, reflecting all business activities. In some instances, a 13th month report will be
prepared, in order to take into consideration all closing entries for the year. These statements are
standardized per the factory manual and should be reconciled to tax returns.
MOST RECENT PURCHASES: This is one of the three methods specifically mentioned under
dollar-value LIFO to determine the current-year cost of the ending quantity of inventory. This
method involves repricing all of the items on hand at the end of the year at the most recent price
paid for the item.
NADA: The National Automobile Dealers Association. Is an organization whose purpose is to
serve as a network catalyst of information which is disseminated to member dealers and as an
advocate in Washington for dealership interests.
NEW ITEM CATEGORY: A new item category as defined for Alternative LIFO, is an item
category not considered in existence in the prior taxable year, is one of the following (i) any new
or reassigned manufacturer’s model code, as described in IRM section 4.02(3), that is caused by a
change in an existing vehicle or (ii) a manufacturers model code, as described in IRM
section 4.02(3), created or reassigned because the classified vehicle did not previously exist.
Additionally, if there is no change in a manufacturer’s model code, but there has been a change to
the platform that results in a change in track width or wheel base, whether or not the same model
name was previously used by the manufacturer’s, a new item category is created. New items are
found in all LIFO computations, not just in Alternative LIFO.
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