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

Chapter 9
Alternative LIFO for Auto Dealers
As you were reading the chapter regarding the LIFO Method of Inventory Valuation, it probably
occurred to you that LIFO computations are complex. To simplify the dollar-value computation
for auto dealerships, Rev. Proc. 92-79, 1992-2 C.B. 457, Alternative LIFO Method, was
published, superseded by Rev. Proc. 97-36, I.R.B. 1997-33, 14 (July 31, 1997).
In general, the Alternative LIFO Method is a comprehensive dollar-value, link-chain LIFO
method of accounting that encompasses several LIFO sub-methods and may only be used by an
automobile dealer engaged in the trade or business of retail sales of new automobiles or new lightduty
trucks to value its inventory of new automobiles and new light-duty trucks.
The Alternative LIFO Method is designed to simplify the dollar value computations of automobile
dealers. It does this by not requiring comparability adjustments from one year to the next. Under
the authority of Treas. Reg. section 1.446-1(c)(2)(ii), the Commissioner will waive strict
adherence of Treas. Reg. section 1.472-8 comparability requirement in applying the Alternative
LIFO Method provided that a taxpayer complies with the requirements stated in the revenue
procedure.
Summary of Rules
The Alternative LIFO Method is available to any automobile dealer engaged in the business of
retail sales of new automobiles or new light-duty trucks for its LIFO inventories of new
automobiles and new light-duty trucks. Light-duty trucks are trucks with a gross vehicle weight of
14,000 pounds or less, which are also referred to as class 1, 2, or 3 trucks.
Discussion of pertinent areas of this revenue procedure are summarized in the following
paragraphs.
LIFO Pools
The revenue procedure was not intended to change the pooling rules and all rules in effect prior to
Rev. Proc. 92-79 remain in effect. All new automobiles and demonstrators (regardless of
manufacturer) must be included in one LIFO pool and all new light trucks and demonstrators
(regardless of manufacturer) must be included in another separate LIFO pool. Section 4.02(1)
states that pools must be established for each "separate trade or business." There is little guidance
on just what constitutes a separate trade or business. However, certain factors such as the
location of multiple franchises, whether there is separate management, personnel and
recordkeeping functions at each location can be used to determine whether each franchise is a
separate trade or business.
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