0001 VERSACOMP (4.2 ) – COMPOSE2 (4.37) 11/25/02 (15:17) J:\VRS\DAT\00304\PUBUP.GML --- PU_304.STY --- POST 1 THIS BOOKLET CONTAINS BOTH FILING INSTRUCTIONS AND PUBLICATION UPDATE Route to: M M M M M M M M Federal Income Taxation of Inventories Publication 304 Release 46 HIGHLIGHTS ● ● ● Volume 1 has been completely updated to reflect the most current information regarding federal income taxation of inventories including the addition of a new chapter 14A devoted specifically to retail, Inventory Price Index Computation (“IPIC"), and simplified LIFO pricing methods. Volume 2 has been updated to include the complete text of Revenue Procedures 2002-9, 2002-17, 2002-18, and 2002-19. This release includes a Special Legislative Alert Pamphlet which provides a summary and in-depth analysis of Public Law 107-47, The Job Creation and Worker Assistance Act of 2002. Author Leslie J. Schneider continues his thorough coverage of new developments in the field of federal income taxation of inventories with this Release Number 46. Topics covered include: u IPIC ELIGIBILITY RULES Under the prior IPIC regulations, the election September 2002 of IPIC was an “all or nothing" choice for each taxpayer. Thus, if a taxpayer elected to use the IPIC method for a portion of its LIFO inventories, it was required to use IPIC for all of its LIFO inventories. The new IPIC regulations issued in 2002 permit a more selective use of IPIC. Thus, under the new IPIC regulations, a taxpayer may limit its use of IPIC to all dollar-value LIFO inventories within one trade or business. However, a taxpayer may continue to use an internal price index method for dollar-value LIFO inventories contained in a separate trade or business. (See § 14A.02[2].) u ASSIGNMENT OF ITEMS TO BLS INDEX CATEGORIES The previous version of the IPIC regulations provided for a complex series of rules that a taxpayer was required to follow in assigning items of inventory to particular BLS index categories. These rules led to considerable confusion and negative comments concerning the IPIC method. In the proposed IPIC regulations issued in 2000, these rules 0002 VERSACOMP (4.2 ) – COMPOSE2 (4.37) J:\VRS\DAT\00304\PUBUP.GML --- PU_304.STY --- POST would have been totally eliminated. However, commentators indicated to the Service that certain industries found the prior item assignment rules helpful and asked that such rules be reinstated for use on an optional basis. The Service agreed and reinstated these rules as an optional method in the 2002 final IPIC regulations. These optional rules are described in the 2002 regulations as the 10 percent method. (See § 14A.04.) u COMPUTATION OF INDEXES Under the prior IPIC regulations, it was unclear whether the computation of the annual IPIC indexes should be based on double-extension or link-chain principles. However, the final regulations make it clear that taxpayers may choose either approach. Moreover, use of the link-chain method under IPIC does not require the same showing of impracticability of the double-extension method as under an internal indexing method. (See § 14A.05.) u IPIC POOLING RULES A number of election considerations should be taken into account in deciding whether a taxpayer using or adopting the IPIC method should also adopt the IPIC pooling rules. In the case of retailers, the alternative to the special IPIC pooling rules is the multiple pooling rules applicable to retailers using an internal indexing method. For the most part, considerations similar to those for retailers ought to be equally applicable to wholesalers. The pooling considerations applicable to manufacturers are generally more complex. (See § 14A.06.) Matthew Bender provides continuing customer support for all its products: ● Editorial assistance—please consult the ‘‘Questions About This Publication’’ directory printed on the copyright page; ● Customer Service—missing pages, shipments, billing or other customer service matters (1800-833-9844). ● Outside the United States and Canada, (518) 487-3000, or fax (518) 487-3584; ● Toll-free ordering (1-800-223-1940). www.lexis.com Copyright © 2002 Matthew Bender & Company, Inc., a member of the LexisNexis Group. Publication 304, Release 46, September 2002 LexisNexis, the knowledge burst logo, and Michie are trademarks of Reed Elsevier Properties Inc, used under licence. Matthew Bender is a registered trademark of Matthew Bender Properties Inc. 11/25/02 (15:17) 24
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