DeFilipps Proposal for Section 473 Relief

Willard De Filipps, CPA, PC has ran his specialized accounting and consulting firm since 1978. He’s a renowned expert in automobile dealership tax issues, LIFO inventory valuation method issues & representation before the IRS in diverse tax examination issues. While he offers a resource center for CPA’s through DeFilipps University, he’s been an invaluable resource for LIFOPro when it comes to automobile LIFO. Due to inventory changes for auto dealers in 2020, many of them saw a significant increase in taxable income. Mr. De Filipps has proposed Section 473 relief for those businesses in this position and we’d like to highlight the recommendations he recently submitted to the IRS & Department of the Treasury. Citing Proclamation 9994 (declaring that the Coronavirus disease outbreak in the United States constituted a National Emergency), Willard notes the devastating impact taxpayers using LIFO have seen since February 2020. Highlights from the top five recommendations he proposed are:

1.  Amend Section 473. By adding a new subsection to the Qualified Liquidation of LIFO Inventories section, this would free taxpayers of the burden of having to prove themselves entitled to relief. This would considerably lessen otherwise monumental administrative oversight burdens for the Treasury and the Internal Revenue Service.
2.  Allowing taxpayers to elect an alternative dollar-value LIFO method. Using the substitute inventory level, the historical cost level will continue to be reflected in each year in the succeeding 3-year recovery period.
3. Deferring adjustment of the LIFO reserve for the pre-liquidation year until the end of the suspension period. Treating the 4-year period, which includes the liquidation year and the three years thereafter, as a 4-year “suspension period.” At the end of each of these years, taxpayers would compute their year-end inventory LIFO valuations based on the historical average amount as a substitute for the actual cost amount in their 2020 LIFO valuation calculation.
4. Require taxpayers who elect relief to include evidence in their tax returns of their compliance with the requirements of Section 472 to use the LIFO method as well as the overall reasonableness of their LIFO computations as of 2019 year end.
5. If taxpayers have included Forms 3115 to terminate their LIFO election as part of their tax returns filed prior to relief becoming available, they should be allowed to revoke their elections to terminate LIFO so that they can take advantage of relief should it become available.

With over 50 years experience in working with clients using all types of LIFO methodologies, we believe the recommendations Mr. DeFilipps proposes for relief to LIFO taxpayers to be knowledge based and inevitably affective. They do apply to all taxpayers using dollar-value methods, regardless of whether they are sub-elections for double-extension, link-chain or IPIC (Inventory Price Index Computation) procedures. His goal is to provide substantial relief to LIFO taxpayers who are facing significant recaptures due to the instability 2020 brought upon them, especially focusing on auto dealers. You can find the link to his entire letter requesting relief below and we’d love to get feedback and suggestions on his proposal from you by way of lifopro@lifopro.com. We’ll update our blog if a resolution for relief is agreed to or if Mr. DeFilipps proposes any additional relief.