|Many franchised new-car and -truck dealerships using the last-in, first-out (LIFO) accounting method are experiencing a severe decrease in new-vehicle inventory that could cause them to incur significant tax liability as a result of “LIFO Recapture.” NADA has sent a letter to the Treasury Department requesting that it exercise its authority under the Internal Revenue Code to allow such dealers to elect to replace their new-vehicle inventories over a three-year period. Treasury may exercise this authority when a “major foreign trade disruption” has occurred that makes the replacement of inventory during the tax year difficult or impossible and other conditions are met.
The letter explains that a series of government actions to contain the spread of the coronavirus caused a major foreign trade disruption to occur.
While NADA will advocate in earnest for this extraordinary form of relief, dealers should not assume that Treasury will grant it. In order to help dealers identify potential approaches to managing the tax consequences of LIFO recapture, accounting firm Crowe presented a webinar on the topic which you can view a copy of if you are a NADA member.
- Government Affairs