OSCPA seeks guidance on how to account for inventories

OSCPA staff report

The IRS needs to help practitioners understand how tax reform impacts taxpayers with inventory under IRC §471 who fall under the $25 million average receipts limitation.

That was the message of a letter the Ohio Society of CPAs sent this week to Treasury Secretary Steven Mnuchin.

OSCPA Tax Policy Director Greg Saul, Esq., CAE, said members of the Society's Federal Tax Committee have raised concerns that they need more guidance than was provided in Revenue Procedure 2018-40.

“For example, if a taxpayer who elects to treat inventory under IRC §471 as non-incidental materials and supplies and moves from accrual to cash accounting, how does the taxpayer account for these items under the cash method?” Saul wrote.

He said the taxpayer could opt to:

1. Deduct them for tax (but not book) as they move from raw materials to work-in-progress and finished goods (WIP/FG) as of year-end? Or
2. Deduct these items using de minimis safe harbor for amounts that fit within the parameters of that guidance? Or
3. Simply expense everything, including direct/indirect costs as they are being paid?

The letter – which you can read in its entirety here – is the second major OSCPA communication to Washington this month, as on Feb. 1 the Society asked Congress for taxpayer relief in wake of reform. Contact Saul at 614.764.2727 or via email if you have questions or comments.