The American Institute of CPAs (AICPA) is seeking relief for taxpayers that would permit them to mitigate substantial and unexpected increases to taxable income stemming from the COVID-19 pandemic.
Specifically, the relief would be from unexpected increases due to involuntary liquidations of last-in, first-out (LIFO) inventories caused by government actions necessitated by the pandemic.
AICPA officials point out that foreign trade interruptions due to the COVID-19 pandemic have prevented many companies and individual sellers from replacing their inventory. These interruptions meet the definition of a “qualified inventory interruption” under section 473(c)(2) of the Internal Revenue Code. These disruptions have created challenges for taxpayers who use the LIFO accounting method to maintain their operational inventory. Without this relief, many taxpayers will see significant tax liabilities for the 2020 taxable year.
Section 473 was enacted to provide relief to taxpayers in similar situations. The AICPA requests that the Department of the Treasury and the Internal Revenue Service (IRS) apply this relief measure due to foreign trade interruptions and grant section 473 relief to taxpayers that experienced a qualified liquidation of LIFO inventory.
AICPA officials said the proposed notice should state that a taxpayer may elect relief under section 473 if the taxpayer experienced a qualified liquidation for a liquidation year. The election is made by attaching an election statement to its timely filed (including any extension) original federal income tax return for the first taxable year following the liquidation year. The election statement must include representations that the taxpayer is making an irrevocable election under section 473; has experienced a liquidation in its LIFO inventory during the liquidation year; and was attributable to the qualified inventory interruption. A qualified liquidation year includes taxable years ended March 31, 2020, through taxable years ending June 30, 2021. The applicable replacement period is the three taxable years following the liquidation year.