IRS provides replacement cost safe harbor for heavy equipment dealers.

Tax Adviser, The, May, 2006 by Fox, Catherine M.; Salza, John F.

In January 2006, the IRS issued Rev. Proc. 2006-14, which provides heavy equipment dealers with a safe-harbor accounting method for using the replacement cost method for valuing heavy equipment parts inventory. The procedure also provides guidance on an automatic method change to the replacement cost method.

The guidance is the result of several years of industry analysis and controversy. In 1999, the Tax Court held in Mountain State Ford, 112 TC 58 (1999), that the use of replacement cost to value current-year inventory of heavy equipment parts was not a permissible method for a LIFO taxpayer. Subsequent to that decision, the IRS began considering circumstances specific to automobile dealers, such as industry practice, the use of replacement cost required by...

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