Clove, Jorddyn, HELP

[Keller]

Write me an opinion on why a distributee in a transacation governed by section 731 maintains the LIFO layers of the distributor.

Basic argument: LIFO layers carry-over in section 381 transactions. Section 381 transactions are carry-over basis (as opposed to substituted basis) transactions. Section 731 distributions of inventory are de facto carry-over basis transactions because, under the section 731 regs, inventory cannot take a basis in the distributee's hands higher than it had in the hands of the distributor.

Go!

[Kuyuk]

well, duh.

[Tisket]

I totally have the answer but since you snubbed me in the title I'm not telling you!

[Clove]

Fucking partnership distributions? I'm not nearly drunk enough for this. Lemme work on that and get back you.

[Jorddyn]

Uh, I do manufacturing accounting... isn't this like asking a neurosurgeon* to do open heart surgery? Now, if you want to discuss a standard cost model for an exploded turkey, we can talk!

*I'm not saying what I do is as tough as brain surgery. It's an analogy. Shut up. I've been drinking.

[Celephais]

Fucking partnership distributions? I'm not nearly drunk enough for this. Lemme work on that and get back you.


Uh, I do manufacturing accounting... isn't this like asking a neurosurgeon* to do open heart surgery? Now, if you want to discuss a standard cost model for an exploded turkey, we can talk!

*I'm not saying what I do is as tough as brain surgery. It's an analogy. Shut up. I've been drinking.

Keller... you're so screwed.

I absolutely love how both individuals you called out are currently drinking. Cheers to them!

[Keller]

And I am back at work trying to get this fucking thing done.

Screw both of you. No one likes getting to work at 6 when they routinely get to work at 9:30.

It's soooo quiet here.

[Jorddyn]

Keller... you're so screwed.

I absolutely love how both individuals you called out are currently drinking.

It's April! And no, I don't do taxes, but it's my company's year end.


Screw both of you. No one likes getting to work at 6 when they routinely get to work at 9:30.

I was up last night writing a presentation on a complete change in how we handle our standard costing system (yes, while drinking), so I have no pity!


Cheers to them!

:cheers:

[Clove]

Okay Jorddyn, I <3 you even more for your posts' synergy with mine (re: drinking).

Jorddyn is doing manufacturing, I'm doing corporate (with like very little inventory, we sell software and blank DVD's aren't worth a whole lot).

Since I'm not a lawyer, I don't form opinions I abide by the IRS' decisions or hire someone like Keller to argue with them :D.

But seriously, give me some time to get really liquored up and I'll review the material and come up with some opinions...

[Jorddyn]

Jorddyn is doing manufacturing, I'm doing corporate (with like very little inventory, we sell software and blank DVD's aren't worth a whole lot).


You're that guy on TV, aren't you?

"I'll send you this HOW TO USE EXCEL CD for FREE!*"

*justpayshippingandhandlingpluswemayaddotherrandom chargestoyourcctotallingupto$250

[Apotheosis]

FIFO FTW

[Keller]

FIFO FTW

I'm fairly certain FIFO is going to be the only available inventory method soon enough.

Brace yourselves.

This is going to raise liquor costs significantly.

[Ignot]

I totally have the answer but since you snubbed me in the title I'm not telling you!

:rofl:

[Jorddyn]

This is going to raise liquor costs significantly.

Increased demand?

[Keller]

Increased demand?

No. Most (all) liquor distributors (including wine, beer, etc) use the LIFO method.

An example for the non-nerds:

LIFO means "last-in-first-out" and FIFO means "first-in-first-out".

LIFO Method of Accounting:
Capone Liquor and Wine Distributors LLC ("CLWD") was formed in 2007. In 2007, CLWD purchased 10 cases of Backlash's Special Tequilla for $10 a case. In the same year, CLWD sold 8 cases for $11, recognizing $8 of gain ($88-$80=$8).

In 2008, CLWD included 2 cases in opening inventory at a cost of $10. CLWD also purchased 10 more cases in 2008 for $20 a piece. CLWD sold 10 cases for $21 a piece and recognized a gain of $10 ($210-$200=$10).

In 2009, CLWD would include 2 cases in opening inventory at a cost of $10.

FIFO Method of Accounting:
Under the same facts, in 2008, CLWD would recognize $30 of gain because instead of using the purchase price for the most recent cases purchased, CLWD would use the purchase price of the oldest remaining inventory (e.g. the 2 cases purchased in 2007). So, with regard to the first two, the math would look like $42 of amount received - $20 of price price (or basis) = $22 amount recognized. With regard to the final 8, the math would look like $168 - $160 = $8. In total, $22 + $8 = $30.

In 2009, CLWD would include 2 cases in opening inventory at a cost of $20.

The Significance:
The significance of the above example is that many (most/all) distributors use the LIFO method and have opening inventory with purchase prices dating back many decades. So in the year in which LIFO is revoked, those distributors will be selling cases of liquor at current market prices but with a basis determined by the price they paid for a case of liquor decades ago.

The same is true for most firms that keep significant rolling inventory (including oil). The Treasury wants to revoke LIFO, but I can see a MASSIVE spending spree on K-street to lobby against it.

[Jorddyn]

So in the year in which LIFO is revoked, those distributors will be selling cases of liquor at current market prices but with a basis determined by the price they paid for a case of liquor decades ago.


Yea, I get the whole LIFO-FIFO conversion. Didn't the Big 3 car manufacturers all have to go through this in the 80s, causing all sorts of chaos?

But, this means they'll be showing huge gains (not losses) when selling at the same price. Are you saying they'll raise prices to compensate for the tax effect of the change? That'd make sense, I suppose.

[Keller]

Are you saying they'll raise prices to compensate for the tax effect of the change?

Yup. They'll have to, I can't imagine their margins are that big considering the number of distributors available.

[Jorddyn]

No! Anything but higher booze prices! It's already half my budget! I'll need to get another job!

As an aside, I always thought LIFO was kind of ridiculous anyway. I mean, unless you literally pile up your inventory and take from the top when you sell, it makes no sense at all. Of course, I work in food manufacturing, so that idea is a bit ewwww.

But it's a great tax scheme!

[Keller]

No! Anything but higher booze prices! It's already half my budget! I'll need to get another job!

As an aside, I always thought LIFO was kind of ridiculous anyway. I mean, unless you literally pile up your inventory and take from the top when you sell, it makes no sense at all. Of course, I work in food manufacturing, so that idea is a bit ewwww.

But it's a great tax scheme!

I think that's why they are getting rid of it.

If I were working at Treasury (and I have applied), I would suggest that, at the very least, they allow an average cost in the first year to blend historic basis into current basis. I'd prefer to see some sort of phase-in, especially given the current economy, but I'm sure Treasury has a million things on their plate right now and finding the softest landing for LIFO taxpayers is not at the top of their agenda.

[Gan]

Yea. LIFO with perishables would be very yucky.

[Clove]

No! Anything but higher booze prices! It's already half my budget! I'll need to get another job!

As an aside, I always thought LIFO was kind of ridiculous anyway. I mean, unless you literally pile up your inventory and take from the top when you sell, it makes no sense at all. Of course, I work in food manufacturing, so that idea is a bit ewwww.

But it's a great tax scheme!LIFO is ridiculous. I didn't think of the tax consequences of converting to FIFO, though it's an excellent point. Guess I'd better start stocking up on the good stuff now.

Thanks for the bedtime bookkeeping story Uncle Keller, would you tell us about MACRS depreciation next? :love:

[Keller]

Thanks for the bedtime bookkeeping story Uncle Keller, would you tell us about MACRS depreciation next? :love:

I said it was for the NON-nerds.

[Clove]

I said it was for the NON-nerds.That's why I gave you :love: so you knew I was teasing :P. But seriously, you did such a good job with LIFO/FIFO for Dummies...

[Kuyuk]

Working in kitchens, it's always FIFO, so I have a hard time understanding the LIFO logic for any other reason than messing with taxes.

So, I wouldn't be saddened to see it go, since I dont really understand its purpose.


K.