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A Case Study: Change To The IPIC Method is Safe And Simple

FORT WORTH, TX -- Montana Electric Supply, in Billings, Montana, utilized a complicated Dollar Value, Double Extension LIFO method. That is, until it became increasingly difficult to account for technological change in their inventory...

Montana Electric, like many businesses, was concerned about their current LIFO method and wanted to change to an easier, safer method. The IRS made it possible for taxpayers to automatically change to a safer method.

The IRS has provided automatic approval for most taxpayers wishing to change their LIFO inventory methodology to use the Inventory Price Index Computation (IPIC) method. It also grants a sort of "amnesty" for prior questionable LIFO methods disclosed in the application.

"This was good news for taxpayers," said Stanton Williams, president of SourceCorp Professional Services, of Fort Worth, Texas. "If you have doubts about the way your LIFO computations are done, you owe it to yourself to investigate the IPIC Method, because a change to the method will, in many cases, protect your prior valuation method from audit."

"A taxpayer properly using this procedure makes the change without any income adjustment and is given a type of amnesty for future IRS examinations concerning the issues covered by the change," said Williams. "Changing to the IPIC Method is like taking out an insurance policy."

When Laura Drager, business manager for Montana Electric Supply, learned about the easy, IRS-approved LIFO method that would protect their prior LIFO benefits, she was very interested, to say the least.

"I had initially contacted SourceCorp to find out if their offerings would make the computations easier," said Drager. "It was through them that I learned of the benefits of changing to the IPIC Method".

Montana Electric filed the forms necessary to change to the new method for their 1997 tax year.