Changing an impermissible LIFO method

Taxpayers utilizing an impermissible last-in, first-out (LIFO) inventory method may be able to change it into a “permissible” one at a modest tax cost. Rev. Proc. 97-27 provides that the IRS is not precluded from transforming an impermissible method in an earlier year just because a taxpayer alters a submethod within the impermissible method in a later year. As a result, taxpayers should examine their LIFO method and, if permissible, alter it before the IRS challenges it and tries to include the LIFO reserves in income. Moreover, taxpayers utilizing an impermissible LIFO method or submethod that has generated large prior advantages need not recognize them under a cut-off method in the form of a Sec. 481(a) adjustment. A recent Tax Court case, Mountain State Ford Truck Sales, Inc., is discussed to illustrate the significant negative tax consequences of utilizing impermissible LIFO inventory account procedures

Dependancy Status For A Child of Divorced or Separated Parents

A taxpayer is allowed to claim a dependency exemption for his or her child if the child is a qualifying child (or qualifying relative) of the taxpayer. In the case of parents that are divorced or separated, a child is generally treated for a particular tax year as the qualifying child of the parent with whom the child resides for a greater number of nights during the tax year (the custodial parent). • Under Sec. 152(e), the noncustodial parent of a child may only claim a dependency exemption for the child if (1) the child\u27s custodial parent signs a written declaration releasing his or her claim to the exemption for the tax yea r and (2) the noncustodial parent attaches the declaration to his or her return for that tax year. • In Regs. Sec. 1.152-4, Treasury provides detailed rules on how to determine the amount of time a child spends with each parent, how to properly prepare a written declaration releasing the custodial parent\u27s claim to the dependency exemption, and how to revoke such a declaration