The Treasury Department has proposed certain changes to the retail inventory method (RIM) pursuant to the regulations under I.R.C. § 471. Treasury has solicited comments on proposed changes to Treas. Reg. §1.471-8, which would alter the manner in which the cost complement under Treas. Reg. § 1.471-8 has historically been calculated. Specifically, the proposed changes to the regulation would exclude sales-based vendor allowances, including discounts and price allowances, from the numerator of the cost complement calculation. This change, in essence, would increase the valuation of ending inventory in the cost of goods sold computation under the RIM and thereby reduce, for federal tax accounting purposes, the cost of goods sold deduction for many retailers.
On Feb. 11, 2013, the National Retail Federation (NRF) tax counsel, Rachelle Bernstein, submitted written comments on the proposed change, urging Treasury not to finalize the regulations in their current form. The NRF pointed out that the proposed change would reverse a position Treasury had held for more than 50 years and that such a change would result in a substantial tax increase for many retailers.
In an industry where margins are slim and the profitability of the industry greatly affects the health of the economy, such a change to the RIM seems unwarranted and imprudent.
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