The IRS published final regulations related to the treatment of certain vendor allowances under the retail inventory method (RIM). The RIM uses a formula to convert the retail selling prices of ending inventory to an approximation of cost or the lower of cost or market. The final regulations (T.D. 9688), published Aug. 15, provide rules for determining whether certain sales-based vendor allowances, margin protection payments, and temporary and permanent markups and markdowns are included in computations and, if so, whether in the numerator, the denominator or both. In particular, the rules provide three accounting method (one standard and two alternatives) for the treatment of margin protection payments.
Additionally, the IRS published Rev. Proc. 2014-48, which provides automatic procedures for complying with the final regulations. The procedures provide taxpayers with a choice of implementing with a Section 481(a) adjustment or using a cut-off approach. The regulations apply to taxable years beginning after Dec. 31, 2014.
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