Rebuilders Win IRS Concession On How To Value Cores.

The motor vehicle parts rebuilding industry won a major victory with the IRS over how cores are valued. The IRS ruling (2003-20) said that any motor vehicle parts rebuilder/remanufacturer or distributor could elect to value its customer core inventory at the core supplier price rather than at the core supplier price.

The change in the IRS position is the result of intensive efforts by the Automotive Parts Rebuilders Association (APRA) which began in 1994 to convince IRS that it was wrong in requiring rebuilders to value their core inventories at the credit they give their customers for return of a core. The new Procedure reflects numerous discussions over the past year between APRA and the IRS over the exact terms of the new accounting method.

The new Revenue Procedure creates a safe harbor method of accounting for customer cores called the Core Alternative Valuation (CAV) method. Under CAV a rebuilder or distributor who uses the lower of cost or market value method of inventory valuation for their cores may value them at the price they are available on the last day of the tax year from the suppliers from whom they normally purchase cores.

For those who use a cost or LIFO method of accounting for cores, this procedure provides a way to switch to the lower of cost or market method to take advantage of CAV. To use CAV a rebuilder must file an election with IRS, even if its present method of accounting uses core supplier price. However, with the exception of rebuilders who are currently being audited, IRS acceptance of the election will almost always be automatic.