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FROM THE OFFICE OF PUBLIC AFFAIRS
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JS-1855
The Treasury Department and the Internal Revenue Service today issued proposed regulations providing that a corporation that elects to become an S corporation must recapture its portion of the LIFO inventory benefit of a partnership in which the electing corporation holds a partnership interest.
Under the LIFO recapture rules, a C corporation that inventories goods under the LIFO (last-in, first-out) method of accounting and that elects to be taxed as an S corporation must include in its gross income the LIFO recapture amount. The LIFO recapture amount is the amount of income that the corporation has deferred by using the LIFO method rather than the FIFO method. The proposed regulations would require a corporation that converts to S status to take into account a LIFO recapture amount with respect to its share of LIFO inventory held in a partnership in which the corporation holds a partnership interest.
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