In a commencement address at Arizona State University in May, President Barack Obama delivered a quip about having been denied an honorary degree by the institution. In response, Mr. Obama said, "The Board of Regents will soon learn all about being audited by the IRS."Apparently, Mr. Obama was not kidding.

As Business Journal Staff Reporter Jeff Quackenbush has reported, the IRS has sent shockwaves through the wine industry with its April 10 letters to more than 30 wineries notifying them they were being audited.

The target of the audits is a widely used inventory accounting practice known as last in, first out.  The LIFO principle is intended to even out the impacts of inflation on a business by allowing it to deduct higher costs sooner.

Meanwhile, in a Florida court the IRS is demanding that UBS of Switzerland release the names of 52,000 of its private banking customers on grounds that some of them may owe U.S. taxes. The IRS is allowed by law to see Swiss records if it can show probable cause in specific cases. But 52,000 people?

  It's understandable that Washington is eager to find new sources of tax revenue. How else can it possibly pay for the current unprecedented spending binge. Many analysts believe an all-out repeal of the last in, first out principle across U.S. industries could be in the works.

The wine industry sweep in particular seems particularly punitive. Instead of going directly to audits, why couldn't the IRS notify the industry that it wanted to look into the accounting issue and give everyone time to make adjustments if need be?

Instead, the industry is on edge about the possibility that an accounting principle used for 30 years could be upended and leave wineries holding a big tax bill.

"It could actually bankrupt some wineries at a time when there already is financial pressure," said Kevin Alfaro, a partner in the St. Helena office of wine industry accountants G&J Seiberlich & Company.

It's not clear at all how that would help produce more federal tax revenue and a healthier economy. Isn't that what everyone wants?


Brad Bollinger is editor in chief of the Business Journal. See him online at He can be reached at 707-521-4251 or