NORTH BAY – An IRS audit sweep on winery inventory accounting methods in Napa and Sonoma counties may not bring as much financial impact as had been feared when it began earlier this year, following recent meetings with winery accountants.
In late August, an IRS inventory specialist and auditors started individual meetings with 28 local operations targeted in a "compliance initiative project" on whether common wine industry last-in, first-out – LIFO – inventory pool "items" are too broad and, thus, distort income to be taxed.
"The good news is that the IRS seems willing to compromise a little bit," said Jeff Gutsch, founder of the wine practice at CPA firm Moss Adams and part of a group of wine-focused accountants trying to resolve the LIFO question. "I'm mildly encouraged that some sort of resolution can be reached. I don't think LIFO will be as it's been, but I don't think it will be as extreme as they pushed for."
Nothing final was resolved in the recent meetings with the IRS, but the discussions provided a framework for the coalition of about 30 accountants from several firms to meet in the next couple of months to draft a proposal to the IRS on a solution, according to Mr. Gutsch.
That resolution may parallel the deal worked out between the automobile industry and the IRS, he noted. Changes in vehicle platforms were considered different vehicles requiring separate LIFO inventory items, while vehicle options such as transmission and roof types wouldn't.