IRS REVIEWS DISTRIBUTORS
The Internal Revenue Service recently announced that it is conducting a review of accounting methods utilized by wholesaler-distributors. Based upon its analysis of tax returns filed for 1996, the IRS believes as many as 14% of the nation's wholesalers may be improperly using the cash method of accounting with a tax impact as high as $770 million. As a general rule, if the purchase, production, or sale of merchandise is an income producing factor in a taxpayer's business, then the taxpayer is required to use inventory accounts and ordinary an accrual method of accounting. In response, the IRS has implemented an "outreach" program that targets wholesaler-distributors in Florida and Illinois. Once the Service determines the level of response, it may decide to expand the program nationwide. Companies that voluntarily seek consent to change their accounting method to the accrual basis and do so in compliance with IRS requirements will be allowed to change for the current year, spread any adjustments over a four year period, not be required to change for any earlier tax year, and avoid interest and penalties for improperly using the cash method.

For more information, call the National Association of Wholesaler-Distributors, 1725 K Street, N.W., Suite 710, Washington, D.C. 20006, Phone (202) 872-0885, Fax (202) 785-0586.