Erroneous LIFO Methodology
Accountants make several decisions, which affect the overall income drawn from a taxpayer. These mistakes are explained by different authors such as Huffman since he poses different arguments relating to the outcome of a taxation system and its impacts. Blunders may result in paying more or less tax, upon comparison to the stipulations. Taxpayers should embrace ways to cushion themselves from the negative impacts of such mistakes using credible sources. It is also important that governments apply more definite laws to guide taxation.
A decision made using Huffman’s explanation shows that if an error is repeated over a long time, which is usually 10 to 20 years, then it becomes a change in method of accounting. Therefore, the taxation mistakes cannot be adjusted thus the taxpayer has to bear any losses resulting from duty. Consequently losses are evident where he/she expected a refund. Most of these changes occur when there is a change in market rates; however, such a change is not reflected in the computation of taxes. The mistakes are inclusively viewed as changes in mathematical posting which cannot be adjusted.
A familiar confront is to determine whether a mistake is a change in method of accounting or an error. This is because the value of “Last In-First Out” keeps on changing basing on the market rates for various products. On the same account as seen in the case of “Sixth Circuit”, the law is ambiguous in its elucidation of what amounts to a mathematical error and a change in accounting method. Ambiguity is further expressed when the law accepts that when a mathematical posting has a repeated error becomes a method of accounting. This contradicts the earlier expression since the adoption of erroneous method allows the adjustment of the errors made in previous taxation accounts.
The court may use consistency to justify an error since repetition makes it an accounting method. However, it is not easy to establish whether the accountant was aware of the error. LIFO keeps on changing but an accountant may falsify unawareness thus an assumption is made that the error he/she made was unintentional. However, from the Huffman’s explanation, there was a small deviation from the common error but the court disregarded the explanation by indicating that it does not affect the outcome. If such exemptions are made repeatedly they create loopholes thus many people may evade taxation and other dues.
Observation also suggests that whenever a taxpayer finds errors which are related to LIFO, then they are regarded as an understatement until the expiry of that statute. The taxpayer is allowed to amend the return by eliminating such exposures. In the case of an overstatement the taxpayer should get a refund although this is dependent on how the IRS views the exposure. In this case he/she should file form 3115, which will protect the method of accounting for the number of years considered in the file. This also enables him to get refunds from the open years.
In conclusion, it is important to ensure that taxation systems are precise. There are various factors, which determine how effective a taxation model is. This is factual because many taxpayers try to capitalize on any loophole which enables them to pay lesser tax. Although, Huffman tried to expose some of the common arguments applied by taxpayers and the taxmen to capitalize on each of their incomes, the laws guarding this are still ineffective.