Raw Materials
Audit, tax, and advisory for producers and processors of metals, plastics and resins, chemicals, and castings whose costs move with commodity markets.
Overview
Raw materials businesses buy and sell at prices set by markets they do not control. When metal, resin, or chemical feedstock prices swing, inventory values, margins, and taxable income swing with them. The choice of inventory method, how price risk is managed, and how those decisions are reported can have a large effect on both financial statements and tax liability. Pease Bell, a Top 200 U.S. CPA firm headquartered in Cleveland, Ohio, works with metals processors, plastics and resin compounders, chemical producers, and foundries to keep reporting accurate when commodity markets move.
Our work covers inventory method selection and LIFO calculations, accounting for hedging and supply contracts at the level the business needs, and tax planning that reflects how these companies operate. Exporters may benefit from an interest charge domestic international sales corporation, and energy-intensive operations should evaluate available energy-related incentives. With audit, tax, and advisory under one roof, these questions are addressed together.
How We Help Raw Materials Companies
LIFO Inventory Analysis
Evaluation of whether the LIFO method fits your business, LIFO election and calculation support, pool structure review, and analysis of the LIFO conformity requirement that ties tax reporting to financial statements.
Commodity Price Reporting
Inventory valuation, lower of cost or market or net realizable value testing, and margin analysis that help owners and lenders understand results when metal, resin, or chemical prices move sharply.
Hedging and Supply Contracts
Review of futures, forward purchase commitments, and pricing arrangements to determine their accounting under ASC 815 and their tax treatment, including the identification requirements that apply to hedging transactions.
IC-DISC for Exporters
Feasibility analysis, formation support, and annual calculations for an interest charge domestic international sales corporation, which can provide a federal tax benefit to qualifying U.S. companies that export products.
Energy Credits and Incentives
Review of federal and state energy-related tax credits and incentives that may apply to energy-intensive operations or efficiency investments, accounting for recent legislative changes that have altered several programs.
Audits and Reviews
Audited and reviewed financial statements for banks, asset-based lenders, and investors, with focused attention on inventory valuation, commodity-linked contracts, and the estimates that move with market prices.
Challenges We Help You Address
- ✓Rising commodity costs inflating taxable income on inventory held under FIFO
- ✓Inventory write-downs when market prices fall below cost
- ✓Understanding how hedges and forward contracts affect reported earnings
- ✓Export sales that may qualify for IC-DISC benefits but are not structured for them
- ✓Tracking energy incentives as federal programs change
Frequently Asked Questions
Should my company use the LIFO inventory method?
LIFO can reduce taxable income when costs are rising, because the most recent and highest costs are matched against revenue. It suits businesses with stable or growing inventory and inflationary input costs. However, the LIFO conformity rule generally requires using LIFO for financial statements too, and inventory reductions can trigger a LIFO liquidation that increases income, so it should be evaluated carefully.
What is an IC-DISC?
An IC-DISC, or interest charge domestic international sales corporation, is a separate entity that U.S. exporters can use to receive commissions on qualified export sales. Under IRC Sections 991 through 997, the structure can allow a portion of export income to be distributed to shareholders as qualified dividends, which may be taxed at lower rates than ordinary income. Eligibility and benefit depend on specific facts.
How are commodity hedges treated for accounting and tax?
For financial reporting, derivatives are generally recorded at fair value under ASC 815, and hedge accounting may be elected if documentation and effectiveness requirements are met. For tax, a business hedging transaction must generally be identified as a hedge on the day it is entered into to receive ordinary treatment. Contracts that qualify as normal purchases and sales may be excluded.
Are energy tax credits still available to manufacturers?
Some are, but the federal energy credit rules have changed significantly through recent legislation, with certain credits modified, phased down, or ended on different timelines. Which incentives remain available depends on the type of investment, when it is placed in service, and how it is structured. A current review before committing to a project is the safest approach.
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