LIFO (which stands for “last in, first out”) is an inventory accounting method used by companies throughout the U.S. economy to determine both book income and tax liability. Book income is the amount of earnings shown on business financial statements. Tax liability is the amount of income tax owed to the government.
In his Administration’s Fiscal Year (FY) 2010 Budget, President Obama has included repealing LIFO in order to generate additional tax revenue to the federal government. This repeal apparently has been proposed due in part to a mistaken belief that LIFO is a “tax loophole” or that it is set to disappear from use. However, the fact remains that LIFO is an established, widely-accepted inventory accounting method that has been used by large and small companies throughout the U.S. economy since the 1930s. Repealing LIFO would result in a massive tax increase on hundreds of thousands of large and small American businesses, and could force many smaller ones to close.
While the U.S. House of Representatives and U.S. Senate have not specifically included LIFO repeal in the FY 2010 Budget Resolution, they have left the door open for its further consideration under the budget reconciliation process, and during Congressional consideration of broader “tax reform” legislation. There is every reason to assume that LIFO repeal will be “on the table” for discussion throughout the year.
Please review the information below, which further explains why Congress should reject any effort to repeal LIFO.
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