LIFO

BACKGROUND

LIFO is an accounting method used by businesses to determine the value of their inventory. The LIFO method has been expressly permitted by the Internal Revenue Code since the 1930’s. Businesses that use LIFO assume for accounting purposes that they sell first the inventory most recently acquired or manufactured. Industries that often experience rising inventory costs typically account for inventory using the LIFO method. This is because LIFO accounting allows them to match current sales income with the current higher cost of that inventory. In short, the LIFO method enables businesses to avoid phantom profits caused by inflation.

CHAMBER POSITION

Repeal of LIFO accounting would result in a punitive, retroactive tax increase for businesses, placing significant cash constraints on them and limiting their ability to manage inflation. Companies would have to record illusory profits on their books, when no economic activity has occurred that would justify recording any profits.

LINKS

• U.S. Chamber LIFO One-Pager
• JCT Explanation of FY 2013 Greenbook
• LIFO Coalition Website