In need of money, the US government takes aim at LIFO

Bob Tippee

Beware the government asserting principle but needing money.

The Obama administration asserted principles of sorts when it proposed in its budget for fiscal 2010 to eliminate last-in, first-out (LIFO) inventory accounting.

In its explanation of the proposal, the Treasury Department called LIFO “a tax deferral opportunity” and “a complex and burdensome accounting method.” It also called LIFO an impediment to US implementation of International Financial Reporting Standards, which prohibit LIFO accounting.

Then there’s the money: $61 billion to federal coffers from businesses during 2010-19 as a result of LIFO repeal, according to administration estimates.

Many oil and gas companies use LIFO. Like LIFO companies in other industries, they’d face jumps in current and possibly future tax liabilities if the method, in use since the 1930s, were repealed.

A group called the LIFO Coalition has been fighting repeal initiatives since 2006. Managed by the National Association of Wholesaler-Distributors (NAW), the coalition represents nearly 100 trade associations, other business groups, and corporations.

On June 30, NAW reported on visits by coalition representatives to key members of the Senate Finance and House Ways and Means Committees. In Congress, the issue has little to do with LIFO’s supposed conceptual flaws.

“This is all about money, not LIFO,” NAW told its members. Lawmakers “do not argue that LIFO should be repealed on its merits but only that they need more of your tax dollars.”

While acknowledging LIFO as an appropriate accounting method, lawmakers nevertheless “were not responsive that LIFO should not be repealed absent an objection to it on the merits,” NAW said.

The group added that lawmakers seemed interested only in “quantitative information” about the effects of repeal on specific businesses.

One other point in the NAW report should worry oil and gas companies: Among potential compromises suggested by the lawmakers was LIFO repeal for specific industries.

In the current political climate, oil and gas would not escape such targeted tax mistreatment.

NAW said business participants in the meetings rejected industry-specific LIFO repeal and other proposed compromises, including repeal limited to publicly held or large companies and repeal with no retrospective effect.

(Online July 3, 2009; author’s e-mail:

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