Senators urge relief for auto dealers using LIFO


Lawmakers are turning their attention to other legislative and administrative mechanisms in an attempt to target inflation, as progress on a smaller reimagined version of the Build Back Better reconciliation bill has sputtered over the past several months.


Recently, Republicans joined Democrats in urging Treasury to provide relief for auto dealers using the last-in, first-out (LIFO) method of accounting. Sen. Tim Scott, R-S.C., wrote a letter on behalf of 32 Senate Republicans urging Treasury Secretary Janet Yellen and the Treasury Department to use its existing authority under Section 473 to “provide timely relief to auto retailers using LIFO method of inventory accounting.” The letter follows a pair of letters from Senate Democrats on the issue.


Under Section 473, the Treasury Secretary may generally to provide relief for LIFO taxpayers if a “major foreign trade interruption has made difficult or impossible the replacement during the liquidation year of any class of goods for any class of taxpayers.”


LIFO can provide a favorable result when inventory costs are rising because costs of goods sold (COGS) will include the most recent and costliest inventory. Taxpayers currently using first-in, first-out method of accounting (FIFO) may actually benefit from changing methods to LIFO when inflation is driving rising inventory costs. LIFO, however, can prove costly when inventory is shrinking. In these circumstances, COGS may include historic inventory obtained at very low prices.


The letters from lawmakers explain that auto retailers’ inability to replenish inventory and the current threat of LIFO recapture is directly and primarily a result of the foreign disruption in the global supply chain caused by action related to the pandemic, especially with respect to semiconductor shortages.


Democrats further noted that affected small businesses need to know at the earliest possible date whether relief will be granted, as many taxpayers’ returns include complex and time-consuming LIFO calculations.


Further developments on relief for auto retailers is expected in the coming weeks and months.



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