Has LIFO come to the end of its run? LIFO, which stands for Last In, First Out, lets businesses account for inventories as though the last item purchased was the first to be used or sold. The accounting method was already threatened by the U.S. move toward international financial reporting standards (IFRS), which do not allow its use. Now the Obama administration has proposed repealing LIFO to raise revenue. Previous attempts by Congress to eliminate LIFO have failed, notes Robert Kilinskis, a managing partner at Deloitte. But this time may be different, he says, in part because of the cost of economic stimulus and other administration proposals.
LIFO's repeal is expected to raise $61 billion over 10 years. "Because of that need to pay for some of those initiatives, looking at $61 billion, it's hard to pass that up," Kilinskis says. "There actually is a good chance this time we'll lose LIFO, either through legislation or IFRS."
LIFO tends to boost a company's inventories and reduce its earnings, thus lowering its tax bill. But when a company stops using LIFO, it must pay taxes on its LIFO reserve–the amount by which using LIFO reduced its taxable income. Companies usually have four years to pay up; the Obama proposal would give them eight years.
Continue Reading for Free
Register and gain access to:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.