This article talks about the changes to the LIFO Accounting method, which Obama Administration is considering.
The Obama administration has scoured the tax code looking for “loopholes” to close to generate more revenue. According to, The New York Times, Barack Obama describes the “last-in, first-out” rule of inventory accounting as “arcane”. However but it will be a critical problem for businesses if the decade-long tax rule gets changed. Instead of using the last sale price of inventory as a cost basis to determine taxable profit, the elimination of the LIFO rule will create accounting headaches that will impact smaller businesses most.
The effect of the accounting change would be significant, and in pushing for it Mr. Obama has kicked a hornet’s nest. Lobbyists from companies of all sizes are swarming around Congress to kill the proposal, which would prohibit the use of an accounting technique known as last in, first out, or LIFO which is used to determine the cost of goods sold, and therefore the income earned, by a company.
By eliminating LIFO accounting technique, Obama Administration has projected to raise $65 billion to $95 billion over 10 years. This would increase the taxable income and tax liability of companies that have been using this method of accounting for decades. Small businesses, manufacturers, wholesalers, retailers and oil companies would be especially hard hit as a result of this change.
The president’s proposal would also undo the tax benefits that companies have obtained by using the LIFO method of accounting over the years. The government would tell companies that they must go back and recalculate the tax savings they have claimed for decades. The proposal requires that tax be paid on long-deferred gains with the provision that the tax could be paid over a period of 10 years.
In moving forward with this accounting change, the administration needs to consider the overall impact it will have on the businesses and indirectly on the US economy.
