The House Ways and Means Committee Chairman has been requested by the LIFO coalition to reject a proposal for the repeal of last-in, first-out (LIFO) accounting from the tax reforms. The LIFO coalition has 126 members and is an advocacy group on this issue. The LIFO method leads to a higher cost of sales in the accounts and therefore to lower accounting profits, as opposed to the first-in, first-out (FIFO) method which leads to a lower cost of sales and higher accounting profit.
Businesses using LIFO must compute LIFO reserves which represent the difference between the inventory cost using FIFO and LIFO. The draft tax plan produced by the Chairman would not allow LIFO with effect from 2015. The LIFO reserve would therefore be included in taxable income and taxed to 25% over a four year period. To assist with any resulting cash flow problems closely held businesses, generally defined as those with less than 100 owners, would only have to pay a reduced 7 percent rate.
