Washington—Representative James Lankford (R-Okla.) and Representative Mike Thompson (D-Calif.) today joined 113 bipartisan Members of the House of Representatives to send House Ways & Means Chairman Dave Camp (R-Mich.) a letter asking the Chairman to reconsider proposed changes to the “last in, first out” or LIFO business accounting measures in the House’s final proposal to overhaul our nation’s federal tax code.
“I applaud Chairman Camp and his Committee’s work to overhaul our nation’s broken 72,000+-page tax code. However, as we make much needed tax reforms, we must also ensure we do not unfairly penalize companies that followed the previous tax rules,” said Lankford.
“Many American industries use the ‘last in, first out’ accounting method as a way to free up capital to hire new employees and keep their companies running on a predictable schedule. A provision in Chairman Camp’s tax reform proposal would retroactively punish companies that have legally utilized this method for years to handle their accounting,”
Currently, American companies with inventories that increase in value as it sits in storage can elect to use the accepted accounting method called “last in, first out” or LIFO. LIFO allows a company to use the cost of producing the newest unit in their inventory as opposed to the oldest when determining the profit of a single sale, which compensates for inflation. Companies electing to use LIFO are liable for changes in pricing. Should the cost of producing the most recent unit decrease, they must continue to use LIFO and report the larger profit margin.
The Camp proposal retroactively implements the “first in, first out” or FIFO method over four years. As a result, companies currently using LIFO will incur a tax liability on the historic difference between using the LIFO method or using the FIFO method. Because these businesses were using an IRS-approved accounting method, many likely did not factor into their business plans a tax bill arising from a retroactive change in the tax code. Shouldering such costs could jeopardize the existence of some of these businesses and the jobs they support.
“I do not believe it was Chairman Camp’s intent to saddle these companies with added tax burden, despite the fact that they have utilized the legal LIFO accounting method for years,” continued Lankford. “I join this esteemed group of Members to ask Chairman Camp to remove this provision from our House tax reform proposal to ensure we do not unduly punish hard-working businesses with yet another problem in our tax code.”
“Repealing LIFO will have a devastating impact on business across our districts and country,” said Rep. Thompson.“The purpose of comprehensive tax reform should be to create jobs, make things simpler for people and businesses, and get our fiscal house in order. Ending LIFO will have the opposite effect. It will put people in the communities I represent out of work, punish businesses who have depended on this type of accounting for 70 years, increase their tax burden and cause further economic uncertainty.”
“Rep. Thompson and I are grateful to be joined by so many of our colleagues on this letter to Chairman Camp. We will continue to protect the hardworking employees and industries in our respective states who need real tax reform,” concluded Lankford.
For a copy of the letter to Chairman Camp, please click here.
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