‘Last-In, First-Out’ a Thing of the Past?

Anyone who has been associated with the accounting and/or tax business for lo these many years became familiar early on with the acronym “LIFO,” referring to the “last-in, first-out” method of costing inventory. But if Obama has his way, LIFO may soon become truly a “thing of the past,” as government coffers are dry, and politicians are looking under every rock for revenue sources.

Under the LIFO method, of course, the goods which a business sells during an accounting period are deemed to be those most recently purchased, whereas the goods left on hand at the end of the period are deemed to be those earliest acquired.

During inflationary periods, LIFO results in a larger dollar amount of “cost of goods sold” in comparison to the answer produced by other inventory accounting methods. The corollary is that taxable income is lower, of course, which makes business taxpayers happy.

Obama has been calling for repeal of LIFO for years, as have other politicians, including former House Ways and Means Committee Chairman Charles Rangel (D-NY), and Senator John McCain (R-AZ), as proposed during the last presidential race.

If Obama’s 2012 budget proposal to end LIFO sticks, taxpayers would be required to write up their beginning LIFO inventory to its FIFO (“first-in, first-out”) value in the first tax year beginning after 2012, taking the income consequence into taxable income over a ten year period.

Opponents suggest that the repeal of LIFO will be a job killer, as more business resources would be required to pay the related tax, not to mention the fact that LIFO, arguably, is truly a more accurate way to reflect income, because of the related matching of current costs with current revenues.

We shall see……..