Proposed Repeal of the LIFO Inventory Accounting Method
THE ISSUE: Proposed repeal of the LIFO inventory accounting method
BACKGROUND: Last-In, First-Out (LIFO) is an accounting method that has been a recognized means of valuing inventory under the U.S. tax code since 1939. Under LIFO, the most recent inventory purchased is deemed to be used first. In times of rising prices, the LIFO accounting method results in better matching of costs and revenues, because cost of goods sold are valued at the current cost of replacing that inventory. MPC has consistently used the LIFO accounting method for decades to present our financial results and calculate our taxes. Retroactive LIFO repeal has been proposed by President Obama, and by chairmen of the taxwriting committees in the U.S. House and Senate. Comprehensive tax reform, which could include repeal of the LIFO accounting method, is not expected during 2014, but could be under consideration in future sessions of Congress.
MPC’S POSITION: We oppose repeal of the LIFO inventory accounting method.
WHY WE TOOK THIS POSITION: Retroactive LIFO repeal could result in a multibillion dollar tax penalty on industry. The proposal would require MPC and other companies like us to recalculate our inventory values and the resulting tax liability using a different accounting method, and then pay tax on the difference. This would be a retroactive imposition of a new tax liability.
For any company that has been using this accounting method for a number of years, LIFO repeal and subsequent recapture of tax would, in effect, impose an after-the-fact penalty for lawful accounting practices. It would be akin to repealing the mortgage interest deduction that homeowners receive, and then making them pay the taxes they had saved by legally deducting the interest in prior years. This is unfair, expensive and could significantly impact many manufacturers at a time when the country is looking to those companies to continue creating jobs.