U.S. Senate Bill Would End LIFO For Some Businesses

Sen. Ron Wyden (D-Ore.) has introduced a proposal to repeal the last-in, first-out (LIFO) accounting principle for the oil and gas industry. Specifically, S. 4768, would tax excess profits of large oil and gas companies, impose a tax on the repurchase of stock by large oil and gas companies, and end the use of the LIFO method of accounting by large oil and gas trades or businesses.

While this provision currently only pertains to businesses in the oil and gas sector, LIFO is a constant target for federal lawmakers who want to raise additional federal revenue. Ending the provision for one industry could lead to future threats to other industries.

The LIFO Coalition, which MSCI is a member of, sent a letter to all members of the U.S. Senate opposing the repeal or modification of LIFO under any circumstances, including repeal targeted at specific industries.

As the letter explains, LIFO is an 83-year-old inventory accounting method allowed for both tax and generally accepted accounting principles (“GAAP”). It is used by a wide variety of companies and industries in the United States to allow companies to deal with the effects of inflation on the pricing of inventory.

LIFO was designed to allow companies that sell inventory that is affected by inflation to match the increased cost of replacing the goods that they sold with the revenue from the sale of the replaced inventory, thus enabling companies to remain in business by maintaining inventory levels.

The letter notes, “LIFO was not added to the tax code to benefit or punish any specific industry, but to allow all industries facing rising or widely fluctuating prices to remain profitable by matching deductions for the cost of goods sold with the cost of replacement inventory.”

The letter concludes, “Repealing LIFO to arbitrarily target certain industries will unnecessarily risk supply chains, increase consumer costs, and cost jobs – setting a dangerous precedent for the hundreds of thousands of other businesses that rely on LIFO to survive.”

With the LIFO Coalition as its partner, MSCI will continue to oppose any threats of LIFO repeal.