The Battle to Preserve LIFO

Even without comprehensive statistics, it's possible to get some idea of the impact of a LIFO repeal on businesses, experts say. A broad ban would adversely affect all companies that use the accounting method, with a greater impact on small and mid-sized companies, according to David Auclair, a principal at Grant Thornton.

"If tax savings are not there, businesses would have to generate that from somewhere else," said Auclair. "It might impact prices to customers, which might lead to further inflation, and it could impact on their [firms'] ability to sell, which could impact their earnings."

For companies that have been using LIFO for decades, a repeal would be a surprise akin to people realizing that if they were to buy the houses they own today, they wouldn't be able to afford it, notes Stephen Gertzman, national director of federal tax accounting at Ernst & Young. "The principal burden from a tax standpoint is that now you have to report income on this LIFO reserve," he said, "which is like having additional tax liability but no additional income to help pay for it."

Further, companies would need to be prepared for the higher costs of inventory, if they include products that increase in price, he added. "You may have companies that would say [they] don't believe they could afford to pay all the tax they owe," comments Gertzman.

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