While there is no current timetable for the adoption of International Financial Reporting Standards (IFRS) for U.S. companies, the looming conversion has long been a source of concern for companies using the Last In First Out (LIFO) method of accounting. Because IFRS does not recognize the LIFO method, full adoption of IFRS by the Securities and Exchange Commission would force companies off of LIFO for tax purposes, since the conformity rule requires companies using LIFO for tax purposes also use LIFO for financial statement reporting.
However, recent developments should provide LIFO taxpayers relief and cause less worry about the impact IFRS conversion may have on their business. In a recent memo addressed to The LIFO Coalition, Les Schneider, Tax Counsel to The LIFO Coalition, explains that it is increasingly unlikely that the SEC will fully adopt IFRS or disallow the LIFO method. It is very possible, under the form of convergence currently being contemplated by the SEC, that LIFO will remain an acceptable method in spite of the fact that it is not recognized by IFRS.
LIFO repeal has also been a threat on the legislative front, appearing in President Obama’s budget multiple years. While there is currently no pending legislation calling for the repeal of LIFO for tax purposes, an argument always used by legislators when discussing LIFO repeal is the impending IFRS convergence. With it being increasingly unlikely that a full IFRS adoption and disallowance of LIFO for financial statement purposes will take place, legislator’s LIFO repeal argument has certainly become less valid. Any future legislative efforts arguing the use of LIFO for tax purposes will certainly become more difficult.
LIFO is an established tax method that has been a part of U.S. tax law for over 80 years and is used by hundreds of thousands of companies that carry inventory across all types of industries.
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