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Last In, First Out (LIFO)


LIFO (which stands for last in, first out) is an inventory accounting method used by companies throughout the U.S. economy to determine both book income and tax liability. Book income is the amount of earnings shown on business financial statements. Tax liability is the amount of income tax owed to the government.

In his Administrations Fiscal Year (FY) 2014 Budget, President Obama has included repealing LIFO in order to generate additional tax revenue to the federal government. This repeal apparently has been proposed due in part to a mistaken belief that LIFO is a tax loophole or that it is set to disappear from use. However, the fact remains that LIFO is an established, widely-accepted inventory accounting method that has been used by large and small companies throughout the U.S. economy since the 1930s. Repealing LIFO would result in a massive tax increase on hundreds of thousands of large and small American businesses, and could force many smaller ones to close.

Given the attention being paid to deficit reduction and tax reform, there is every reason to assume that LIFO repeal will be on the table for discussion throughout the year. Please review the information below, which further explains why Congress should reject any effort to repeal LIFO
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