Is LIFO Relief for Automobile Dealers on the Horizon?

Who remembers the School House Rock! video involving a sad little scrap of paper on the Capitol Hill stairs singing, “I’m just a bill; yes, only a bill”? A bill can take a long journey to become a law. 

If you recall, that piece of paper was already exhausted halfway up the steps. It sounds like the automotive community’s journey waiting for tax relief for LIFO inventory. Is good news on the horizon?    

Well, Automotive News is reporting that U.S. Rep. Dan Kildee (D-MI) earlier this week announced plans to introduce legislation that would provide tax relief to automobile dealers that use the LIFO (last-in, first out) method of accounting for automobile inventories.  

Govtrack.us, which tracks the status of proposed legislative bills, notes that “H.R. 7382: To treat certain liquidations of new motor vehicle inventory as qualified liquidations of LIFO inventory for purposes of the Internal Revenue Code of 1986” is in the first stage of the legislative process. It also notes that bill text is not yet available.

We have been talking about LIFO relief since September 2020. We are tired… and sad, just like that scrap of paper. The little boy in the “I’m Just a Bill” video said you must have patience and courage to go through this process. He wasn’t kidding!  

If you watch the whole video (about three minutes long), it breaks down the long journey for a bill to become law. To keep it simple:

  • An idea becomes a bill.
  • A bill is introduced to Congress.
  • Committee needs to discuss and debate it.
  • If passed by the committee, it goes to the House.
  • If passed by the House, it goes to the Senate.
  • If passed by the Senate, it goes to the president.
  • Then the president can sign or veto it!

I am going to take it further than the cartoon. Trust me, it left a bunch out. After tax legislation is enacted, then comes the regulations to explain the law in further detail.  Who knows how long that takes? Here are some potential questions that will need to be addressed in the legislation and/or regulations:

  • The tax filing deadline already passed; can I qualify for LIFO relief?
  • I already paid the tax at extension; can I get a refund?
  • What happens if I went off LIFO; can I go back?
  • What happens if I went on the IPIC method of LIFO and actually increased my LIFO reserve; does this impact me?

The message to take away is to not put the cart before the horse (or the car before horsepower, to make a bad pun). We do not have answers for this filing deadline and probably won’t for the final deadlines this fall. There are other legislative priorities such as next year’s budget and competitiveness with China. Washington is also going into mid-term elections.  

We are not too confident while in the midst of post-pandemic economic issues, the war in the Ukraine and the other priorities that this legislation will see passage any time soon. 

We have other solutions. Please keep in mind that we still believe the IPIC method of accounting is a valid solution for most auto dealers’ LIFO recapture concerns. To read more about the IPIC method of accounting, please click here

Please reach out to Steve Barber and the Automobile Dealership Group for more information. 

 

 

 

 

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2022 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
What is the FICA Tip Credit and How Can Employers Take Advantage of It?
Deferring Gain on Sale of Vacation Property
Some Things You Probably Aren’t Thinking About as a Dealer When It Comes to the Rise in Interest Rates
Can Solar Power Assist with the Infrastructure Needed to Charge EVs?
Retail, Tax BY Kristyn Stang
Don’t Overlook the Work Opportunity Tax Credit (WOTC)
Accelerating Charitable Efforts Act Under Consideration
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×