Academic journal article Journal of Accountancy

GATT Inventory Rules Meet with Strong Opposition

Academic journal article Journal of Accountancy

GATT Inventory Rules Meet with Strong Opposition

Article excerpt

As the Clinton administration scrambles to finance the estimated $12 billion in lower tariff collections under the General Agreement on Tariffs and Trade, its proposed inventory tax accounting changes have come under heavy fire. The administration has recommended the repeal of the lower of cost or market (LCM) inventory method, the prohibition of using components of cost in determining last-in-first-out (LIFO) inventory and a greatly simplified price index computation for taxpayers currently using LIFO.

Most changes have met with strong opposition from the American Institute of CPAs tax division. In a letter to members and staff of the two congressional tax-writing committees, senior Treasury officials and the chief of staff of the Joint Committee on Taxation, the tax executive committee stated, "We are strongly opposed to the repeal of the LCM inventory method, and we believe the process by which this major policy change has been initiated is a particularly unfortunate illustration of how tax policy should not be developed."

LCM has been a part of tax laws since 1918, is used by a broad cross section of taxpayers in virtually every industry and is an essential part of generally accepted accounting principles. "It is amazing," said Harvey Coustan, chairman of the tax executive committee and a senior partner of Ernst & Young in Chicago, that LCM's repeal was proposed "with no discussion, no congressional hearings and very little time for thoughtful comment by the private sector."

Small businesses, currently able to use their financial statement inventory numbers on their tax returns, would have to segregate market write-downs for proper reporting as a book-tax difference, creating a disproportionate additional cost of compliance on top of the added tax cost for not having LCM. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.