In a letter dated Feb. 4 to Treasury Secretary Janet Yellen, 19 Senators set a Feb. 15 deadline for the department to activate a provision that would provide temporary relief to retailers, including dealerships, that employ the "last in, first out" inventory accounting method.
As of Feb. 18, Yellen had not responded to the request about whether dealers could use the never-before-used provision. Nor had Yellen issued a notice in the Federal Register, which is the first step toward granting relief.
U.S. businesses that carry big ticket items with rising prices regularly use the LIFO tax deferment strategy. Most of the nation's dealerships employ the LIFO method.
When dealerships that employ LIFO rely on a steady arrival of new vehicle inventory to keep the deferment strategy stable. But the chip shortage and other production issues has reduced the flow of new vehicles to dealer lots. Their inventories plummeted, making that deferred income taxable at the federal and state level.
The National Automobile Dealers Association and the Alliance for Automotive Innovation, Senate Democrats, and a bipartisan group of U.S. representatives, have asked the Treasury Department to grant temporary LIFO relief under Section 473 of the Internal Revenue Code. Doing so will give dealers up to three years to restore their inventories to normal levels.
They say groups qualify for this relief because government shutdowns and other mandates during the pandemic caused "a major foreign trade interruption," making it difficult or even impossible for dealers to replace new-vehicle inventories.