How Large Is the LIFO Deferral?
It is possible to estimate, with a fair degree of accuracy, what we have termed in this report as the “explicit” LIFO reserves of publicly held firms. Those data are incomplete, of course, in that they do not capture the magnitude of private firms’ LIFO reserves, but for the reasons described below we do not believe that adding the data for privately held firms would materially affect our estimate. A more important deficiency in our “explicit” LIFO reserve figures is that they probably understate the actual magnitude of the tax revenues that would be raised from a repeal of the LIFO method of inventory accounting because of the application of “purchase” accounting principles to business combinations. Very simply, if one company acquires another in a transaction that is accounted for as a “purchase” but is not treated as a taxable asset acquisition for tax purposes, the effect of applying purchase method accounting to the acquired company’s assets is to mark those inventories to their c
