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Giving Life to LIFO: Adoption of the LIFO Method of Inventory Valuation by the Income Tax Code


Stephen Charles Lessard


Orrick, Herrington & Sutcliffe, LLP; New York County Lawyers' Association (NYCLA); American Bar Association - Section of Taxation


Tax Lawyer, Vol. 60, No. 3, 2007

Abstract:     
This paper examines the circumstances that led to the incorporation of the LIFO method of inventory valuation into the tax law in 1938 and 1939. An understanding of why the LIFO method was adopted after decades of initial opposition by revenue officials may lend perspective to the current policy debate about the method. The LIFO issue also presents a case study of the way in which interest groups, professionals, and state actors within government combine to make tax policy. Part I of this paper looks at the two decades prior to adoption of the LIFO method, defining the environment that prompted and enabled Congress to act on the issue. The roles played by business, the press, and the accounting profession are examined. Part II analyzes the legislative process during the period of 1936 through 1939, which culminated in the adoption of the LIFO method into the tax law. The importance of unique actors and the influence of economic and political events, particularly in the context of the undistributed profits tax supported by Franklin Roosevelt's administration, are explored. Part III discusses the factors contributing to the Treasury Department's reversal of its initial opposition to the LIFO method, the interplay of the LIFO method and the undistributed profits tax, and the important role played by the accounting profession in the accommodation process. Finally, Part IV highlights the expanding use of LIFO over the past 70 years.

Number of Pages in PDF File: 26

Keywords: LIFO, Inventory Valuation, Income Tax, Tax Law, Accounting

JEL Classification: D72, D73, E62, E65, H20, H25, K34, M41, M44, N42

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Date posted: December 3, 2007  

Suggested Citation

Lessard, Stephen Charles, Giving Life to LIFO: Adoption of the LIFO Method of Inventory Valuation by the Income Tax Code. Tax Lawyer, Vol. 60, No. 3, 2007. Available at SSRN: http://ssrn.com/abstract=1048521

Contact Information

Stephen Charles Lessard (Contact Author)
Orrick, Herrington & Sutcliffe, LLP ( email )
51 West 52nd Street
New York, NY 10019-6142
United States
212-506-5137 (Phone)
212-506-5151 (Fax)
HOME PAGE: http://www.orrick.com/lawyers/Bio.asp?ID=162682
New York County Lawyers' Association (NYCLA) ( email )
14 Vesey Street
New York, NY 10007
United States
212-506-5137 (Phone)
American Bar Association - Section of Taxation ( email )
740 15th Street, N.W.
Washington, DC 20005-1019
United States
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