S-CORP continues to closely monitor proposals to increase taxes on S corporations through increased payroll taxes or by repealing the LIFO method of inventory accounting.B On Tuesday, the Senate Finance Committee held a hearing entitled “A Tune-Up on Corporate Tax Issues: What’s Going on Under the Hood?” While most of the testimony focused on the Tax Gap, IRS enforcement, and broad reform of the corporation income tax, one witness focused his remarks and written testimony almost exclusively on why LIFO should be repealed.

Dr. George Plesko, Associate Professor at the University of Connecticut Business School, spent most of his time building a case for repealing LIFO. Friends of small and closely-held businesses, including senators Thomas, Bunning, and Kyl, questioned Dr. Plesko’s conclusions and defended LIFO before the Committee.

S-CORP is actively engaged in a coalition to preserve LIFO inventory accounting for S corporations and other businesses. We are currently working on a response to Dr. Presko’s testimony that will help to clarify the importance of LIFO accounting to manufacturers, retailers, and other small and closely-held businesses.

Chairman Grassley concluded the hearing by noting that this hearing was the first of many on the topics of corporate tax reform, tax overhaul and simplification. The next hearing is likely to be scheduled for the fall.

However, with the pension bill working its way through conference, congressional action on this and other issues affecting S corporations could take place much sooner. As always, we’ll keep you apprised.