Lawmakers Urge IRS to Avoid Inventory Rule Change

A group of lawmakers from the tax-writing House Ways and Means Committee have written a letter to Treasury Secretary Jack Lew urging the Internal Revenue Service to back off of a proposed rule change modifying the retail inventory method of accounting, which retailers fear could cost them millions of dollars a year.

The National Retail Federation, a trade group representing retailers, welcomed the letter, which was signed by Congressmen Tim Griffin, R-Ark., Vern Buchanan, R-Fla., Pete Roskam, R-Ill., Ron Kind, D-Wis., Pat Tiberi, R-Ohio, Charles Boustany, R-La., and Kenny Marchant, R-Texas. They asked the IRS to reconsider its plans to modify regulations governing the retail inventory method of accounting. Used by many merchants, the method allows retailers to average out the cost of merchandise in inventory rather than tracking specific items. The committee members said the proposed changes would require creation of “costly new inventory tracking systems” and would cost retailers millions of dollars.

“Both effects would divert scarce resources from investments that could otherwise be made in additional jobs and economic growth for constituents in our districts,” the letter said. “We urge you to reconsider the disproportionate tax burden on smaller retailers that will result if the regulations are enacted as proposed.”

The letter noted that a small business regulatory analysis has not been performed as required by the Regulatory Flexibility Act.

NRF vice president and tax counsel Rachelle Bernstein pointed out that retailers already have one of the highest effective tax rates of any U.S. industry. “This move by the IRS would make that tax burden even higher and amount to a hidden tax increase,” she said in a statement. “With the economy still recovering and retailers trying to create jobs, this is not the time to change a policy that has been in place for half a century.”

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