As reported in November 2021, letters were sent by 20 Senate Democrats and 91 Democratic and Republican members of the House of Representatives urging the U.S. Treasury Department to act expeditiously to provide relief to dealers on new-vehicle LIFO who will experience significant LIFO recapture as a result of unprecedented inventory declines caused by actions related to the pandemic. 

In letters responding to Congress, Treasury officials stated that

        (i) "Businesses that primarily source and produce inventory within the United States are not eligible for [Section 473] relief…"; and

(ii) "If relief is provided, businesses with global supply chains would need to demonstrate … that the decrease in closing inventory … is directly and primarily attributable to the foreign disruption in the supply chain."

In response, the National Automobile Dealers Association in late January sent a letter to Treasury stating that 

(i) The first condition imposed by Treasury is not present in either the statute (section 473 of the Internal Revenue Code) or its legislative history and therefore should not preclude relief to otherwise eligible dealer taxpayers, and

(ii) The second condition has been met by a very strong letter that the Alliance of Automotive Innovators sent to Treasury on Jan. 21 at the NADA’s request.

The Alliance letter certified and provided supporting data demonstrating that 

a) "auto dealers have been unable to acquire a sufficient number of new vehicles from manufacturers to replenish their depleted inventories"; and

b) "[t]his decreased inventory production is primarily a result of the foreign supply chain disruptions caused by actions related to the COVID pandemic, especially with respect to semiconductor shortages."

The NADA letter also cited a fact sheet released by the White House on Jan. 21 that supports the Alliance’s certification by explaining that pandemic-related disruptions to foreign semiconductor factories have resulted in the reduced production of automobiles. 

The NADA letter stated that the information provided by the Alliance — as supported by the White House fact sheet — satisfies Treasury’s second condition for relief, and that Treasury therefore should move forward with the issuance of a Federal Register notice authorizing LIFO relief for affected dealers. The NADA further stated that it is prepared to assist Treasury and the IRS with the subsequent development of election and calculation procedures that dealers would need to claim the relief. 

The NADA expressed appreciation for the Alliance’s efforts to quickly generate and deliver a compelling letter supporting its franchised dealers on this issue. The dealer association will continue to report on related developments.