Support Pandemic-Related “Supply Chain Disruptions Relief Act” (H.R. 700/S. 443)

Published April 24, 2023

Bipartisan LIFO Relief Needed Due to a "Major Foreign Trade Interruption" of Auto Production



Vehicle assembly plants around the globe ceased or slowed production during the pandemic, drastically reducing new vehicle inventory. The shortfall worsened with the worldwide shortage of semiconductors, which are increasingly essential to vehicle production. With no way to replenish vehicle inventory, dealers using the last-in, first-out (LIFO) method of accounting are facing major unanticipated tax liability due to circumstances beyond their control. The Treasury Department has existing authority to allow LIFO relief to businesses if a “major foreign trade interruption” makes inventory replacement difficult. Despite broad bipartisan support for Treasury’s use of its authority, Treasury has declined as it believes additional legislative authority is needed. The “Supply Chain Disruptions Relief Act” (H.R. 700/S. 443) would determine that the requirements under existing law have been met for new vehicles due to pandemic-related foreign trade interruptions which created inventory shortfalls. The reintroduced legislation is identical to the bills from last Congress which received overwhelming bipartisan support and passed the Senate without opposition. Members of Congress should cosponsor the “Supply Chain Disruptions Relief Act” to allow businesses on LIFO extended time to replace vehicle inventories as pandemic-related global disruptions and reduced auto production made it nearly impossible to replenish new vehicle supply.



In 1980, Congress provided the Treasury Department authority (Sec. 473 of the Internal Revenue Code) to grant temporary LIFO relief to businesses if a “major foreign trade interruption” makes inventory replacement difficult or impossible. As the pandemic slowed or stopped production at vehicle assembly plants and suppliers across the globe, dramatic supply constraints helped create the lowest dealer inventory levels in decades. To reduce LIFO recapture tax liability, dealers must generally restock inventory by year’s end as shortfalls can be taxed as ordinary income. Dealers on LIFO, however, were powerless to replenish inventories, resulting in large, unanticipated tax liabilities for many small business dealers.


The “Supply Chain Disruptions Relief Act,” provides a congressional finding that the conditions necessary to grant LIFO relief under existing law have been met. The Alliance for Automotive Innovation and a White House Fact Sheet have documented that automakers could not complete the final assembly of sufficient vehicles, and dealers were unable to sufficiently replace inventory, due to pandemic-related foreign trade interruptions, including a severe shortage of critical semiconductor chips. The bill would allow dealers to delay the recognition of income triggered by LIFO recapture for tax years 2020 and 2021. Given the lingering supply chain disruptions, the bill extends the period to replenish inventory and compute LIFO reserve/recapture to the end of 2025 to allow vehicle production to normalize.



  • As a result of supply chain disruptions beyond the dealers’ control, LIFO recapture has triggered significant, unexpected tax liability, imposing massive tax bills on small businesses that could otherwise be used to invest in workers, EV infrastructure, and replenishing vehicle inventory as it becomes more available.

  • The Treasury Department has indicated its support and interest in working with Congress for a legislative solution to explicitly provide the Department the legislative authority under existing law to address this supply chain issue that severely impacted vehicle inventory and the auto industry. H.R. 700/S. 443 does not amend the tax code. 

  • The “Supply Chain Disruptions Relief Act,” is technical and noncontroversial legislation that is identical to the bills from last Congress which received overwhelming bipartisan support.



Recently, Reps. Jodey Arrington (R-Texas) and Dan Kildee (D-Mich.) reintroduced the “Supply Chain Disruptions Relief Act” in the House, and Sens. Sherrod Brown (D-Ohio) and Tim Scott (R-S.C.) reintroduced the Senate version along with 48 Senators. Last Congress, the Senate bill, which had 60 cosponsors, passed the Senate unanimously on Dec. 22. The previous House bill had 175 House cosponsors, but time ran out before the bill’s consideration at the end of the Congress. Members are urged to pass the “Supply Chain Disruptions Relief Act,” to provide relief to businesses facing difficulty replacing vehicle inventory due to the unprecedented supply chain shortages.                                                                                                                                        



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Kerry Feehery

Kerry Feehery

Senior Director of Legislative Affairs