Support Pandemic-Related “Supply Chain Disruptions Relief Act” (H.R. 7382/S. 4105)

Published August 11, 2022

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



Vehicle assembly plants and suppliers 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 essential to complete vehicles manufactured today. With no way to replenish vehicle inventory, dealers using the last-in, first-out (LIFO) method of accounting face major unanticipated tax liability due to circumstances beyond their control. The Treasury Department has existing authority (Sec. 473 of the Internal Revenue Code) to allow LIFO relief to businesses if a “major foreign trade interruption” makes inventory replacement difficult. Despite broad bipartisan congressional support for Treasury’s use of Sec. 473, Treasury has declined as it believes additional legislative authority is needed. The “Supply Chain Disruptions Relief Act” (H.R. 7382/S. 4105) explicitly provides Treasury such legislative authority. Congress should pass H.R. 7382/S. 4105 this year to allow businesses on LIFO extended time to replace vehicle inventories as pandemic-related global disruptions and reduced auto production have made it nearly impossible to replenish new vehicle supply.



In 1980, Congress provided the Treasury Department authority to grant temporary LIFO relief to businesses if a “major foreign trade interruption” makes inventory replacement difficult or impossible (Sec. 473). As the pandemic slowed or stopped production at vehicle assembly plants and suppliers across the globe, dramatic supply constraints helped create historically low dealer inventories and inventory remains near its lowest levels in 50 years.

New car dealers have been unable to sufficiently replace inventory due to foreign trade interruptions, including a severe shortage of critical semiconductor chips caused by the pandemic. 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, have been powerless to replenish inventories, resulting in large, unanticipated tax liabilities for many small business dealers. NADA petitioned the Treasury Department to exercise its Sec. 473 authority in November 2020, which would allow dealers to replace their new-vehicle inventories over a three-year period.

On a bipartisan basis, 92 House Members and 52 Senators signed letters to the Treasury Department supporting Sec. 473 relief for dealers facing severe inventory shortages caused by an unprecedented decline in auto production due to supply chain disruptions. However, Treasury declined to respond citing its belief that added legislative authority is needed.

H.R. 7382/S. 4105 would determine that the requirements of Sec. 473 have been met in the auto sector due to pandemic- related foreign trade interruptions that created inventory shortfalls of new vehicles. The bill would allow dealers to delay the recognition of income triggered by LIFO recapture for tax years 2020 and 2021. Given the ongoing supply chain disruptions, the bill extends the period to replenish inventory and compute LIFO reserve/recapture until the end of 2025 to allow vehicle production to normalize. The American Institute of Certified Public Accountants, American Inter- national Automobile Dealers Association, and National Association of Minority Automobile Dealers also support H.R. 7382/S. 4105.


  • The Alliance for Automotive Innovation and a White House Fact Sheet have documented that automakers could not complete the final assembly of sufficient vehicles due to the inability to obtain foreign-made semiconductors.

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

  • There is overwhelming industry and bipartisan congressional support to address the unprecedented and dire supply chain crisis which is severely impacting the auto industry that is so important to our national economy.



Reps. Kildee (D-Mich.), and Arrington (R-Texas) introduced H.R. 7382, and Sens. Brown (D-Ohio) and Scott (R- S.C.) introduced the Senate companion, S. 4105. Members are urged to cosponsor H.R. 7382/S. 4105 to provide relief to businesses facing difficulty replacing vehicle inventory due to supply chain shortages.


Download This Brief