Final answer:
Erosion of LIFO inventory layers is referred to as a LIFO liquidation, which typically results in higher taxable income by using older, lower-cost inventory to calculate the cost of goods sold.
Step-by-step explanation:
An erosion of LIFO inventory layers is referred to as a LIFO liquidation. This occurs when a company using the Last-In, First-Out (LIFO) method for inventory sells off more inventory than it is replacing, leading to older, often cheaper inventory being used to calculate the cost of goods sold (COGS).
This can result in higher taxable income because the COGS will reflect lower costs from previous periods when prices were typically lower. Such a liquidation can have significant tax implications for a company and is often an indicator of supply chain or inventory management issues.