Inventory Reserve Tax Treatment is the process of using a reserve to offset future tax liability on inventory. It involves setting aside a portion of the reported cost of inventory at the time of purchase, which is then used as an expense when taxes are paid in future years. This provides businesses with advantages like increased cash flow and tax savings, allowing them to reinvest their profits more effectively. With Inventory Reserve Tax Treatment, businesses can also ensure that current year expenses are not under-reported, thus avoiding penalties and other unwanted consequences.