The American Institute of CPAs has written to the heads of Congress’s main tax-writing committee expressing its opposition to a proposed limitation on the use of the cash method of accounting for partnerships, S corporations, personal service corporations and farmers.
The proposal is contained in a small business tax reform discussion draft circulated by House Ways and Means Committee Chairman Dave Camp, R-Mich.
The proposal provides that the cash method of accounting is available for natural persons (in other words, individuals) and any other taxpayer who meets the gross receipts test and is otherwise eligible to use the cash method, but effectively eliminates exceptions that currently exist for certain pass-through entities (such as partnerships and S corporations), farmers and personal service corporations.
“We support the expansion of the number of taxpayers that may use the cash method of accounting,” AICPA Tax Executive Committee chair Jeffrey Porter wrote in a letter to Camp and the ranking Democrat on his committee, Sander Levin, R-Mich., while also CC’ing other members of the Ways and Means Committee, along with the leaders of the Senate Finance Committee and officials at the Internal Revenue Service and the Treasury Department. “The cash method of accounting is simpler in application, has fewer compliance costs, and does not require taxpayers to pay tax on income they have not yet received. For these same reasons, we are extremely concerned with and oppose certain limitations included in the proposal. We believe that Congress should not further restrict the use of the long-standing cash method of accounting for the thousands of U.S. businesses that use it.”
The AICPA is urging lawmakers to consider the financial burden that the proposal, if enacted, would place on businesses. “The proposal would require these companies to change to the accrual method, force their owners to pay tax before they have the cash to pay it, and add to complexity and costs,” said the letter. “The AICPA believes tax reform should promote simplicity and economic growth and should not create unnecessary administrative and financial burdens on taxpayers or impede the productive capacity of the economy. Simplicity is important both to improve the compliance process and to enable taxpayers to better understand the tax consequences of transactions in which they engage in or plan to engage.”