The American Institute of CPAs has written to the head of the tax-writing House Ways and Means Committee voicing strong opposition to draft legislation that would limit the use of the cash method of accounting for pass-through entities and personal service corporations.
In a letter Friday to Ways and Means chairman Dave Camp, R-Mich., AICPA president and CEO Barry Melancon urged Camp to reconsider the proposal, which was included in the tax reform draft legislation that he proposed in February (see House Ways and Means Chairman Camp Releases Tax Reform Proposal).
“While we generally support increasing the threshold from $5 million to $10 million in average annual gross receipts for businesses that are allowed to use the cash method of accounting, we strongly oppose limiting the use of the cash method of accounting for pass-through entities and personal service corporations with average annual gross receipts over $10 million,” Melancon wrote. “Additionally, including any positive adjustments in income due to the transition from cash to accrual methods of accounting over a four-year stepped period within eight years provides limited relief but does not outweigh the significant costs of using the accrual method of accounting.”
Melancon pointed out that, under Camp’s proposal, an individual working in a corporate entity with the same cash basis income, deductions and credits would have a lower taxable income than an individual in a growing partnership if not for the limitation on use of the cash method of accounting.
“We believe that this is unjustifiable and unfair to penalize an individual for joining other business partners to form a partnership,” Melancon stated.
He noted that the AICPA has consistently supported tax reform efforts that promote simplicity and economic growth and do not create unnecessary administrative and financial burdens on taxpayers, but added that the accrual accounting mandate falls short in that regard.
“We strongly urge you to reconsider limiting the use of the cash method of accounting,” the letter concluded.