A bipartisan majority of the House of Representatives comprising 233 members have signed a letter urging the House leadership to preserve the cash method of accounting for tax purposes, writing that proposals requiring a transition to the accrual method “will have a severely detrimental impact on thousands of businesses in our districts.”
Last month, a similar Senate letter gained the backing of 46 members of that chamber (see Senators Express Concern about Accrual Accounting Proposal).
The American Institute of CPAs has led the opposition to a proposal to mandate the use of accrual accounting for businesses and individuals who exceed $10 million in annual gross receipts. The AICPA partnered with state CPA societies and CPA firms to help secure the support and signatures of lawmakers on both sides of Capitol Hill after a proposal was among the many included in a draft tax reform document released last year by the former chairman of the Senate Finance Committee, Max Baucus, D-Mont. The proposal would require businesses and individuals that exceed $10 million in annual gross receipts to use the accrual method of accounting, but it has not gained much traction and the overall tax reform effort has stalled in Congress.
“Those who use the cash method of accounting include many of our local job creators and professionals including accountants, architects, attorneys, dentists, engineers, farmers, physicians and financial service professionals,” the legislators explained in a September 11 letter to House Speaker John Boehner, R-Ohio, and other members of the House leadership. “Importantly, the cash method of accounting is the foundation upon which these businesses have built their business models for decades.”
The House effort was led by Representatives Brad Schneider, D-Ill., Richard Hudson, R-N.C., Mike Quigley, D-Ill., and Blaine Luetkemeyer, R-Mo.
The House letter explained that the cash method of accounting is a simple method in which income is recognized when it is collected. In comparison, the accrual method of accounting recognizes income when a service is performed, regardless of when cash is collected.
“If forced to pay taxes before income is received, as would be required under the accrual method, less money would be available to small businesses for growth and job creation,” the lawmakers wrote. “Additionally, cash flow management becomes far more complex as a result, and will likely trigger the need for additional outside financing. These factors alone would have a significant negative impact on our local economies.”
“While we believe reforms to the tax code should provide a simpler and fairer tax system, requiring the use of the accrual method for entities currently using the cash method will not achieve these goals,” the House letter concluded. “As we seek to best represent the concerns of the constituents in our districts, we strongly urge you to preserve the cash method of accounting.”
“Colleagues from state CPA societies and our members have been instrumental in this effort,” said AICPA president and CEO Barry C. Melancon in a statement. “Thanks to them, more than half of the House and nearly half of the Senate—from both parties and every state—have voiced their opposition to a proposal that unfairly penalizes CPA firms, among other businesses. The accrual accounting mandate is bad tax policy that should be abandoned by the House and Senate.”
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