AICPA Continues Push to Retain Cash Basis Method of Accounting by Business Owners

November 26, 2013

Tax reform may be on hold in the U.S. House of Representatives at the moment, but the American Institute of CPAs (AICPA) is closely monitoring the situation on Capitol Hill to be certain a proposed limitation on the use of the cash basis method of accounting is not included in any legislative package.

To help offset revenue reduction in tax reform, the House Ways and Means Committee has proposed accelerating revenue collection from CPA firms and thousands of other businesses through the use of the accrual method.  While supportive of the Committee’s responsiveness to taxpayer concerns that the code is too complex, the AICPA has expressed the view that restricting the use of the cash method would create a hardship for the partners of CPA firms and owners of other entities in the professional services sector.  In fact, it would force business owners operating in any form of organization other than sole proprietorships to pay tax in advance of collecting cash payment from their clients and customers if average gross receipts of the business exceed $10 million.  The AICPA believes that this is unfair because it essentially treats these individuals differently than individual taxpayers.

The message that Congress should not restrict the use of the cash basis method is being delivered to members of the Ways and Means Committee, and other members of Congress, by CPAs across the nation.  Working with state CPA societies, member CPA firms and CPAs who are AICPA Key Persons, the Institute is informing lawmakers about the negative consequences the provision would have on CPAs and other businesses.  To date, 50 state CPA societies sent letters to more than 400 members of Congress. Additionally, more than 150 members of Congress received letters from CPA firms that would be directly impacted by the proposal.

Lending their support to the effort, several members of the Congressional Caucus on CPAs and Accountants have expressed their strong opposition to the proposal in a letter to Ways and Means’ leadership. Writing on November 25, eight lawmakers, led by Caucus Co-Chairs Rep. Brad Sherman (D-Calif.) and Rep. Mike Conaway (R-Texas), stated that, “Despite the disruptions that this change would cause across the business community, moving from accrual to cash based accounting will not offer any real benefits. It does not simplify the tax code and it should not be used to offset other revenue reductions in tax reform.  The proposed change simply shifts a tax burden forward, increasing revenues today, but decreasing revenues in the future.”