Nearly Half of U.S. Senators Sign Letter Expressing Concern about Accrual Accounting Proposal

August 27, 2014

Senate side of U.S. CapitolForty-six U.S. Senators signed a recent letter to Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Ranking Member Orrin Hatch (R-Utah) encouraging them to preserve the ability of CPA firms and other businesses to use the cash basis of accounting for tax purposes.

A provision contained in a tax reform draft released last year by then-Finance Committee Chairman Max Baucus would require many businesses to change the method of accounting from the traditional cash basis method to the accrual method.

The American Institute of CPAs (AICPA) is a leading opponent of tax reform proposals to mandate the use of accrual accounting for businesses and individuals who exceed $10 million in annual gross receipts. The AICPA has partnered with state CPA societies and CPA firms to voice the profession’s concerns about the accrual accounting requirement.

Senators from 32 states pointed to the impact of having to convert to the accrual basis for previously exempt businesses, including CPA, medical, dental, architectural, engineering and law firms. “[T]he acceleration of the business’ tax liability combined with the inability to match revenues with expenses would force businesses to borrow money to meet their tax liability. The basic tenet of taxation is ‘ability to pay.’ Forcing businesses to recognize income before they receive payment violates this basic tenet.”

The Senators’ August 6 letter goes on to explain that the proposal “would cause numerous adverse unintended consequences and as a result is opposed by many members of both parties. Therefore, we strongly encourage you to maintain the current ability of pass-through entities, personal services corporations, and farming and ranching businesses to use the cash basis for tax purposes irrespective of annual gross receipts.”

The AICPA commends Senators Sherrod Brown (D-Ohio), Pat Roberts (R-Kan.), Angus King (I-Maine) and Ron Johnson (R-Wis.) for leading the effort.