AICPA Concerned Over Baucus Proposed Limitations on Cash Accounting

A proposal which was made in November by Max Baucus, the US Senate Committee on Finance Chairman, would require companies to employ the accrual accounting method as opposed to the cash method under certain circumstances. This would effectively restrict the usage of the long favoured cash method for the thousands of businesses in the US who rely on it. This is according to the AICPA, American Institute of CPA's.

Baucus, who is set to retire from congress at the end of next year, released several proposals for comprehensive tax reforms over the course of 3 days at the end of last month. The 3 drafts specifically covered the restructuring of tax administration, fraud prevention and the international tax system itself, as well as cost recovery deductions.

Under Baucus' proposal for tax accounting, those businesses who have an average of $10m or less in annual gross receipts for a 3 year taxable period could opt for either the accrual method or the cash method of accounting. This would be regardless of whether or not the inventory played an income producing role within the business, according to Senator Baucus. However, some businesses, such as personal business corps or farmers, who don't meet the threshold for their 3 year gross receipts will have to employ the accrual method.

AICPA sent a letter on December 5 to both Baucus and Orrin Hatch, a member of the Senate Committee on Finance Ranking stating that it opposed the proposed restrictions on the cash method of accounting. The letter said that the cash method's simplicity justified its continuing use by sole proprietors. Personal service corps., farmer and some pass through entities, regardless of their gross receipts.

The letter was credited to Jeffrey Porter CPA, Chairman of the AICPA Tax Executive Committee and went onto say that the AICPA believed that tax reforms should be about promoting both economic growth and publicity but shouldn't create an unnecessary financial or administrative burdens on the taxpayer, or impede the productivity of the economy.