Senate Finance Chairman Max Baucus, D-Mont., has proposed that businesses with average annual gross receipts for a three-year taxable period of $10 million or less could elect to adopt either the cash method of accounting or the accrual method of accounting, “regardless of whether inventory is a material income-producing factor in the business,” AccountingWEB reported.
Farmers and personal business corporations that do not meet the three-year gross receipts threshold would need to use the accrual method. The AICPA says the proposal would force these business owners to pay tax before they have the cash to pay it, and add to the complexity and cost of compliance for these businesses.
In its Dec. 5 letter, the AICPA wrote that, “We support the expansion of the number of taxpayers that may use the cash method of accounting. The cash method of accounting is simpler in application, has fewer compliance costs, and does not require taxpayers to pay tax before receiving the income being taxed. For these same reasons, we are extremely concerned with and oppose certain limitations included in the Proposal. We believe that Congress should not further restrict the use of the long-standing cash method of accounting for the thousands of U.S. businesses that rely on it.”