|February 28, 2014|
Previously published on December 18, 2014
On December 5, the American Institute for CPAs (“AICPA”) detailed their views on Senate Finance Committee Chairman Max Baucus’s (D-Mont.) tax reform discussion draft on tax accounting. AICPA supports the expansion of the number of taxpayers that may use the cash method of accounting, and had concerns regarding Sen. Baucus’s proposal restricting the availability of the cash method of accounting.
According to the AICPA, the proposal would effectively eliminate the “exceptions that currently exist for all natural persons, certain pass-through entities (i.e., partnerships and S corporations), farmers, and personal service corporations,” because, under Sen. Baucus’s proposal, it would be generally available only to taxpayers that have average annual gross receipts of $10 million or less for a three taxable-year period. Under the current law, these businesses are permitted to use the cash method of accounting, regardless of gross receipts, unless they have inventory.
The AICPA believes that the cash method of accounting is much simpler and more economically feasible to manage than the accrual method of accounting. As such, according to the AICPA, the discussion draft’s limitations would create increased complexities and greater financial burdens for businesses forced to change accounting methods.