Please ensure Javascript is enabled for purposes of website accessibility

It’s Not Accrual World For These Forty-Six Senators Who Are All For Cash Accounting

You may have heard that the Senate is considering, as part of tax reform, to require many cash basis businesses to make the switch to accrual. Because nothing says "reform" like using the method that doesn't actually require money changing hands.

Well, the AICPA hates the idea. I'm sure you thought what I did at first: why would the AICPA hate a concept that would make more work for many of its members which is inevitably a good thing? This should clear that right up for you:

Accrual accounting creates serious cash-flow issues, Diana Deem, a director of congressional and political affairs for the AICPA in Washington, told [The Bottom Line]. She predicted many CPA partners would be forced to take out personal loans to meet their tax liability if the accrual proposal becomes law. Deem also explained that simplification is a critical element of any tax reform. “This proposal does not simplify the U.S. tax code at all. It doesn't make it any easier to comply for taxpayers. It doesn't make it easier for the IRS to administer the [tax] code,” she remarked.

So it goes without saying that the AICPA has dispatched all its best strongly-worded letters for this one, at least whichever strongly-worded letters were remaining after they handed the IRS their ass over that whole voluntary tax preparer registration thing;.

Presumably, they've also dispatched their most helpful lobbyists to gently nudge the Senate in the right direction here.

It must be working, as forty-six senators (which, if you skipped out on Government Class in high school is almost half of them) just sent a letter to Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Ranking Member Orrin Hatch (R-Utah) bashing the proposed change.

From the AICPA press release:

“As the Finance Committee develops its comprehensive tax reform package, we ask that you consider the negative impact that this proposal would have on the professional services sector as well as farming and ranching businesses,” the Senators wrote. “We believe that such a change has not been fully vetted and many of the concerns raised by these businesses have not been addressed.”

Yeah, when have unintended consequences stopped any legislator before? But we digress.

Senators 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’ 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.”

You can read the letter in its entirety below. And if you're really passionate about this issue, you could also write your senator but why bother? The AICPA is on it.

Cash Accounting Letter