Proposal would require accounting firms to use accrual basis accounting for federal income tax reporting

Should accrual basis accounting be required on your business federal income tax return? That’s what has been proposed by Congressman Dave Camp (R-Mich.), Chairman of the US House Ways and Means Committee. All businesses, regardless of their form of organization, with revenues in excess of $10 million would be required to report on the accrual basis of accounting.

Since many businesses and virtually all professional firms, be they accountants, lawyers or physicians, currently report on the cash basis this would be a monumental change in federal income tax reporting. Just think: everyone would get to pay taxes, in cash of course, before they collect the money. Maybe this was some banker’s idea to make more loans.

The good news is that this is just a proposal at this stage; there is not yet a bill that includes the requirement. More good news is that a bipartisan group of 71 legislators are officially opposing the idea. Additionally, the CPA and accounting caucus in the House, led by Texas’ own Mike Conaway, CPA (R-Midland, TX) opposed this crazy idea. The proposal is part of Camp’s overall tax reform proposal and evidently it is included to try to raise revenue to offset lost revenue from other proposals.

The AICPA also opposes the idea and has communicated to legislators, pointing out: “The proposal would require these companies to change to the accrual method, force their owners to pay tax before they have the cash to pay it, and add to complexity and costs.

There has been a lot of coverage in the business press on this one, but we should take it seriously. You might want to let your own representative know what you think about this one! It would be nice to get it eliminated from the “proposal” before it becomes a bill.

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