Making Businesses Pay for Cash Not in Hand Draws Protest: Taxes

A bipartisan group of lawmakers has coalesced on one aspect of a proposed U.S. tax-code revision: They oppose changes in the way some businesses do their accounting.

In a letter, 71 House members from both parties asked Dave Camp, chairman of the Ways and Means Committee, to reconsider the accounting change he has suggested as part of altering U.S. tax laws, Bloomberg BNA reported. The letter, sent last week, said Camp’s proposal would lead to new complexity and costs.

Current law allows cash accounting for individuals, partnerships, S corporations, professional-service corporations such as law firms, and most farming businesses, regardless of their size.

Camp wants such businesses to switch to so-called accrual accounting if their gross receipts exceed $10 million annually.

Under the accrual method, receipts are recorded when transactions are made rather than when payments are received, as in cash accounting. The accrual system requires firms and businesses to pay taxes on money they don’t actually have on hand, which critics say would cause cash-flow difficulties for some that may restrict growth and day-to-day operations.

“While one may say that subjecting all businesses to the same $10 million threshold will ‘simplify’ the tax code, we believe this change may in fact make compliance more complex and create a disincentive for growth,” said the letter from the lawmakers. “For many small businesses, mitigating the one-time costs of switching accounting methods would be extremely difficult, as would the continued use of the more complex accrual method of accounting.”

Camp’s Defense

Camp has justified his proposal to replace an existing mix of accounting rules with a uniform system as in line with an effort to create a more basic set of tax regulations.

Specific cost estimates for the switch in accounting methods aren’t available because the figures would vary among types of businesses, said an aide to Democratic Representative Mike Quigley of Illinois, one of the four primary co-signers of the letter to Camp. The aide requested anonymity when discussing the details of the issue.

Quigley’s Chicago district includes many professional-service businesses that would be affected by the change and who have aired their concerns about it to him, said the aide.

“Across sectors, small business owners are concerned at the possibility of complying with a more complex accounting system that requires them to report income before they receive the cash,” the letter to Camp said.

It also was addressed to the ranking Democrat on the Ways and Means Committee, Representative Sander Levin of Michigan.

Baucus Proposal

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, released a similar proposal last month. He has joined with Camp in an effort to persuade Congress to negotiate comprehensive revisions to the tax code that would be bigger than any changes since 1986.

One hurdle to the push has been a partisan divide over whether the bottom line for the overhaul would include the government collecting more revenue. President Barack Obama and other Democrats have said that must be the case, while Republicans including Camp say no.

Other primary signers of the letter to Camp on the accounting issue are Representatives Blaine Luetkemeyer of Missouri and Richard Hudson of North Carolina, both Republicans, and Brad Schneider, an Illinois Democrat.

Others who signed it included three Ways and Means Committee members, which Quigley’s aide termed significant because Camp has discouraged those on the panel from being part of letter-writing campaigns as the debate intensifies on the tax-code revision. The committee members signing the letter are Representatives Mike Thompson of California, Ron Kind of Wisconsin and Allyson Schwartz of Pennsylvania, all Democrats.

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To contact the editor responsible for this story: Cheryl Saenz at

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