What do the cash method of accounting and sausages have in common?

• Author: Lewis, Troy K.

Perhaps this statement has never been truer than it is today. The creation of tax laws in Washington is often labor-intensive and involves members of Congress, their staffs, special-interest groups, lobbyists, and other interested stakeholders. One can assume that if tax legislation is riddled with compromise, the actual negotiation and dosed-door discussions that produce the laws are unfriendly and perhaps even hostile at times. As a result, the process of drafting tax laws is generally better left unseen.

However, such negotiation and compromise are part of the process. Affected parties have perhaps not only the right but the obligation to educate those who are responsible for creating and administering the tax laws. In this light, the CPA community, both individually and through the AICPA, can play a vital role. CPAs are uniquely qualified through their expert experience to provide Congress with not only theoretical support for policy decisions but also practical knowledge for all tax law proposals.

Congress has launched a debate on comprehensive tax reform, the likes of which the country has not seen since 1986. As a result, the AICPA, in fulfilling one of its key roles as a leading professional organization, has been active in monitoring and educating Congress about the implications of various tax reform legislative proposals.

Limitation of the Cash Method of Accounting: The Proposals

In March 2013, House Ways and Means Committee Chairman Dave Camp, R-Mich., released a tax reform draft bill, Proposed Tax Reform Act of 2013, that included Title II--Tax Reform for Businesses. The 2013 proposal included many tax reform measures that signaled the committee's desire to proceed with major tax reform in this legislative session. Among the various proposals is a troubling provision that would severely restrict individual owners of businesses from using the cash method of accounting. In early 2014, Camp modified the 2013 proposal in favor of a much more robust and comprehensive tax reform package titled the Tax Reform Act of 2014. Like its predecessor, the 2014 proposal included a similar limitation on the use of the cash method of accounting.

In the fall of 2013, former Sen. Max Baucus, D-Mont., then chairman of the Senate Finance Committee, proposed a discussion draft on cost recovery and accounting that would also restrict certain individual owners of businesses from using the cash method of accounting.

Each of these proposals would force a...