ABA supports cash accounting, opposing accrual method

 A majority of U.S. House of Representatives members has submitted a letter to the House leadership urging them to preserve the cash method of accounting for law firms, accounting firms, farmers and many other small businesses -- and expressing concerns over mandatory accrual accounting proposals that would have a dampening effect on business growth across industries and stifle job creation.

The American Bar Association and more than 25 state and local bars have joined with the American Institute of CPAs and numerous other organizations to support the bipartisan letter from Representatives Brad Schneider (D-Ill.), Richard Hudson (R-N.C.), Mike Quigley (D-Ill.) and Blaine Luetkemeyer (R-Mo.) to senior House leaders. The letter, signed by 233 House members, is similar to a letter that 46 senators sent to the Senate Finance Committee on August 6 and demonstrates both wide congressional support for the cash method of accounting, as well as growing opposition to proposals that would force many small businesses to switch to the accrual method.
ABA President William C. Hubbard has warned that if adopted, “the mandatory accrual accounting proposals will create unnecessary new complexity in the tax law, increased compliance costs and significant new financial burdens and hardships for many law firms and other personal service businesses by requiring them to pay taxes on ‘phantom’ income they have not yet received and might never receive.”  Hubbard added that “the legal profession will suffer even greater financial hardships than other professions because many lawyers and law firms are not paid by their clients until long after the work is performed.”
The ABA leader also expressed concerns that the proposals would discourage individual professional service providers from joining with other providers to create or expand a firm, even if it makes economic sense and would benefit clients, because it could trigger the costly accrual accounting requirement.  “Sound tax policy should encourage—not discourage—the growth of personal service businesses, including law firms,” Hubbard noted, “especially in today’s difficult economic environment.”
In praising the new House letter, Hubbard reiterated the ABA’s strong opposition to the accrual accounting proposals and urged Congress to reject any efforts to implement them.  “Now that a clear majority of House members—and nearly half of all Senators—have signed letters in support of preserving cash accounting and in opposition to forced accrual accounting, the ABA urges the House Ways and Means and Senate Finance committees to withdraw these harmful proposals,” Hubbard said.

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