New ABA policy opposes burdensome tax proposal

The ABA Board of Governors adopted a resolution Nov. 16 that opposes proposed legislation in Congress that would require all law firms and other personal service businesses with annual gross receipts over $10 million to use the accrual method of accounting rather than the traditional cash receipts and disbursement method.

The proposed requirement, contained in Section 212 of a House Ways and Means Committee discussion bill known as the “Tax Reform Act of 2013,” would cause significant financial hardship to many law firms, accounting firms and other personal service businesses by forcing them to pay tax on income they have not yet received and may never receive, according to the ABA. The ABA also is concerned that the proposal could create unnecessary complexity in the tax laws while increasing compliance costs.

Under current law, businesses are permitted to use the simple, straightforward cash receipts and disbursement method of accounting – in which income is not recognized until cash or other payment is actually received and expenses are not taken into account until they are actually paid – if their average annual gross receipts for a three-year period are $5 million or less. However, an exemption currently applies to all law firms and other personal service businesses which allows them to use the cash method of accounting irrespective of their annual revenue unless they have inventory.

The more complicated accrual method that would be required by the proposal recognizes income when the right to receive the income exists rather than when payment is received.

Ways and Means Committee Chairman Dave Camp (R-Mich.) is expected to introduce the comprehensive tax reform legislation sometime in the near future.          

 

Back to the November 2013 Washington Letter

Advertisement

ABA Washington Letter

The ABA Washington Letter is a monthly publication produced by the Governmental Affairs Office to report and analyze congressional and executive branch action on legislative issues of interest to the ABA and the legal profession. The newsletter highlights ABA involvement in the federal legislative process and focuses on the association's legislative and governmental priorities and other issues on which the ABA has policy.

ABA Washington Letter Archive

Contact: Rhonda J. McMillion Editor, 202-662-1017

 

ABA Washington Summary 

The ABA Washington Summary is a daily online publication providing up-to-date information on congressional and executive branch activity with regard to legislative issues of interest to the organized bar. Sources include the Congressional Record and Federal Register. The contents of this publication do not necessarily represent the positions of the American Bar Association.

Current ABA Washington Summary

ABA Washington Summary Archive

Contact: Deanna Falcone Editor, 202-662-1016