Draft Federal Legislation May Accelerate Payment of Tax for Some Businesses

Draft Legislation in the House Ways and Means Committee will result in certain businesses paying tax before the income is actually received by the business.

The House Ways and Means Committee is currently considering a proposal that would significantly reduce the number of businesses eligible to use the cash method of accounting. Under current law, certain pass-through entities (i.e. partnerships and S corporations), farmers, and personal service corporations are permitted to use the cash basis method of accounting, regardless of their gross receipts, unless they have inventory. The proposal eliminates the availability of the cash-method for these businesses if they have average annual gross receipts over a three year period in excess of $10 million. This proposal would force many business owners to pay tax before they have the cash to pay it, and it would add additional complexity and compliance costs. The proposal is currently open for comment in the House Ways and Means Committee, on which Oregon Representative Earl Blumenauer is a member.