[Congressional Record Volume 147, Number 21 (Wednesday, February 14, 2001)]
[Extensions of Remarks]
[Page E177]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   INTRODUCING A BILL TO ENSURE THAT SMALL BUSINESSES ARE RIGHTFULLY 
             ENTITLED TO USE THE CASH METHOD OF ACCOUNTING

                                 ______
                                 

                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                      Wednesday, February 14, 2001

  Mr. HERGER. Mr. Speaker, today I introduce the ``Cash Accounting for 
Small Business Act of 2001,'' a bill to simplify the tax code and 
provide relief for small businesses across the nation. I am pleased to 
be joined in this effort by my colleague on the Ways and Means 
Committee, Mr. Tanner, along with the chairman and ranking member of 
the Small Business Committee, Mr. Manzullo and Ms. Nydia Velazquez.
  One of the most complex and burdensome aspects of the Tax Code for 
many small businesses is also one of the most fundamental--their tax 
accounting method. While current tax law specifies a $5 million annual 
gross receipts test for the use of cash accounting, this test has often 
been misinterpreted by the IRS, especially for small businesses using 
inventory.
  Today we are introducing the ``Cash Accounting for Small Business Act 
of 2001,'' legislation to clarify tax accounting rules for small 
businesses. Our legislation will follow the recommendation of the IRS 
National Taxpayer Advocate in his 2000 report to Congress by further 
clarifying the $5 million threshold for use of the cash method of 
accounting. For small companies with average annual gross receipts 
below that level, they will be entitled to use the cash method. In 
addition, the bill will enable small businesses, particularly service 
providers below the $5 million threshold, to avoid the onerous 
inventory-accounting rules. As a result, small business owners will be 
able to save time and accounting costs and put them back into 
productive use.
  According to accountants, the use of accrual accounting can increase 
a small business' accounting costs by as much as 50 percent. For small 
firms struggling to get their businesses off the ground, that's 
valuable capital thrown down the drain to pay for unnecessary 
recordkeeping. The costs for failure to comply, however, can be quite 
high. A survey by the Padgett Business Services Foundation, for 
example, revealed that on the inventory accounting issue alone, a small 
business found by the IRS to be using the incorrect bookkeeping method 
can end up paying $2,000 to $14,000, with an average of $7,200 in 
taxes, interest, and penalties.
  Small business owners across the country have been clamoring for tax 
simplification. This legislation is a down payment on that goal. I urge 
all my colleagues to join me in this straight-forward effort to infuse 
some common sense into our overly complicated Tax Code. Small 
businesses contribute greatly to this country's economy, and they 
deserve a break from needless government-imposed compliance costs.

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