Congress considered Tax Reform in 1986, MAPPS worked with a coalition in the
A/E community to preserve cash based accounting for
certain professional service firms.
We were successful. Language preserving cash
(versus accrual) as an option was included in the 1986
Act. Congress even specified that architecture-engineering services (A/E)
included surveying and mapping! Take a
looks at the current tax regulations.
time, we did a study that found that as much as 1/3 of an A/E firm's revenue
was in accounts receivable at any point in time. If that point in time
was the end of the firm's tax year, and the firm was legally required to use accrual accounting, then the firm would have to pay tax on
income – 1/3 of its annual revenue – not yet realized, and in some cases,
income that would never be realized. This was viewed as a great burden on
small A/E firms.
This argument helped us save the day for A/E firms' ability to continue to use cash accounting in the 1986 tax reform bill that became law.
The Ways and Means Committee of the U.S. House of Representatives has
released a discussion draft for 2013 Tax Reform, part of its broader effort on
comprehensive tax reform that significantly lowers rates while making the tax
code simpler and fairer. This draft is specifically focused on tax provisions
affecting small business.
The draft proposes to continue cash accounting
for certain professional service firms, but
limits it to firms with gross receipts of $10 million or less.
What are your thoughts? How frequent is
use of cash accounting for geospatial (or broader
architecture, engineering, surveying and mapping) among firms with income over
$10 million? Should the $10 million cap
be raised? What should MAPPS advocate?