In letters to both House and Senate leadership released over the past two months, bipartisan lawmakers members from all 50 states signaled support for retention of the cash accounting method for small businesses, rather than the accrual method proposed by the Senate Finance Committee.
In all, 46 senators and 233 representatives signed on to the letters. According to the American Farm Bureau Federation, cash accounting is desirable for farmers and ranchers because it allows them to more easily expand business operations.
The Senate committee's proposed accrual method, however, would require all businesses with annual receipts totaling $10 million to switch to the accrual method.
"We are pleased to see members of Congress reach across party lines and stand together for farmers and ranchers who are working to build their businesses and communities," AFBF President Bob Stallman said in a statement Friday.
Under an accrual accounting system, small businesses would be taxed on non-existent income, thereby reducing their cash flow for operating costs and limiting opportunities for expansion, AFBF says. The added financial burden would require many to take out loans to cover the liquidity problems they would face.
Forcing small businesses to full-accrual accounting will hinder both profits and job creation in regions of the country that are still suffering from the economic downturn, AFBF added.
Senators and representatives from both sides of the aisle warned this would create long-term financial hardship.
"Farmers and ranchers rely on the flexibility of cash accounting to accelerate expenses or defer income- a tool that helps farm businesses cope with volatile commodity prices and weather conditions," House members wrote in their letter, dated Sept. 11. "Cash accounting gives farmers and ranchers the flexibility they need to manage their tax burden."
The House members noted that requiring agricultural businesses to shift to accrual accounting would likely dramatically reduce working capital and equity available for investment, as well as increase complexity and decrease flexibility for many agricultural businesses.