II 

108TH CONGRESS 

2D SESSION S. 2675 

To amend the Internal Revenue Code of 1986 to expand the availability 

of the cash method of accounting for small businesses, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JULY 15, 2004 

Ms. SNOWE introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to expand 

the availability of the cash method of accounting for 

small businesses, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. CLARIFICATION OF CASH ACCOUNTING RULES 

4 FOR SMALL BUSINESS. 

5 (a) CASH ACCOUNTING PERMITTED.— 

6 (1) IN GENERAL.—Section 446 of the Internal 

7 Revenue Code of 1986 (relating to general rule for 

8 methods of accounting) is amended by adding at the 

9 end the following new subsection: 
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1 ‘‘(g) CERTAIN SMALL BUSINESS TAXPAYERS PER2 MITTED TO USE CASH ACCOUNTING METHOD WITHOUT

3 LIMITATION.— 

4 ‘‘(1) IN GENERAL.—An eligible taxpayer shall 

5 not be required to use an accrual method of account6 ing for any taxable year. 

7 ‘‘(2) ELIGIBLE TAXPAYER.—For purposes of 

8 this subsection, a taxpayer is an eligible taxpayer 

9 with respect to any taxable year if— 

10 ‘‘(A) for all prior taxable years beginning 

11 after December 31, 2003, the taxpayer (or any 

12 predecessor) met the gross receipts test of sec13 tion 448(c), and 

14 ‘‘(B) the taxpayer is not subject to section 

15 447 or 448.’’. 

16 (2) EXPANSION OF GROSS RECEIPTS TEST.— 

17 (A) IN GENERAL.—Paragraph (3) of sec18 tion 448(b) of such Code (relating to entities 

19 with gross receipts of not more than 

20 $5,000,000) is amended by striking 

21 ‘‘$5,000,000’’ in the text and in the heading 

22 and inserting ‘‘$10,000,000’’. 

23 (B) CONFORMING AMENDMENTS.—Section 

24 448(c) of such Code is amended— 
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1 (i) by striking ‘‘$5,000,000’’ each 

2 place it appears in the text and in the 

3 heading of paragraph (1) and inserting 

4 ‘‘$10,000,000’’, and 

5 (ii) by adding at the end the following 

6 new paragraph: 

7 ‘‘(4) INFLATION ADJUSTMENT.—In the case of 

8 any taxable year beginning in a calendar year after 

9 2005, the dollar amount contained in subsection 

10 (b)(3) and paragraph (1) of this subsection shall be 

11 increased by an amount equal to— 

12 ‘‘(A) such dollar amount, multiplied by 

13 ‘‘(B) the cost-of-living adjustment deter14 mined under section 1(f)(3) for the calendar 

15 year in which the taxable year begins, by sub16 stituting ‘calendar year 2004’ for ‘calendar year 

17 1992’ in subparagraph (B) thereof. 

18 If any amount as adjusted under this subpara19 graph is not a multiple of $100,000, such 

20 amount shall be rounded to the nearest multiple 

21 of $100,000.’’. 

22 (b) CLARIFICATION OF INVENTORY RULES FOR

23 SMALL BUSINESS.— 

24 (1) IN GENERAL.—Section 471 of the Internal 

25 Revenue Code of 1986 (relating to general rule for 
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1 inventories) is amended by redesignating subsection 

2 (c) as subsection (d) and by inserting after sub3 section (b) the following new subsection: 

4 ‘‘(c) SMALL BUSINESS TAXPAYERS NOT REQUIRED

5 TO USE INVENTORIES.— 

6 ‘‘(1) IN GENERAL.—A qualified taxpayer shall 

7 not be required to use inventories under this section 

8 for a taxable year. 

9 ‘‘(2) TREATMENT OF TAXPAYERS NOT USING

10 INVENTORIES.—If a qualified taxpayer does not use 

11 inventories with respect to any property for any tax12 able year beginning after December 31, 2003, such 

13 property shall be treated as a material or supply 

14 which is not incidental. 

15 ‘‘(3) QUALIFIED TAXPAYER.—For purposes of 

16 this subsection, the term ‘qualified taxpayer’ 

17 means— 

18 ‘‘(A) any eligible taxpayer (as defined in 

19 section 446(g)(2)), and 

20 ‘‘(B) any taxpayer described in section 

21 448(b)(3).’’. 

22 (2) CONFORMING AMENDMENTS.— 

23 (A) Subpart D of part II of subchapter E 

24 of chapter 1 of such Code is amended by strik25 ing section 474. 
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1 (B) The table of sections for subpart D of 

2 part II of subchapter E of chapter 1 of such 

3 Code is amended by striking the item relating 

4 to section 474. 

5 (c) EFFECTIVE DATE AND SPECIAL RULES.— 

6 (1) IN GENERAL.—The amendments made by 

7 this section shall apply to taxable years beginning 

8 after December 31, 2003. 

9 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

10 the case of any taxpayer changing the taxpayer’s 

11 method of accounting for any taxable year under the 

12 amendments made by this section— 

13 (A) such change shall be treated as initi14 ated by the taxpayer; 

15 (B) such change shall be treated as made 

16 with the consent of the Secretary of the Treas17 ury; and 

18 (C) the net amount of the adjustments re19 quired to be taken into account by the taxpayer 

20 under section 481 of the Internal Revenue Code 

21 of 1986 shall be taken into account over a pe22 riod (not greater than 4 taxable years) begin23 ning with such taxable year. 
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1 SEC. 2. TRANSFER OF UNEMPLOYMENT EXPERIENCE UPON 

2 TRANSFER OR ACQUISITION OF A BUSINESS. 

3 (a) IN GENERAL.—Section 303 of the Social Security 

4 Act (42 U.S.C. 503) is amended by adding at the end the 

5 following: 

6 ‘‘(k)(1) For purposes of subsection (a), the unemploy7 ment compensation law of a State must provide— 

8 ‘‘(A) that if an employer transfers its business 

9 to another employer, and both employers are (at the 

10 time of transfer) under substantially common owner11 ship, management, or control, then the unemploy12 ment experience attributable to the transferred busi13 ness shall also be transferred to (and combined with 

14 the unemployment experience attributable to) the 

15 employer to whom such business is so transferred, 

16 ‘‘(B) that unemployment experience shall not, 

17 by virtue of the transfer of a business, be trans18 ferred to the person acquiring such business if— 

19 ‘‘(i) such person is not otherwise an em20 ployer at the time of such acquisition, and 

21 ‘‘(ii) the State agency finds that such per22 son acquired the business solely or primarily for 

23 the purpose of obtaining a lower rate of con24 tributions, 

25 ‘‘(C) that unemployment experience shall (or 

26 shall not) be transferred in accordance with such 
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1 regulations as the Secretary of Labor may prescribe 

2 to ensure that higher rates of contributions are not 

3 avoided through the transfer or acquisition of a busi4 ness, 

5 ‘‘(D) that meaningful civil and criminal pen6 alties are imposed with respect to— 

7 ‘‘(i) persons that knowingly violate or at8 tempt to violate those provisions of the State 

9 law which implement subparagraph (A) or (B) 

10 or regulations under subparagraph (C), and 

11 ‘‘(ii) persons that knowingly advise another 

12 person to violate those provisions of the State 

13 law which implement subparagraph (A) or (B) 

14 or regulations under subparagraph (C), and 

15 ‘‘(E) for the establishment of procedures to 

16 identify the transfer or acquisition of a business for 

17 purposes of this subsection. 

18 ‘‘(2) For purposes of this subsection— 

19 ‘‘(A) the term ‘unemployment experience’, with 

20 respect to any person, refers to such person’s experi21 ence with respect to unemployment or other factors 

22 bearing a direct relation to such person’s unemploy23 ment risk; 

24 ‘‘(B) the term ‘employer’ means an employer as 

25 defined under the State law; 
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1 ‘‘(C) the term ‘business’ means a trade or busi2 ness (or an identifiable and segregable part thereof); 

3 ‘‘(D) the term ‘contributions’ has the meaning 

4 given such term by section 3306(g) of the Internal 

5 Revenue Code of 1986; 

6 ‘‘(E) the term ‘knowingly’ means having actual 

7 knowledge of or acting with deliberate ignorance of 

8 or reckless disregard for the prohibition involved; 

9 and 

10 ‘‘(F) the term ‘person’ has the meaning given 

11 such term by section 7701(a)(1) of the Internal Rev12 enue Code of 1986.’’. 

13 (b) STUDY AND REPORTING REQUIREMENTS.— 

14 (1) STUDY.—The Secretary of Labor shall con15 duct a study of the implementation of the provisions 

16 of section 303(k) of the Social Security Act (as 

17 added by subsection (a)) to assess the status and ap18 propriateness of State actions to meet the require19 ments of such provisions. 

20 (2) REPORT.—Not later than July 15, 2006, 

21 the Secretary of Labor shall submit to the Congress 

22 a report that contains the findings of the study re23 quired by paragraph (1) and recommendations for 

24 any Congressional action that the Secretary con-
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1 siders necessary to improve the effectiveness of sec2 tion 303(k) of the Social Security Act. 

3 (c) EFFECTIVE DATE.—The amendment made by 

4 subsection (a) shall, with respect to a State, apply to cer5 tifications for payments (under section 302(a) of the So6 cial Security Act) in rate years beginning after the end 

7 of the 26-week period beginning on the first day of the 

8 first regularly scheduled session of the State legislature 

9 beginning on or after the date of the enactment of this 

10 Act. 

11 (d) DEFINITIONS.—For purposes of this section— 

12 (1) the term ‘‘State’’ includes the District of 

13 Columbia, the Commonwealth of Puerto Rico, and 

14 the Virgin Islands; 

15 (2) the term ‘‘rate year’’ means the rate year 

16 as defined in the applicable State law; and 

17 (3) the term ‘‘State law’’ means the unemploy18 ment compensation law of the State, approved by 

19 the Secretary of Labor under section 3304 of the In20 ternal Revenue Code of 1986. 

21 SEC. 3. USE OF NEW HIRE INFORMATION TO ASSIST IN AD22 MINISTRATION OF UNEMPLOYMENT COM23 PENSATION PROGRAMS. 

24 Section 453(j) of the Social Security Act (42 U.S.C. 

25 653(j)) is amended by adding at the end the following: 
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1 ‘‘(7) INFORMATION COMPARISONS AND DISCLO2 SURE TO ASSIST IN ADMINISTRATION OF UNEMPLOY3 MENT COMPENSATION PROGRAMS.— 

4 ‘‘(A) IN GENERAL.—If, for purposes of ad5 ministering an unemployment compensation 

6 program under Federal or State law, a State 

7 agency responsible for the administration of 

8 such program transmits to the Secretary the 

9 names and social security account numbers of 

10 individuals, the Secretary shall disclose to such 

11 State agency information on such individuals 

12 and their employers maintained in the National 

13 Directory of New Hires, subject to this para14 graph. 

15 ‘‘(B) CONDITION ON DISCLOSURE BY THE

16 SECRETARY.—The Secretary shall make a dis17 closure under subparagraph (A) only to the ex18 tent that the Secretary determines that the dis19 closure would not interfere with the effective 

20 operation of the program under this part. 

21 ‘‘(C) USE AND DISCLOSURE OF INFORMA22 TION BY STATE AGENCIES.— 

23 ‘‘(i) IN GENERAL.—A State agency 

24 may not use or disclose information pro25 vided under this paragraph except for pur-
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1 poses of administering a program referred 

2 to in subparagraph (A). 

3 ‘‘(ii) INFORMATION SECURITY.—The 

4 State agency shall have in effect data secu5 rity and control policies that the Secretary 

6 finds adequate to ensure the security of in7 formation obtained under this paragraph 

8 and to ensure that access to such informa9 tion is restricted to authorized persons for 

10 purposes of authorized uses and disclo11 sures. 

12 ‘‘(iii) PENALTY FOR MISUSE OF IN13 FORMATION.—An officer or employee of 

14 the State agency who fails to comply with 

15 this subparagraph shall be subject to the 

16 sanctions under subsection (l)(2) to the 

17 same extent as if such officer or employee 

18 was an officer or employee of the United 

19 States. 

20 ‘‘(D) PROCEDURAL REQUIREMENTS.— 

21 State agencies requesting information under 

22 this paragraph shall adhere to uniform proce23 dures established by the Secretary governing in24 formation requests and data matching under 

25 this paragraph. 
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1 ‘‘(E) REIMBURSEMENT OF COSTS.—The 

2 State agency shall reimburse the Secretary, in 

3 accordance with subsection (k)(3), for the costs 

4 incurred by the Secretary in furnishing the in5 formation requested under this paragraph.’’. 

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