II 

109TH CONGRESS 

1ST SESSION S. 543 

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 

MARCH 7, 2005 

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, 2004, 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, 2004, 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, 2004. 

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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