I
107TH CONGRESS
1ST SESSION
H. R. 656
To amend the Internal Revenue Code of 1986 to allow use of cash accounting
method for certain small businesses.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 14, 2001
Mr. HERGER
(for himself, Mr. TANNER, Mr. MANZULLO, and Ms.
VELA´ZQUEZ) introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to allow use
of cash accounting method for certain small businesses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Cash Accounting for
Small Business Act of 2001’’.
SEC. 2. CLARIFICATION OF CASH ACCOUNTING RULES FOR
SMALL BUSINESS.
(a) CASH ACCOUNTING PERMITTED.—Section 446 of
the Internal Revenue Code of 1986 (relating to general
rule for methods of accounting) is amended by adding at
the end the following new subsection:
‘‘(g) SMALL BUSINESS TAXPAYERS PERMITTED TO
USE CASH ACCOUNTING METHOD WITHOUT LIMITA-
TION.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this title, an eligible taxpayer shall not
be required to use an accrual method of accounting
for any taxable year.
‘‘(2) ELIGIBLE
TAXPAYER.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—A taxpayer is an eligi-
ble taxpayer with respect to any taxable year
if—
‘‘(i) for all prior taxable years begin-
ning after December 31, 1999, the tax-
payer (or any predecessor) met the gross
receipts test of subparagraph (B), and
‘‘(ii) the taxpayer is not a tax shelter
(as defined in section 448(d)(3)).
‘‘(B) GROSS RECEIPTS TEST.—A taxpayer
meets the gross receipts test of this subpara-
graph for any prior taxable year if the average
annual gross receipts of the taxpayer (or any
predecessor) for the 3-taxable-year period end-
ing with such prior taxable year does not exceed
$5,000,000. The rules of paragraphs (2) and
(3) of section 448(c) shall apply for purposes of
the preceding sentence.
‘‘(C) INFLATION
ADJUSTMENT.—In the
case of any taxable year beginning in a calendar
year after 2001, the dollar amount contained in
subparagraph (B) shall be increased by an
amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, by substituting ‘calendar year 2000’
for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any amount as adjusted under this subpara-
graph is not a multiple of $100,000, such
amount shall be rounded to the nearest multiple
of $100,000.’’.
(b) CLARIFICATION
OF INVENTORY RULES
FOR
SMALL BUSINESS.—Section 471 of the Internal Revenue
Code of 1986 (relating to general rule for inventories) is
amended by redesignating subsection (c) as subsection (d)
and by inserting after subsection (b) the following new
subsection:
‘‘(c) SMALL BUSINESS TAXPAYERS NOT REQUIRED
TO USE INVENTORIES.—
‘‘(1) IN GENERAL.—An eligible taxpayer shall
not be required to use inventories under this section
for a taxable year.
‘‘(2) TREATMENT OF TAXPAYERS NOT USING
INVENTORIES.—If an eligible taxpayer does not use
inventories with respect to any property for any tax-
able year beginning after December 31, 2000, such
property shall be treated as a material or supply
which is not incidental.
‘‘(3) ELIGIBLE
TAXPAYER.—For purposes of
this subsection, the term ‘eligible taxpayer’ has the
meaning given such term by section 446(g)(2).’’.
(c) INDEXING OF GROSS RECEIPTS TEST.—Section
448(c) of the Internal Revenue Code of 1986 (relating to
$5,000,000 gross receipts test) is amended by adding at
the end the following new paragraph:
‘‘(4) INFLATION ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
2001, the dollar amount contained in paragraph (1)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 2000’ for ‘calendar year
1992’ in subparagraph (B) thereof.
If any amount as adjusted under this paragraph is
not a multiple of $100,000, such amount shall be
rounded to the nearest multiple of $100,000.’’.
(d) EFFECTIVE DATE AND SPECIAL RULES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 2000.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer changing the taxpayer’s
method of accounting for any taxable year under the
amendments made by this section—
(A) such change shall be treated as initi-
ated by the taxpayer;
(B) such change shall be treated as made
with the consent of the Secretary of the Treas-
ury; and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code
of 1986 shall be taken into account over a pe-
riod (not greater than 4 taxable years) begin-
ning with such taxable year.
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