ABA supports law firms' use of cash accounting

American Bar Association President Paulette Brown recently sent letters to the leaders of three House and Senate panels, urging them to reject proposals that would require many law firms and other personal service businesses to switch from the simple cash method of accounting to the accrual method.

The Senate Finance Committee, the House Ways and Means Committee and the House Ways and Means Tax Policy Subcommittee invited stakeholders to give their view.

In letters to those panels, Brown expressed concerns that, if enacted, the proposals would cause substantial financial hardship to many lawyers and law firms, by forcing them to pay tax on “phantom” income they have not yet received and may never receive. 

While commending Congress for efforts to craft legislation aimed at simplifying the tax laws, the ABA opposes proposals that would require all personal services businesses with annual gross receipts over $10 million to use the accrual method of accounting rather than the traditional cash receipts and disbursement method.