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NRCA applauds introduction of contractor tax accounting bill, urges passage

NRCA applauds the recent introduction of the American Job Builders Tax Reform Act of 2011 (H.R. 1993). This bipartisan bill, sponsored by Reps. Wally Herger (R-Calif.), David McKinley (R-W.Va.) and Shelley Berkley (D-Nev.), would provide much-needed changes to tax accounting methods used by many small and medium-sized contractors.

Under a current provision in the Internal Revenue Code, contractors are forbidden from using the completed contract method (CCM) of accounting if the contractor's overall average annual gross receipts exceed $10 million—a threshold that has not been adjusted for inflation since the rule was created in 1986. Contractors exceeding this unreasonably low income threshold are instead required to use the percentage-of-completion method, which often does not accurately reflect profits because of the required use of yearly job completion estimates. The American Job Builders Tax Reform Act increases the threshold to $40 million and indexes it for inflation. Contractors also no longer will be subject to "look-back" calculations for regular and alternative minimum tax purposes.

The CCM more clearly reflects taxable income because it is based on accurate final results. Because the typical contractor does not realize profits on contracts until retainage is received at contract completion, the CCM is the optimal method for matching contractor profits with tax liability. H.R. 1993 would help small and medium-sized contractors avoid cash-flow problems as they attempt to grow their businesses and create jobs. NRCA will continue to work with other construction trade associations to educate members of Congress regarding the benefits of the CCM and importance of lowering the threshold for eligibility.

For more information, contact Duane Musser, NRCA's vice president of government relations, at dmusser@nrca.net, or Brandon Audap, NRCA's director of federal affairs, at baudap@nrca.net, or call (800) 338-5765.

6/8/2011  

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