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Bill Would Modify Tax Code, Affect Small Contractors
By: Ralph Ross
Ralph Ross
Partner
Tax
Construction & Real Estate, WealthPlan
Jackson
601.948.6700
The American Job Builders Tax Reform Act of 2011 is a bipartisan bill introduced August 10, 2010, by Reps. Wally Herger, R-Calif., and Shelley Berkley, D-Nev. While still in the first steps of the legislative process, this bill would modify the tax code and dramatically affect small construction contractors.
Current law defines a small contractor as having average annual gross receipts of less than $10 million. This amount has not been adjusted for inflation since its inception in 1986. Contractors exceeding this amount cannot use the completed contract method (CCM) when determining gross profit. Instead, they are required to use the percentage of completion method, which requires the use of estimates and could inaccurately report gross profits. This bill proposes increasing the threshold to $40 million and indexing the threshold for inflation, allowing more contractors to use the CCM.
An important part of the proposed bill is a provision providing alternative minimum tax (AMT) relief. Currently, small contractors must report an adjustment under AMT for the deferred gross profit from contracts reported under the CCM. This bill would eliminate this adjustment and help small contractors avoid falling into an AMT liability.
Under current law, small contractors are not required to perform a look-back calculation for regular income tax purposes. However, current law requires small contractors to do a look-back calculation to determine if revenue was underreported or overreported for AMT purposes. The proposed bill eliminates the small contractors’ AMT look-back calculation.
The bill has been referred to the House Committee on Ways and Means. While in committee, the bill will be deliberated, investigated and revised before it could go to general debate. Committees rarely provide basic public information, and the majority of bills never make it out of committee.
For more about this bill, contact your BKD advisor.
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