The American Institute of CPAs has sent a letter outlining its members tax reform priorities of the accounting profession to the group of GOP policy makers known as the Big Six that was responsible for developing the “Unified Framework for Fixing Our Broken Tax Code.”
The AICPA is the world’s largest member association representing the CPA profession, with more than 418,000 members in 143 countries. Its Oct. 25 letter encourages a “holistic approach that is both equitable and meaningful to drive economic opportunities for individuals and families while leveling the playing field for American businesses not only in the U.S. but also abroad.”
The letter summarizes the AICPA’s views on the accounting profession’s key tax reform issues.
Cash method of accounting
The AICPA is concerned with, and opposes, any new limitations on the use of the cash method for any business, including those businesses whose income is taxed directly on their owners’ individual returns (such as, partnerships and S corporations).
“If Congress lowers the income tax rates for C corporations, the AICPA believes all types of business entities should receive a rate reduction,” the letter says. “Furthermore, tax reform should recognize the importance of consistent tax rates on business income generated from all of America’s pass-through entities, including professional service firms.”
Professional service firms, such as public accounting firms, are an important sector in our economy and heavily contribute to the nation’s goals of creating jobs and better wages, the AICPA said. An additional provision that would further disadvantage pass-through entities vis-à-vis corporations, changes to the federal deduction for state and local taxes, “could have a distortive impact and dull the job-creating and economy-boosting effects of tax reform.”
Distinguishing compensation income
The AICPA recommends determining compensation income by codifying traditional definitions of “reasonable compensation” supplemented, if necessary, by additional guidance from the U.S. Department of the Treasury and the Internal Revenue Service.
Centralized Partnership Audit Regime
The AICPA requests that Congress pass legislation to delay by one year the effective date of the new “Centralized Partnership Audit Regime,” which was enacted by the Bipartisan Budget Act of 2015. The letter makes the case that “it is unlikely that all the procedures and guidance necessary for taxpayers to make informed decisions regarding its provisions will be established before the current effective date at the end of this year.”
Modernize the IRS
The AICPA urged Congress and the Administration to address IRS taxpayer services. Any effort to modernize the IRS and its technology infrastructure should build on the foundation established by the Report of the National Commission on Restructuring the IRS.
Additionally, the AICPA recommends that Congress direct the IRS to create a new dedicated practitioner services unit to rationalize, enhance, and centrally manage the many current, disparate practitioner-impacting programs, processes, and tools.
IRS regulation of tax return preparers
The AICPA positions itself as “a steadfast supporter of the IRS’s goals of enhancing compliance and elevating ethical conduct” and fully backs the use of a preparer tax identification number (PTIN) for all signing tax preparers, and subjecting all tax preparers to the reach of Treasury Circular 230.
However, it “has serious concerns about granting the IRS unlimited authority to regulate tax return preparers.”
The AICPA supports the Mobile Workforce State Income Tax Simplification Act of 2017, which provides a uniform national standard for non-resident state income tax withholding and a de minimis exemption from the multi-state assessment of state non-resident income tax.
Tax simplification and administration issues
The AICPA supports a new, simplified income tax rate structure. It suggests Congress and the Administration avoid, as well as eliminate, all surtaxes that are complicated, confusing, and lack transparency, including the alternative minimum tax.
The letter also urges policy makers to use a consistent definition of taxable income without the use of any phase-outs. Congress should provide sufficient time and flexibility to implement transition rules (AMT carryovers, suspended and passive losses).
In addition, the AICPA recommends that Congress allow pass-through entities to choose fiscal year ends for tax purposes. This flexibility would allow advisors to spread out their workload during the year and improve the tax compliance process.