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AICPA Weighs In on Tax Reform Priorities: Modernize IRS, Simplify Code

Nov 2nd 2017
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The American Institute of CPAs (AICPA) has weighed in on tax-reform efforts, including commenting on modernizing the IRS and simplifying certain aspects of the tax code, in a letter to Republican leaders known as the Big Six who crafted the “Unified Framework for Fixing Our Broken Tax Code”.

According to the letter, the AICPA wants 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 United States but also abroad.”

“We need a tax system that is fair, stimulates economic growth, has minimal compliance costs, and allows taxpayers to understand their tax obligations,” wrote Annette Nellen, chair of the AICPA Tax Executive Committee, in the letter. “These features of a tax system are achievable if principles of good tax policy are balanced in the design of the system.” 

Here’s a snapshot of what the AICPA wants:

  • Cash method of accounting: The AICPA opposes new limits on using the cash method for businesses, including those whose income is taxed directly on their owners’ individual returns (such as partnerships and S corporations).
  • Pass-through entities: If C corporations get a lower tax rate, so should all businesses. Tax reform also should recognize the importance of consistent tax rates on business income generated from all pass-through entities, including professional service firms.  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 decrease tax reform’s impact of creating jobs and boosting the economy.
  • Distinguishing compensation income: Compensation income should be based on codifying traditional definitions of “reasonable compensation” and supplemented by additional guidance from the U.S. Department of the Treasury and the IRS.
  • Centralized Partnership Audit Regime: Congress should pass legislation that delays the effective date of the “Centralized Partnership Audit Regime” by a year. The current effective date at the end of 2017 makes it unlikely that all of the procedures and guidance necessary for taxpayers to make proper decisions will be established by then.
  • Permanent disaster relief: Permanent disaster relief will better serve victims of natural disaster and provide certainty, fairness, and the ability to receive timely aid. The AICPA urges Congress to enact tax legislation that permanently provides relief effective immediately when a federal disaster occurs instead of through separate bills after each disaster.
  • Modernize the Internal Revenue Service: Efforts to modernize the IRS and its technology infrastructure should build on provisos in the Report of the National Commission on Restructuring the IRS. Congress should direct the IRS to create a dedicated practitioner services unit to centrally manage the numerous disparate practitioner-impacting programs and tools. 
  • IRS regulation of tax return preparers: The AICPA has serious concerns about granting the IRS unlimited authority to regulate tax-return preparers. Congress should mandate that the IRS enact a testing and continuing education that would apply exclusively to so-called “unenrolled” tax return preparers who are not licensed by the states. 
  • Mobile workforce: 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: Congress should avoid and eliminate surtaxes that are complicated and lack transparency, including the alternative minimum tax (AMT).  Policy makers to use a consistent definition of taxable income without the use of any phase-outs.  The using of phase-outs to increase the effective tax rate has contributed to the complexity of the present tax law. Phase-outs also create marginal rates that are more than the statutory rate. Provisos to limit or eliminate certain deductions and exclusions for the top tax bracket will continue current flaws in the system. Congress should provide sufficient time and flexibility to implement transition rules (e.g., AMT carryovers, suspended and passive losses, etc.).  Pass-through entities also should be allowed to choose fiscal year-ends for tax purposes.

Tax reform is part of the Trump Administration’s agenda. The Big Six includes Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn and top House and Senate Republicans.