Next Round of AICPA Workload Compression Relief Efforts Nearing Introduction
(Next Round of AICPA Workload Compression Relief Efforts Nearing Introduction
The Tax Reform Act of 1986 generally required partnerships, S corporations and personal service corporations (PSCs) to use calendar year ends. This change aggravated the workload compression problems already experienced by CPAs in the first quarter of the year. The problem was raised with Congress and in 1987, IRC secs. 444, 7519, and 280H were enacted. (Outright repeal of the calendar-year requirement, the solution desired by the CPA profession, was not achievable, due to revenue-neutrality requirements for tax proposals.)
The 1987 changes permitted certain partnerships, S corporations, and PSCs to elect October, November, or December year ends. These electing entities then achieved a limited deferral which the government perceived as lost "income." To offset the revenue loss, that is, maintain revenue neutrality, the fiscal-year entities had to deposit an amount determined by multiplying the electing business' deferral by a rate equal to one percentage point over the maximum individual tax rate.
This approach was never fully embraced by CPAs because clients were not excited about making an interest-free loan to the IRS for the duration of the business.
This year, the AICPA's chairman has made the passage of a workload compression solution a top priority. The AICPA explored several different approaches and settled on one with these features:
oRepeal the deposit approach embodied in IRC secs. 444 and 7519.
oPermit partnerships and S corporations to make the election of any fiscal year end.
oMaintain revenue neutrality by requiring each fiscal-year entity to pay estimated taxes on behalf of its owners. These amounts would then be flowed through to the owners at the end of the year as a credit against their individual taxes.
This approach should be easier for clients to understand. There would not be a perpetual deposit with the government. To the extent estimated taxes are paid by a fiscal-year entity on its income, owners could reduce their own estimated taxes. If this approach can be developed without too much complexity, it may provide a better and more workable solution to the workload compression problem.
The AICPA has engaged a legislative drafter and a revenue estimator for this project. If all goes well with the drafting, you should see an introduced bill by the end of May.
