August 2001

AICPA Workload Compression Relief Proposal Slated for End of Year

The American Institute of CPAs is currently working on a legislative proposal for workload compression relief that the Institute hopes will have a congressional sponsor by the end of the year.

Also known as fiscal year reform, workload compression relief seeks to stabilize the workload imbalance that came about after passage of the Tax Reform Act of 1986. Under that tax law, which sought to raise more money for the government, flow-through entities, including S corporations, trusts, partnerships and personal service corporations, are required to adopt a calendar year-end instead of a fiscal year-end. The adoption shifts a tremendous amount of work for tax and audit CPAs to the first four months of the year.

Though the only exceptions to the calendar year rule are C corporations and entities controlled by C corporations, the government passed a law in 1987 that permits flow-through entities to select a year-end of Sept. 30, Oct. 31, Nov. 30 or Dec. 31. Entities that choose a year-end other than Dec. 31, however, must make an enhanced payment, also known as a deposit requirement, to the government. To date, the enhanced payments have discouraged the majority of flow-through entities from continuing to use fiscal year-ends.

“We can make no predictions on how long it would take to get enacted,” David A. Lifson, co-chair of the AICPA Small Business Flexibility/Workload Compression Task Force, said of the proposal, which he believes will probably be an attachment to a larger tax bill introduced in Congress.

While the difficulty resides in developing an affordable proposal, Lifson, of Hays and Co. in Manhattan, said the task force received the green light to go forward with the proposed legislation at a recent board meeting of the AICPA.

This is not the first time the AICPA has introduced legislation designed to provide fiscal year flexibility. Previous proposals, like the one introduced to Congress in 1995, have been considered too expensive and too complicated, according to Lifson, who chairs the task force with former New York State Society of CPAs President Bob Israeloff.

“Anything that allows taxpayers to postpone paying taxes until after Dec. 31 is going to cost an awful lot of money, and under current budget rules, it is prohibitively expensive to let large groups of taxpayers change fiscal years,” said Lifson of the difficulty in convincing the government of the need for workload compression relief.

Though fiscal year reform would help spread out the workload for the accounting profession, former NYSSCPA President Alan E. Weiner said there are other reasons to seek relief. By adopting a fiscal year-end, accountants would be able to more promptly provide their clients with early financial statements, thereby facilitating the clients’ release of those statements to credit grantors.

A Sept. 30 year-end, for example, also lends itself to a smoother inventory process for businesses, while a Dec. 31 year-end promises few available employees who can take inventory. And still another advantage to companies adopting fiscal year-ends is the income tax deferral for state purposes, said Weiner, of Holtz Rubenstein & Co., LLP.

Though, according to Lifson, the AICPA has and continues to explore revenue-offset proposals and ideas for carrying out fiscal year exceptions for some corporations, Weiner said the Institute’s commitment to workload compression relief has wavered over the years.

“The AICPA kept on saying they had other things in the fire and this was not high on their list of priorities,” Weiner said.

While he has always had an interest in workload compression relief, having served on the AICPA Partnership Tax Committee in 1986, Weiner became deeply involved in fiscal year reform in 1998 when he was serving as president-elect of the Society. Under his tenure, Weiner went to the AICPA, asking for their involvement in helping to change the law requiring calendar year-ends for flow-through entities.