End Tax Uncertainty, AICPA Tells US Congress
The US Congress must reach agreement as soon as possible about expiring tax provisions because the current tax uncertainty is hindering business planning by small business owners and threatening smooth administration of tax laws.
This was how Jeffrey A. Porter, vice chair of the American Institute of CPAs’ Tax Executive Committee, addressed a House Congressional panel. The urgency follows the risk facing the business planning and administration of tax law.
“Our members are receiving inquiries from their clients, sometimes on a daily basis, on whether the ‘Bush Tax Cuts’ will be extended, what will happen with estate taxes, how the ‘Tax Cliff’ will affect their businesses and whether a particular tax incentive will be extended another year,” Porter testified to members of the House Small Business Subcommittee on Economic Growth, Tax and Capital Access at a hearing titled Adding to Uncertainty: Small Businesses’ Perspectives on the Tax Cliff. “Any further delay will magnify the frustration of many small business owners.”
Currently, small businesses, formed as corporations, pass-through entities, or sole proprietorships, face great uncertainty with regard to income taxes in a multitude of areas, including income tax rates, long-term capital gains rates, the rate for qualified dividends, and whether, and to what extent, certain deductions and exemptions will be available.
“Regardless of whether you support or oppose an increase in income taxes, it is important to understand the significance of what is at stake,” Porter said. “For example, it is nearly impossible to estimate the true cost of a purchase of new equipment when income tax rates are uncertain. Although income taxes are not the only factor in making business decisions, prudent business owners want to understand the tax consequences of a transaction.”
“I also strongly urge you to not underestimate the effect that the ‘Tax Cliff’ has on tax administration itself,” Porter said.
“If Congress waits until late in the year or even into next year to enact tax law changes, the IRS and commercial software vendors must scramble to revise or issue new tax forms and update software. As we experienced just a couple of years ago, this process would likely delay the initial date of when many taxpayers, including small business owners, can file their income tax returns. As a result, affected taxpayers would receive their refund checks days or perhaps weeks later than usual, which is particularly concerning for businesses operating under a tight cash flow.”
For CPAs themselves, a majority of whom are small business owners, tax uncertainty causes an increasingly compressed busy season in order to educate small business clients on the changes in the rules, advise owners on the after-tax consequences of business transactions, assist small businesses and individuals with tax and cash-flow planning and prepare income tax returns.