Tax Reforms Being Eyed by Congress Could Hit Big Law Hard
The ABA identified potential pitfalls of switching to the accrual method. Partners could be taxed on income in one year "even though they may not be around when the clients pay their bills (if the bills are ever paid)," the ABA states in the report.
And the legislation would discourage lawyers from joining together to create or expand a firm, even if it made economic sense and would benefit their clients, because it could trigger the accrual accounting requirement in the bill, the ABA states.
And the American Institute of CPAs wrote a letter to Congress this month voicing concerns that it would strain the ability of professional service firms to properly capitalize and maintain capital in their firms.
"The cash method of accounting is simpler in application, has fewer compliance costs, and does not require taxpayers to pay tax before receiving the income being taxed," the AICPA wrote in a Dec. 5 letter to Baucus and Sen. Orrin Hatch (R-Utah), the finance committee’s highest-ranking Republican.
And a group of 71 lawmakers voiced concerns about the provision in a Nov. 25 letter to Ways and Means Committee Chairman Dave Camp (R-Mich.), who circulated a House proposal called the Tax Reform Act of 2013. The lawmakers called the accrual method "unnecessarily complex and financially burdensome for many of the businesses not currently using this method."