Academic journal article Journal of Accountancy

Views of the New Tax Act

Academic journal article Journal of Accountancy

Views of the New Tax Act

Article excerpt

This year's tax season may be longer and tougher for CPAs and clients.

"Complex" is the adjective most widely used to describe the Taxpayer Relief Act of 1997 signed into law by President Clinton on August 5, 1997--at least in polite company. Pundits, tax professionals and the press all agree that simplification was not part of the congressional agenda this time around. The new law makes more than 800 changes and will add an as-yet uncalculated number of pages to the Internal Revenue Code, already monumental at close to 3,600 pages.

Nearly all taxpayers--individuals, small businesses and corporations--are likely to be affected by the act in some way. However, overlapping provisions, a multiplicity of rates and a labyrinthine structure of floors and ceilings, phase-ins and phase-outs, effective dates and sunsets, exceptions, exclusions and givebacks will make it difficult to determine exactly how, when and to what extent. After giving the accounting profession nearly two months to wade through the new tax act--itself a weighty document of some 800 pages--the Journal spoke with five CPAs in both public practice and business and industry to learn their opinions of the law, the challenges it presents for them, the implications for their taxpaying constituencies and the strategies and priorities they are developing to meet new planning and compliance needs.


For Katherine M. Rowe, a member of the American Institute of CPAs women and family issues executive committee, dealing with what she calls "the public relations aspects" of the act will be a challenge for CPAs. Her practice, Rowe & Rowe, PC, in Albuquerque, New Mexico, centers on tax, retirement and estate planning for middle- to high-income individuals.

"Explaining to clients that what they've read about isn't going to happen right away--and that they don't even qualify for 75% of the law's benefits because of phase-outs and exclusions--will be difficult," says Rowe. For example, she cites the provision that broadens the definition of a home office, making it easier for the growing number of home-based workers to deduct related costs. "I don't look forward to explaining to self-employed clients, who already feel they have been unfairly excluded from this deduction in the past, that they will continue to have to live with the unfairness until 1999."

The client education process. The law's complexity has created another set of challenges for CPAs. "The education process that comes with any major tax law change is particularly onerous this time," Rowe observes. "So much is hidden, and recognizing the interplay of new provisions with existing law is crucial. It was tough to get a sufficient working knowledge to apply the new provisions to third-quarter estimated tax filings. The lag time between passage of the act and the availability of updated resource books and software made it even tougher."

The impact of this challenge was brought home to Rowe when she found 10% of New Mexico's practicing CPAs in attendance at a course on the new act in September. "That's significant for such a sparsely populated state," she comments.

Benefits for older taxpayers. With a client roster tipped toward individuals of retirement age, Rowe sees the increase in the unified credit for estate and gift taxes and the provisions relating to capital gains and the sale of a principal residence as having the most impact on her practice. She believes the latter provision will be a boon, particularly to people who plan to use home-sale proceeds to enter retirement homes--something that didn't qualify for deferral in the past. Another "godsend" for her clients is the repeal of the 15% excise tax on excess distributions and accumulations from qualified retirement plans.

Rowe expects to do more yearend tax planning, although so far the number of calls her firm is fielding is only slightly ahead of normal. …

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