Washington Report

STAKES INCREASE AS HIGH-PROFILE BILLS MOVE THROUGH

From the AICPA Congressional & Political Affairs Team

The new House and Senate Democratic majorities started the year with aggressive agendas, passing several pieces of legislation in the first 100 hours. However, as the burden of being in the majority takes its toll, they are finding it increasingly difficult to reconcile the differing House and Senate versions of several high-profile bills. The stakes will only increase as Congress focuses on more controversial topics, such as Iraq War funding.

UPDATE ON THE PROFESSION’S ISSUES:

Sarbanes-Oxley Act
The 110th Congress will hold hearings on Sarbanes-Oxley. Several bills have been introduced to make section 404 of the act less costly. Representatives of community banks have argued they should be exempt from section 404 requirements because they have been subject to internal control rules that have worked since the 1991 passage of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). However, it is unlikely any legislative action will be taken on Sarbanes-Oxley issues until Congress thoroughly analyzes and vets any regulatory changes the SEC and PCAOB adopt.

Small Business Health Plans
In the last Congress, the House passed a bill allowing small business owners in bona fide trade or professional associations to join together across state lines to purchase health coverage for their families and employees by taking advantage of the group’s greater volume, purchasing clout and administrative efficiencies. The AICPA is part of the SBHP Coalition, which supports the bill and is made up of more than 100 associations and businesses. The bill died in the Senate because, among other reasons, it included provisions exempting insurers from some state regulation if they offered an SBHP. A key factor in this Congress will be how the new chairs of the committees with jurisdiction approach the issue. Sen. Ted Kennedy, D-Mass., has taken over the Senate Health, Education, Labor and Pensions Committee from Sen. (and accountant) Mike Enzi, R-Wyo. Rep. George Miller, D-Calif., took over from Rep. Buck McKeon, R-Calif., on the House Committee on Education and the Workforce.

Tax Patents
The Patent and Trademark Office (PTO) has begun to issue patents for “business methods” in the last several years, including several that were issued for tax reduction strategies. As of April 24, 2007, 53 patents for tax strategies had been granted (and 85 patents were pending), including patents in a variety of areas such as the use of financial products, insurance, charitable giving, estate and gift tax, pension plans, tax-deferred exchanges and deferred compensation. We expect many more tax strategy patents to be issued in a host of areas including income tax minimization, alternative minimum tax minimization and income tax itemized deduction maximization.

Prior to a congressional hearing last year, the AICPA Patent of Tax Planning Ideas Task Force expressed concerns to congressional staff about allowing one person to charge others for using relatively common transactions or structures rooted in the Internal Revenue Code.

In late February, the task force developed, and the AICPA Tax Executive Committee sent, letters to tax-writing and judiciary committee members of Congress calling for legislative action to stem patenting of tax strategies. Such patents limit the ability of taxpayers to fully use interpretations of tax law as intended by Congress and may cause some taxpayers to pay more tax than others similarly situated, the AICPA said. Furthermore, patents may mislead taxpayers into thinking that because a strategy is patented, it is valid and legal, the committees said. In addition, patents complicate compliance by taxpayers and advice by practitioners. The AICPA urged Congress to restrict issuance of patents for tax strategies or to provide immunity from patent infringement actions involving them.

The Stop Tax Haven Abuse Act (S 681) included language that would prohibit “inventions designed to minimize, avoid, defer, or otherwise affect liability for Federal, State, local, or foreign tax.” The act was introduced in February by Sens. Carl Levin, D-Mich; Norman Coleman, R-Minn.; and Barack Obama, D-Ill.

We expect Congress to continue to look at this issue. The AICPA is part of a joint task force that includes the American Bar Association sections of Taxation and Real Property, Probate, and Trust Law; American College of Trust and Estate Counsel (ACTEC); and the American Bankers Association.

For more information, see http://tax.aicpa.org/Resources/Tax+Patents/.

Federal Housing Administration
In the last Congress, the House adopted a bill (HR 5121) to modernize and update the National Housing Act and enable the FHA to use risk-based pricing to more effectively reach underserved borrowers. The bill would have replaced the requirement that FHA correspondent lenders and mortgage brokers have a financial statement and program audit with a surety bond. The AICPA opposed this bill, which died in the Senate.

New FHA legislation has been introduced in the House without language that would affect the audit requirement. However, the House Financial Services Committee added an amendment in early May, opposed by the AICPA, that gives mortgage brokers the choice between obtaining a surety bond or an audit. The AICPA will continue to work to preserve the audit requirement.

Head Start
In the last Congress, the House passed a bill to reauthorize the federal Head Start program and require audit firm rotation for all audits under the program. The Senate version of the bill did not have an audit firm rotation provision. The AICPA has been successful in keeping audit firm rotation out of bills in this Congress.

Small Business Tax Flexibility Act
During the previous Congress, bills were introduced in the House and Senate that would allow startup small partnerships and S corporations (in both cases, those with gross receipts less than $5 million) to elect taxable years other than the calendar year (for example, a July 1 to June 30 taxable year). The bills—which would smooth the annual workload of CPA firms—did not pass. This year, the bill has been introduced in the Senate (S 270) and is expected to be introduced again in the House shortly. The bills will be advocated as part of any small business relief package that moves through the 110th Congress.

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“The federal issues facing CPAs today pose immense challenges and opportunities for our profession. The outcome should not be left to chance.”

—AICPA President & CEO Barry Melancon

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For further information on these legislative issues and congressional-related inquiries, please contact the Congressional and Political Affairs Team at congaffairs@aicpa.org or call 202–737–6600.