The American Institute of CPAs is worried about a provision in the tax reconciliation bill that would limit the deductibility of state and local taxes paid by partnerships such as accounting firms.
The legislation, which was
The AICPA praised the retention of the Section 199A qualified business income deduction, as well as the increase to 23% of the QBI deduction, which has been 20% under the TCJA, and modification of the SSTB limitation for pass-through entity taxes. But it objected to other changes in the bill to the limitation.
"The proposed bill would unfairly exclude SSTBs from deducting state and local income taxes at the partnership level, as is currently permitted," said the AICPA. "The targeting of SSTBs would indirectly increase taxes on millions of service-based businesses and expand the disparity in how the tax code treats C corporations versus pass-through entities. The AICPA believes that Congress should retain the current ability for pass-through entities — which make up the vast majority of businesses — to deduct the entity's state and local taxes at the federal level."
According to the
"While the AICPA remains grateful for the diligent work of the Ways and Means Committee to provide taxpayers and practitioners with common-sense tax policies that will have a continued benefit to the country and on the tax administration process, we remain deeply troubled by the proposed changes to the PTET deduction," said AICPA president and CEO Mark Koziel in a statement Wednesday. "The changes to this vital deduction are unfair to businesses that are the backbone of the American economy, which include accounting firms, medical offices and Main Street businesses, of which the majority are structured as pass-throughs. It is integral that we have parity amongst all types of entities; the AICPA is committed to ensuring that the guiding principles of good tax policy and the interests of taxpayers and tax practitioners are taken into account during the reconciliation process, as these policies will have a significant impact on both. We will continue advocating for policies that exemplify the guiding principles that drive success throughout the profession. Treating any service business more harshly does not seem to follow the principles of good tax policy, such as neutrality, simplicity, fairness, certainty and transparency."
The provision may have been a mixup, one expert speculated. "It is possible that 199A went up to 23% and the rule for people who are over that income threshold seems to have been revised in a way that could allow perhaps more people to get more generous benefits under 199A," said Rochelle Hodes, a principal in the Washington national tax office at Crowe, a Top 25 Firm based in Chicago. "That seems to be the high-level takeaway on 199A. But when you look at the change to Section 275, which is addressing the SALT workaround that states have enacted into law, what they call pass-through entity taxes, it appears that the computation of that tax of those provisions could be less than favorable for some of the SSTBs. Nobody knows. Was that intentional? Was it just a relic? Was it two different groups working on two different things? There's definitely an issue there."
The AICPA also objected to another provision in the bill involving the permanent suspension of personal casualty loss deductions not attributable to federally declared disasters. "The AICPA has supported reinstating the casualty loss deduction to pre-TCJA rules," said the Institute.
On the other hand, the AICPA gave a "strong endorsement" to many of the other provisions in the bill, including:
- An increase in the standard deduction for years 2025-2028;
- Making the tax bracket rates under the Tax Cuts and Jobs Act permanent;
- Inclusion of legislation to expand the use of Section 529 accounts for costs associated with obtaining a post-secondary credential, which grants financial flexibility to those pursuing or advancing in the accounting profession;
- Repeal of the American Rescue Plan Act's lowered threshold for Form 1099-K to $600 for an unlimited number of transactions; the reconciliation legislation will return the requirement to a $20,000 threshold and over 200 transactions;
- Provision regarding Section 174 research and experimental expenditures, which may now be capitalized for domestic research or experimental expenditures over the useful life of the research or over 10 years beginning with the taxable year of expenditure;
- Provision regarding the Paid Family and Medical Leave Tax Credit Extension and Enhancement Act, which would provide certainty to businesses by making a temporary paid family leave tax credit permanent;
- Retention of the TCJA higher exemption amounts for the individual alternative minimum tax, which simplifies filing for many taxpayers; and
- Provision regarding section 163(j), which reinstates the earnings before interest, taxes, depreciation and amortization — or EBITDA — limitation.
The bill is likely to go through further changes as it makes its way through the House and Senate, where some Republicans from blue states have raised objections to various provisions, particularly with the
"There is not a consensus among the Republican caucus regarding how the expiring SALT cap should be resolved," said Hodes. "That's how I would put it."
