The U.S. Tax Court found that a non-CPA tax preparation and bookkeeping business is an accounting service and subject to the 35 percent tax applicable to qualified personal service corporations.A Las Vegas firm had argued that because it was not a public accounting firm, its employees didn’t perform services that required them to be CPAs and because state law doesn’t state that accounting services can only be performed by CPAs, it shouldn’t be defined as a provider of accounting services as outlined under Section 448(d)(2) of the tax code.
The Internal Revenue Service had flagged deficiencies in the firm’s 2002 and 2003 returns totaling about $17,000. On each of the firm’s corporate returns, it calculated its income tax liability using the graduated income tax rates applicable to corporations. But the IRS argued that the business should be treated as a qualified personal service corporation and be subject to the 35-percent tax rate.
The court ruled that the firm didn’t appreciate the distinction between “public accounting” and “accounting.” The court said that public accounting work, which generally requires a CPA license, represents a branch of accounting, and not the entire realm of accounting.
Section 448 only requires that the services provided by a firm be in the “field of accounting” -- which the court said that both tax return preparation and bookkeeping services are generally regarded as.
The full decision is available at www.ustaxcourt.gov/InOpHistoric/Rainbow.TC.WPD.pdf.
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