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Year 2000 issues for tax practitioners.

As Jan. 1,2000 draws closer, most people have some notion of what is meant by the statement "the Y2K problem." Total unawareness is not the same problem it was two or more years ago. Rather, the problem is related to a propensity for procrastination; most businesses (including tax practices), while having a conceptual understanding of both the problem and the procedures to fix it, have not yet made an effort at implementation.

For tax practices, this "blast faire" attitude may be partially attributable to the rate of technological change that occurs in many practices not directly related toY2K compliance. For example, tax preparation software has been evolving to a Windows platform for several years. Some of the Windows-based packages are suitable only for computers running Windows9x or Windows NT. These operating systems and applications require significantly more computer power than their predecessor systems running on MSDOS. Therefore, practitioners tend to assume that their natural technological progressions will insulate them from the problem (i.e., relatively new hardware running up-to-date software). That notion is partially accurate. However, tax practices generally use computers for many functions besides return preparation. These functions often are not upgraded as frequently as tax preparation software.

The problem now is time, compounded by the number of changes (both hardware and software) being compressed into 1999. Most tax practices cannot accommodate much change between January 1 and April 15; from a practical standpoint, any correctional plans not finished by Dec. 31, 1998 will have only an eight-month window for execution.

The Technical Issue

The Y2K problem is not a virus; a virus is an infection from an external source. It is not a bug; a bug is something that causes a software program not to work as designed. The Y2K problem results from a major design flaw located in hardware, firmware (chip-based software), software or all three. It occurs when some date-dependent routine stores only the last two digits of the year (with the first two digits assumed to be 19). When the embedded clock (referred to as real time clock or RTC) rolls from Dec. 31, 1999 to Jan. 1, 2000, these devices actually go back in time to Jan. 1, 1900. Additionally, while Jan. 1, 2000 is often referred to as the new millennium, the first day of the new millennium is actually Jan. 1, 2001; it is not just Jan. 1, 2000 that is vulnerable.

Many counting routines violate one of the rules for computing leap years. That rule states that every centesimal year devisable by 400 (1600, 2000, 2400, etc.) is a leap year. Subsequently, if this rule is not considered, even if the counting routine could correctly reach 2000, the device/system will not correctly calculate Feb. 29, 2000. Also, some systems "look one year ahead" for certain functions. For these systems (calculating Jan. 1, 2000 a year early), problems could occur on Jan. 1, 1999.

Not Just Computers

For the last 20 years, there has been an increasing number of devices that function based on a chip with an embedded RTC. For example, these chips may be found in photocopiers, fax machines, telephone systems, credit card systems, time clock systems, cellular telephones, VCRs and projection systems. Within buildings, these chips may be in heating and cooling systems, lighting systems, fire control systems, security monitoring systems, card entry systems, elevators and parking systems. Similarly, specialized industries, such as health equipment, ATM machines, process control systems and traffic systems, may also have these chips. Most tax practitioners are well aware of deficiencies within IRS systems. (Ironically, the Service may have the most experienced cadre of COBOL program patchers around.) In addition to a firm's own computer systems, many of these systems directly and indirectly affect tax practices.


When a computer boots up, it reads instructions contained in a chip. Several of these instructions, generally referred to as firmware, comprise the basic input-output system (BIOS). One of the BIOS functions deals with the date. Therefore, if a date routine within a computer's BIOS uses the two-digit year scheme (most AT-class machines running DOS, Windows 3.11 or earlier versions), there will be BIOS problems. While it is possible to update the firmware in these older machines, it is not generally cost effective.


Each computer stores attributes about its components (e.g., keyboard, display and disks) in a complementary metal oxide semiconductor (CMOS) chip. The RTC is an attribute. Sometimes the BIOS will be able to set and read the century correctly but will not be able to correctly maintain the RTC in the CMOS. So, even when the BIOS works, the CMOS might not. There are so many variations and versions of BIOS and CMOS that it is impossible to predict when a problem will occur.

Test Utilities

A number of sources (including some of the Websites listed in the charts above and on page 704) distribute routines that manipulate the BIOS and CMOS dates to ascertain whether they function correctly through the rollover dates. Some machines might roll over to the correct date if the power is not shut off on Dec. 31, 1999. That is, it is possible that the machine might boot up with the correct date if it is not shut off until after Jan. 1, 2000. Nevertheless, some machines that do not boot up correctly will allow correction of the date manually. Before testing the date rollover (either manually or with a software utility), the data in the PC being tested should be backed up and procedures put in place for effective data recovery and restoration should a fatal error occur during testing. Also, any programs that automatically initiate routines on booting up should be disabled. Often, these programs run some type of date updating routine, and being left active while dates are being manipulated could result in incorrect dates (or loss of access to tax research CD-ROMs). Also, it should be ascertained whether the PC being tested contains any software that expires or executes on a specific date, as running the date forward could interfere with these programs.

Will Windows 3.x and Windows95 Survive?

Microsoft has posted patches on its Website for the Windows 3.x and Windows95 File Managers to correct Y2K date display problems ("The Year 2000 FAQ" (Version 2.3, May 5, 1998), from year2000/y2kfaq.txt, states that Windows NT 4.0 and Windows98 do not exhibit a date rollover problem.) The patches can be downloaded (see the chart above). These files are self-extracting and include a new WINFILE.EXE and a TXT file from Microsoft explaining their use. (The files should be dated Dec. 2, 1997 or later.)

Generally, Windows95 does not have a date problem with the Y2K; it can go forward to the year 2099 and backward to 1980.

Windows98 and Windows NT 4.0

According to Microsoft, machines with "bad" BIOSes are automatically adjusted by Windows98 and Windows NT 4.0. The File Managers also correctly display dates (no downloads required). Therefore, upgrading the operating system seemingly compensates for some Y2K hardware shortcomings. However, both Windows98 and Windows NT 4.0 require significantly more hardware resources (e.g., processor power and memory) than machines originally configured to run MS-DOS or Windows 3.x.

Steps for Coping

Many firms have not yet completed comprehensive surveys of the hardware, firmware and software employed in their everyday business operations. There will often be legacy products still being used for some important functions. Tax practice firms should conduct surveys as soon as possible. Remedies may require more than 12 months to accomplish. Many firms will probably have to outsource this task in order to discover vulnerabilities, plan solutions and execute plans. Claims by any computer troubleshooter of 100% effectiveness should be viewed with skepticism. Because chips have become so pervasive in so many products, some problems will remain obscure even after a thorough search. Similarly, a firm should be cautious about the level of assurance it gives in assisting clients managing Y2K risks. Some CPA firms have withdrawn from performing Y2K consulting engagements because of exposure to liabilities from undiscovered problems. Conversely, assisting clients with their Y2K issues may not only increase firm profitability but, also, firm credibility. However, some professional liability insurance carriers are disclaiming coverage of Y2K issues.

Tax Deductibility

Generally, the IRS has indicated that costs associated with converting or repairing existing software for Y2K compliance are currently deductible. Problems will arise, however, when conversions also include improvements that go beyond compliance. It is likely that any undepreciated hardware removed from service should be expensed as obsolete. Replacement hardware may be subject to normal capitalization rules. However, it is not clear when hardware replacement is being mandated by the software required to cure a problem. For instance, upgrading a Windows 3.x machine to Windows NT 4.0 could solve some dilemmas. Often, such a transition will require more robust hardware. That raises the question of whether the new hardware cost is simply part of the software correction costs. Some interesting developments should be expected as tax returns incurring costs are examined.


There is a wealth of information accessible via the Internet regarding the Y2K issue. The information base is constantly growing. The chart above provides an entry point to obtain information.

RELATED ARTICLE: Microsoft Patches

W95FILUP. EXE: Updated File Manager for Windows95:

W31FILUP. EXE: Updated File Manager for Windows 3.1: 2903.asp EXE

WFWFILUREXE: Updated File Manager for Windows for Workgroups 3.11:


(the author's web site) (CPA Y2K consultant and author of AICPA publication entitled Solving the Year 2000 Dilemma; product #93008) (a broad base of documents and links to other sites) (AICPA web site; currently publishes the above book and a video--clip viewable at the site)

Editor's note: Mr. Maida and Mr. Rubenstein are members of the AICPA Tax Division's Tax Technology Committee. Mr. Prescott is chair of that committee.

If you would like additional information about this article, contact Mr. Maida at (609) 882-6874 or, Mr. Rubenstein at (202) 736-8411 or, or Mr. Prescott at (252) 756-4463 or
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Author:Rubenstein, Robert L.
Publication:The Tax Adviser
Date:Oct 1, 1998
Previous Article:Current developments.
Next Article:Estate tax issues add to practice and procedure developments.

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