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NSPA on tax simplication.

NSPA on Tax Simplification

NSPA represents some 23,000 independent accountants who provide accounting, tax preparation, tax planning, financial planning and managerial advisory services to an estimated four million individuals and small businesses nationwide.

Because of the type of clients its members serve, NSPA is in a unique position to address how tax simplification will affect mainstream America. Our members represent Main Street, U.S.A. - its small businesses, senior citizens and working families - struggling to make ends meet. When the nation's tax laws change, NSPA members are the first to see their impact on the average American. We therefore greatly appreciate the opportunity to appear before you today and share with you our experiences as they relate to a number of important issues involved in the tax simplification process.

In general, the National Society believes that H.R. 2775 and H.R. 2777 represent important steps forward in the simplification process. The overwhelming majority of the provisions in these two bills do indeed live up to the goal of tax simplification.

In particular, NSPA applauds those provisions which accelerate to March 15 the due date to partners and shareholders of the Schedule K-1 and the provision which permits payment of tax liabilities by credit card. Both of these items will considerably alleviate the crunch felt by both taxpayers and their return preparers as April 15 approaches each year.

At the same time, however, there are a few suggestions that NSPA would like to offer as the committee seeks to fine-tune these commendable proposals. I would like to devote the balance of my testimony to these suggestions.

Tax Court Provisions

As you may be aware, Representative Leon Panetta (D-CA) has recently introduced legislation, H.R. 1485, to allow certified public accountants and enrolled agents to represent taxpayers in small cases before the Tax Court. The Code defines a small case as one in which the tax in dispute is less than $10,000 (Code Section 7463).

NSPA believes that Congressman Panetta's bill will greatly simplify appearances before the Tax Court for many taxpayers. Instead of incurring the time and delay involved in retaining counsel, H.R. 1485 allows small case taxpayers to be represented by the one person who knows their tax situation best - their CPA or EA.

Since present law already permits CPAs and EAs to practice before the Tax Court if they pass a written examination, H.R. 1485 is a logical extension of existing practice rights. Because the formal rules of evidence and procedure which the Tax Court examination tests are waived in small cases, the integrity of the system is in no way compromised. Under Congressman Panetta's proposal, everybody gains - taxpayers, practitioners, Tax Court dockets and even simplification-minded tax writers.

Because H.R. 1485 is revenue-neutral, non-partisan and, most importantly, simplifying, we urge this committee to include it in the final bill reported to the House.

Accounting Provisions

NSPA applauds the de minimis exclusion from the look-back method of accounting contained in H.R. 2777. We believe this is an excellent application of the threshold concept which we have advocated before this committee for some time.

However, we believe that requiring taxpayers to make an affirmative election to avoid application of the look-back rules in de minimis situations creates unnecessary traps for the unwary. To be truly simplifying, when the de minimis threshold applies, its application should be automatic. NSPA recommends that the proposal be modified accordingly.

With regard to the uniform capitalization rules, NSPA concurs that the proposed changes do provide some degree of simplification to this overwhelming area of the tax law. However, it is the National Society's experience that far too many taxpayers, tax prepares and IRS field personnel are unable to grasp many of the intricacies of this complex area of the tax law. We therefore would recommend that the final bill make provision for specific guidance - including many comprehensive examples - as to how to apply the UNICAP rules.

Rollover of Gain on

Residence Provisions

H.R. 2775 makes important strides in relieving complexity for taxpayers who must sell there residences incident to a divorce or separation. The bill provides a safe harbor in determining principal residence status if, inter alia, "the taxpayer used such residence as his or her principal residence at any time during the two-year period ending on the date of sale." Explanation of H.R. 2775 at 3.

NSPA echoes suggestions from several quarters that this safe harbor be expanded from a two-year period to whatever time a court grants occupancy to one of the ex-spouses. Unfortunately, divorces, and more often their attendant property settlements, can last for more than two years. Moreover, the looming deadline included in H.R 2775 might unintentionally confer on one party to the divorce added and unfair negotiating leverage. Modifying the proposal as suggested would produce the same simplifying result without the imposition of an arbitrary deadline on the settlement process.

Due Dates for Quarterly

Estimated Tax Payments

Section 102 of H.R. 2777 includes provisions which would simplify individual estimated tax payment obligations through moving the due date for the second quarterly payment from June 15 to July 15. NSPA believes that this provision makes eminent good sense. However, by the exact same logic, NSPA also believes that it would make eminent good sense to move the third quarter payment deadline from September 15 to October 15.

Beyond furthering Section 102's stated simplification goals, NSPA's proposal has the added benefit of putting estimated payments on an even quarterly basis. That is, under the current system, the quarters are three months, two months, three months and four months long, respectively; under H.R. 2777, they would be three months, three months, two months and four months long, respectively. However, under the NSPA proposal, each quarter would be three months long. This is, after all, how long a quarter of a year should be.

Payroll Tax Deposit


NSPA believes that the payroll tax deposit reforms contained in H.R. 2775 represent a substantial step forward in simplifying this area of the law, at least as applied to small business. However, one key component of the new regime threatens to undermine this laudable result: the $3,500 threshold for small depositors is prohibitively low.

The $3,500 in quarterly employment taxes averages out to only two or three full-time employees. Thus, while some very small firms will benefit from the proposed change, the majority of small businesses will find themselves facing a newer and more onerous regime than they currently deal with. While recognizing the need for balancing in this matter in order to satisfy revenue neutrality requirements, NSPA feels duty bound to point out that these small businesses will not view the current proposal as simplifying. Accordingly, NSPA urges the committee to investigate raising the threshold for small depositors.


In closing, Mr. Chairman, I would like to again thank you for the invitation to appear before the committee today. The National Society of Public Accountants applauds your leadership and that of the members of this committee in addressing the important issues discussed today. NSPA stands ready to assist you in your efforts in every way possible.
COPYRIGHT 1991 National Society of Public Accountants
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:testimony of Federal Taxation Committee chairman Glen Gillmore before the Ways and Means Committee of the United States House of Representatives; Capitol Corridors; National Society of Public Accountants
Author:Berkery, Peter M., Jr.
Publication:The National Public Accountant
Article Type:transcript
Date:Sep 1, 1991
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