Why B&I CPAs should care about legislation

One of the key benefits provided to you by the AICPA and your state society is representing your interests in front of Congress and state legislatures. I was recently at the TSCPA Midyear Board of Directors Meeting in Austin and was reminded why such connections are so important. Many B&I CPAs would prefer not to deal with the political end of our profession and when I ask them why, they say it does not affect or interest them. I always recall the quote “just because you aren’t interested in politics doesn’t mean politics won’t be interested in you” when I hear such a response. So this week I thought I would suggest a few reasons why all CPAS, including B&I CPAs, should be interested in what goes on in their state legislature and why you should be thankful your state society works to protect your interests.

The first and most important reason is to protect the value of your CPA license. Because you are still a CPA, I assume you see some value in holding that license. The reality is that a lot of other groups also see value in the CPA license and they want to get some of that value for themselves. Whether they want to call themselves registered accountants, or any of a dozen other terms, their desire is to benefit from public confusion over their purported license while not adhering to the educational, professional and ethical requirements of being a CPA. Your state society makes sure the legislators understand these distinctions and stop efforts to confuse the public.

A second important focus is to keep the tax laws as efficient as possible. One example in Texas are the principles on franchise tax reform that TSCPA has distributed to the legislators. Instead of supporting a specific bill, the TSCPA has recommended several principles for the legislators to consider in any changes to the franchise tax. If we have to have a tax, then we need to keep the process of calculating that tax as efficient as possible. In the case of the franchise tax one significant simplification would be to use the same cost of goods sold calculation as is required for federal income taxes. This would cut in half the work businesses have to complete. Instead of two separate calculations, a business could develop one calculation and use it twice. Paying a tax can be painful, but necessary. Paying excess cost to calculated the tax owed is just like rubbing salt in a wound. When a change can be made that makes the calculation less painful with little change in the actual tax, we all benefit.

I could cite additional examples, but brevity like efficiency has a luster all its own. The AICPA puts out a monthly newsletter on its activities and you can find out more about what is going on in your state from your state society website. Check it out; you might even be surprised to find an issue or two important to you.

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Supreme Court Decisions

Last week the Supreme Court issued four decisions that will impact businesses and B&I CPAs need to be prepared to react. Two decisions related to discrimination/harassment lawsuits and two decisions related to same-sex marriage.

The first discrimination decision limited who could be considered a supervisor for purposes of bringing a harassment lawsuit against a company.  The Supreme Court said a supervisor must be someone who makes “tangible employment actions” like hiring, firing, promoting, demoting or reassigning an employee.  This means that someone who directs the daily work activities but does not have those additional responsibilities is simply a co-worker.  The reason this matters is that there is a significant difference in meeting the burden of proof when harassment comes from a supervisor versus harassment by a co-worker.  The second case dealt with retaliation for complaining about harassment.  The courts held that retaliation cannot simply be a motivating factor but must be the primary factor in the supposedly retaliatory action.  Once again this increases the burden of proof on a plaintiff in a harassment lawsuit.

While these two decisions are more about running a business, they do have an impact on the accounting results.  If a business is subject to any lawsuits purporting harassment, any liability and disclosures made under ASC 450 (yes, I had to look that up; I still call it FAS 5) need to be re-evaluated under the new standards handed down by the Supreme Court and, with many companies about to complete their second quarter, that analysis needs to be done quickly.

The decisions on same-sex marriage would not appear to impact companies at first blush, but they are likely to have much more significant impact on the day to day work by B&I CPAs at a company than the two decisions discussed above.  In a pair of decisions, the Supreme Court ruled that the Defense of Marriage Act (DOMA) was unconstitutional, but while effectively ruling that same-sex marriage in California was legal, it did not say that same-sex marriage was a constitutional right and therefore each state is allowed to make their own decision on the legality of such marriages for now.

These decisions impact any company with a savings (401(K)) plan or a pension plan as well as the many companies that offer medical and other benefits to employee partners.  Up until today, medical benefits were considered taxable compensation to same-sex married partners because the IRS, under DOMA, did not view a same-sex marriage as the same as an opposite-sex marriage.  While we will have to wait for word and possibly regulations from the IRS, it seems likely that such benefits tax status would now be the same.  This would seem to mean a simple change to the payroll system to stop adding the value of the benefits for a same-sex partner to the employee’s taxable compensation on the W-2, but it is going to be more complicated than that.  With roughly 15 States recognizing same-sex marriage and 35 not recognizing such marriages, the taxability of these benefits is not an all or nothing proposition for payroll departments.  Employees without a valid marriage license from a state would still have the value of the benefits taxed, but what if the employee has a valid marriage licenses from a state, but then moves to or resides in a state that does not recognize such marriages as valid?  The fact that the Supreme Court left it up to the states to decide what is and is not legal within their borders would seem to not make such guidance from the IRS clear-cut.  The one thing that is certain is such guidance is likely to be considered just as controversial as the Supreme Court decisions which is not exactly what the IRS needs today given its already considerable public relations issues.