Work load compression relief.

• Author: Schneid, Joseph W.
• Position: Election rules for fiscal years

The AICPA Tax Division has been working diligently to reform the fiscal year election rules under Sec. 444 this year, and there is a good chance fiscal year reform will be enacted (possibly as this issue goes to press}. If so, CPAs can benefit their firms by quickly taking advantage of the new rules. Action this year can create work now, ease work load compression this winter and stabilize both work force and cash flow. The new rules will be complicated but manageable, and the benefits could be tremendous.

As of this writing, Congress is considering HR 11 (passed by the House of Representatives on July 2, 1992), which contains language modifying Sees. 444, 7519 and 280H. In addition, the same language was included in HR 421 O, a bill passed by Congress and vetoed by the President in March. Eventually there will be a tax bill the President will sign, and fiscal year reform will most likely be a part of it. While the House-passed version of the Sec. 444 revision is effective for years beginning in 1993, now is the time to start considering its application to clients.

When the AICPA approached Congress about allowing fiscal year-ends once again for partnerships, S corporations and personal service corporations (affected entities), the Tax Division was told that any changes had to be revenue neutral. The cash-basis Government's revenue neutrality has little to do with the true generation of revenues, and much to do with the timing of receipts. When the U.S. Treasury collects an additional dollar in this fiscal year instead of next year, its revenues have increased, despite the fact that no new revenue has actually been created. This rationale was the basis for the required-year provisions originally enacted in 1986. Because affected entities could postpone reporting income until subsequent years through the use of fiscal year-ends, elimination of fiscal years would create current year accelerated collections. While this may seem like using next year's receipts to pay this year's bills, such is the environment in which the AICPA had to present its proposal.

The Tax Division was faced with a challenging assignment. Constraints imposed by revenue neutrality, no tax increase and easy-to-understand rules heightened this challenge. The refundable "required payment" was developed as the only logical system for allowing fiscal years for affected entities. Currently, a required payment system with an "enhanced" or "additional" payment for the first two...