CPAs working in the dark while Congress argues
Future of existing tax loopholes has some business owners unsure about what path to take.
The uncertainty in Washington, the inability to make a concrete plan leading to a balanced budget and the continuing debate about raising the debt ceiling are causing some corporations to “focus on shorter-term strategic initiatives versus very long-term, robust goals,” said Rob DeGroot, the partner in charge of the Crowe Horwath’s commercial assurance practice in Michigan, based in downtown Grand Rapids.
Over at the Rehmann Group offices on East Paris Avenue, Steve Armstrong is still thinking about the busiest working New Year’s Eve he has experienced in his career, due to the uncertainty about tax laws in 2013.
As one of Armstrong’s co-workers put it, the only certainty they foresee now is the continuing uncertainty about tax law changes that could impact some business owners’ decisions to sell or not.
DeGroot said he has seen indications that some corporations are putting off strategic acquisitions “until there is more certainty with the U.S. financial situation.”
The situation for corporate financial planners was similar one year ago, he said. “Although, I would say the frustration level is higher with Washington (now).”
During the past year, DeGroot noted, some financial stability was added to the business landscape in the state of Michigan due to the new Snyder administration policies that are making the state “now very business friendly.”
“But it’s been replaced with more uncertainty in Washington and, I would say, frustration with the lack of ability to plan fiscally, in a prudent manner,” he added.
Diane Ferris, a tax technical specialist at Rehmann, said there was so much uncertainty at the end of 2012 as to where tax rates were headed that “we heard everything.”
The uncertainty made a difference to business owners who had been thinking about selling their businesses, wondering if they should do it in a hurry in 2012 or wait to see what would happen to estate and gift taxes and trust taxes in 2013. Also affected were companies trying to decide if the bonus depreciation on certain business investments would continue.
“At the end of 2012, businesses were trying to plan,” she said, even as many extended tax provisions were set to expire. “Then this (tax) act came through and passes,” said Ferris. “(Businesses) didn’t have time to consider the changes at the end of the year.”
“I was working on planning (for a client) until 11 p.m. New Year’s Eve,” said Armstrong. “I’ve been practicing for, like, 28 years, and that is the most year-end tax planning that I’ve done in my entire career.”
On Jan. 2, President Obama signed into law the American Taxpayer Relief Act, which postponed for two months the government’s automatic across-the-board spending cuts and extended the 2001 and 2003 tax cuts for individuals making up to $400,000.
The top capital gains and dividends tax rates were raised to 20 percent on household incomes in excess of $450,000, but kept in place the existing 15 percent rate for those making less.
The new federal tax law also increased the estate and gift tax rate from 35 percent to 40 percent, and permanently indexed the $5.12 million per person exemption level to inflation.
According to Bloomberg, the new act was a relief to many individuals facing estate and gift tax issues, and as Armstrong noted, in the end, his last-minute scrambling to help clients in 2012 was probably unnecessary, in many cases.
Armstrong, Ferris and Eleanor Livingston, director of tax services in Rehmann’s Grand Rapids office, all agreed in a conference call with the Business Journal that the uncertainty will continue for business owners because Obama may press to end many of the tax loopholes CPAs are able to use on their clients’ behalf.
Eliminating these types of loopholes are the way the White House is looking to increase revenue, said Armstrong. He is anticipating situations where a business ownership transaction is likely to occur “sooner than later.” In those cases, he said, the transactions should be completed before the loophole eliminations begin.
“But the problem with that is, we have to warn people that if they do this transaction this year, and a loophole closes sometime in the year, it could possibly be applied retroactively. I just don’t know,” said Armstrong. “In our world, cutting government expenses isn’t going to affect us in our dealing with clients, but the revenue-raisers are.”
“That’s the certainty that we know is coming,” said Ferris. “As long as we have a national debt the size that it is, we know for certain there will be changes to the tax law to increase revenue, because there is, as you know, more agreement (in Washington) on raising revenue than there is on cutting expenses — unlike our own personal households.”
Rehmann is one of the top 100 accounting/business consulting firms in the U.S., according to AccountingToday.com. Based in Saginaw, Rehmann was founded in 1941 and has several hundred employees in offices throughout Michigan, Ohio and Florida.
Crowe Horwath LLP is one of the largest public accounting and business consulting firms in the U.S. Founded in South Bend in 1942 by Fred Crowe Sr. and Cletus Chizek, it is now headquartered in Chicago, with 28 offices coast to coast and more than 2,600 employees. It opened an office in Grand Rapids about 25 years ago, which now has more than 130 employees, handling all of the firm’s business in Michigan.