Highlights

“To serve their clients and meet their own business needs, today’s CPAs must be able to practice across state lines without unwarranted difficulty,” said AICPA President and CEO Barry C. Melancon. “Unfortunately, that is not fully possible under the current substantial equivalency model for granting interstate practice privileges.” The effectiveness of substantial equivalency, which the AICPA and the National Association of State Boards of Accountancy developed as part of the Uniform Accountancy Act, has been reduced because many states have modified the model.

“This is a high priority for the AICPA,” said former Institute Chairman S. Scott Voynich, who heads the committee. “Although we’re committed to state-based regulation, it’s imperative to eliminate unnecessary barriers to interstate practice. We therefore expect to provide significant resources to states seeking to enact or revise mobility provisions within their accountancy laws or regulations, and we will, as necessary, support modifying the substantial equivalency model. Our goal is a system that facilitates CPAs’ mobility and enables regulators to protect the public.”

Tax Act Extends Certain Provisions
President George W. Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (HR 4297) into law in May. This legislation significantly extends several provisions affecting investors, employers and middle-income families—most notably, lower tax rates on capital gains and dividends and limits on the alternative minimum tax (AMT). Items in the new law

Extend the 15% tax rate on capital gains and dividends and IRC section 179 expensing through 2010—increasing the accuracy of tax planning in these areas.

Increase the AMT exemption level for 2006 to $62,550 for joint filers and $42,500 for single filers, and make permanent the temporary provision that allowed taxpayers to claim most nonrefundable personal tax credits against the AMT. These changes should slow the steady rise in the number of taxpayers subject to the AMT.

Increase to 18 from 14 the age when the “kiddie tax” no longer applies. This significantly reduces the tax benefits of funding traditional Uniform Gifts to Minors Act savings accounts and of gifting income-producing investments to children. One alternative may be for gift-givers to invest in capital assets that appreciate or savings bonds that a custodian can hold until the minor reaches age 18.

Require a payment of 20% at the time of application for an offer in compromise. This will make such offers a substantially less appealing way to reduce taxes owed to the IRS.

Beginning in 2010, make rollovers to Roth IRAs from traditional IRAs available to higher-income individuals. Such a conversion may appeal to relatively young taxpayers who anticipate substantial capital appreciation in their investments before retirement, as well as to those who do not expect to need such funds until late in their retirement and thus are attracted to Roth IRAs, which do not require that distributions begin at age 7012. Because taxes on untaxed income transferred into a Roth IRA are due when the account is established, taxpayers planning such a conversion can either accumulate savings to pay the taxes at the time of conversion or satisfy them over a period of up to two years. And, assuming Congress doesn’t change the new law, it may be beneficial for taxpayers to make nondeductible IRA contributions now and, if they are eligible, convert their traditional 401(k)s into rollover IRAs, thereby increasing the amount they can transfer to a Roth IRA.

Index the foreign earned-income exclusion for inflation. But the law also hurts higher-income overseas workers by severely limiting the exclusion of housing costs.

Federal legislators followed AICPA recommendations by excluding certain provisions from the law, including the “more likely than not” standard for penalties imposed on preparers for positions taken on a return, the codification of the “economic substance” doctrine and “certification” of unrelated business income for certain exempt organizations.

More information is available at the AICPA Tax Center ( http://tax.aicpa.org/Resources/Tax+Advocacy).

AICPA, FASB Seek Feedback on Nonissuer Standards Proposal
The AICPA and the Financial Accounting Standards Board are seeking comments on a joint proposal that explores the concept of financial reporting standards for privately held companies. The document outlines suggested process changes at FASB to ensure that the needs of constituents of nonissuer financial reporting are met. The proposal also calls for setting up a committee—jointly funded and sponsored by the two organizations—to review existing and prospective generally accepted accounting principles (GAAP) for their relevance and cost/benefit to the private company arena. The proposal can be found online at www.pcfr.org. The comment period ends August 15, 2006.