How Will Democratic Control of Congress Affect You?

CHANGES IN KEY COMMITTEE CHAIRS:

Rep. Barney Frank (D-Mass.), House Financial Services Committee
As chair, Rep. Frank plans to focus on issues that have not received as much attention under GOP control, especially housing. He also has called for hearings on hedge funds, stock options and the effect of the Sarbanes-Oxley Act on U.S. competitiveness. The committee may consider the recommendations of the Committee on Capital Markets Regulation (CCMR). The CCMR is an independent, bipartisan committee of financial leaders exploring issues related to improving the competitiveness of the U.S. capital markets.

A champion of executive compensation disclosure, Rep. Frank has sponsored the Protection Against Executive Compensation Abuse Act, which would require companies to better disclose executive compensation and require shareholder votes on such plans and on overly generous CEO retirement packages.

Rep. Frank is concerned about the burdens of Sarbanes-Oxley, especially with regard to smaller companies, but is not in favor of exempting them; rather, he has expressed confidence in the ability of the SEC and PCAOB to lighten the burden on small businesses through the regulatory process. He also favors reducing the amount of information corporate executives must certify. It is expected that he will hold oversight hearings on these issues.

Rep. Charlie Rangel (D-N.Y.), House Ways and Means Committee
Social Security and Medicare will drive Rep. Rangel’s agenda as committee chair. In addition, he wants to deal permanently with the AMT problem. He says the AMT is to Democrats what the repeal of the estate tax was to Republicans.

A big factor affecting tax bills, and all legislation for that matter, is the return to “pay as you go” budget rules that generally require the adoption of revenue “raisers” to offset the cost of any revenue-losing tax provisions. Proposals are likely to include such potential corporate revenue-raisers as the codification of the economic substance doctrine (requiring that a transaction make economic sense in addition to the benefit of tax reduction) and closing the tax gap (the difference between the taxes that are owed and the amount that is actually collected).

Sen. Max Baucus (D-Mont.), Senate Finance Committee
Sen. Baucus joins Rep. Rangel in his desire to rein in the AMT. Another major goal is permanency of the research and development tax credit—rather than the current practice of extending the credit on a year-by-year basis. Making the child tax credit more generous for lower-income families, increasing the tax deductibility of college tuition and reversing the benefits of the Bush tax cuts for the wealthiest taxpayers before those tax cuts expire in 2010 are other possible agenda items.

OUTLOOK ON THE PROFESSION’S ISSUES:

Sarbanes-Oxley Act
As noted above, the 110th Congress will hold hearings on Sarbanes-Oxley, and several bills have been introduced to make section 404 of the act less costly. Representatives of community banks have argued they should be exempt from section 404 requirements because they have been subject to internal control rules that have worked since the 1991 passage of FDICIA. However, it is unlikely any legislative action will occur on these issues until Congress thoroughly analyzes and vets any regulatory changes the SEC and PCAOB adopt.

Small Business Health Plans
In its last session the House passed a bill allowing small-business owners in bona fide trade or professional associations to join together across state lines to purchase health coverage for their families and employees to take advantage of the group’s greater volume, purchasing clout and administrative efficiencies. The AICPA supported this bill, which failed to pass the Senate. The AICPA is part of the SBHP Coalition, comprising more than 100 associations and businesses. With Democratic control of the Senate, this issue will take a backseat to stem-cell research legislation and the Medicare prescription drug bill. One key factor will be how the new chairs of the committees with jurisdiction will approach the issue. Sen. Ted Kennedy (D-Mass.) has taken over the Senate Health, Education, Labor and Pensions Committee from Sen. (and accountant) Mike Enzi (R-Wyo.). Rep. George Miller (D-Calif.) took over from Rep. Buck McKeon (R-Calif.) on the House Committee on Education and the Workforce.

Tax Patents
The Patent and Trademark Office has begun to issue patents for “business methods” in the last several years, including a number that were issued for tax reduction strategies, particularly in the area of estate and gift taxation. At a congressional hearing last year the AICPA Patent of Tax Planning Ideas Task Force expressed concerns about allowing one person to charge others for using relatively common transactions or structures rooted in the Internal Revenue Code. We expect Congress to continue to look at this issue.

Federal Housing Administration
Last Congress, the House adopted a bill (HR 5121) to modernize and update the National Housing Act and enable the FHA to use risk-based pricing to more effectively reach underserved borrowers. The bill would have replaced the requirement that FHA correspondent lenders and mortgage brokers have a financial statement audit with a surety bond. The AICPA opposed this provision, and the bill died in the Senate. We expect this legislation to be reintroduced in the new Congress.

Head Start
Last Congress, the House passed a bill to reauthorize the federal Head Start program and require audit firm rotation for all audits under the program. The bill died in the Senate, but Rep. Miller, the incoming Education and the Workforce chair, has made Head Start a priority this year.

Small Business Tax Flexibility Act
Last Congress, bills were introduced in the House and Senate
(S 2462 and HR 4006) that would allow start-up small partnerships and S corporations (that is, those with gross receipts less than $5 million) to elect taxable years other than the calendar year (for example, a July 1 to June 30 taxable year). The bills—which would smooth the annual workload of CPA firms—did not pass, but will be reintroduced and advocated as part of any small-business relief package moving through the 110th Congress.

For further information on these legislative issues and congressional-related inquiries, please contact Lisa Dinackus at ldinackus@aicpa.org or 202-434-9276.