AICPA tax priorities and wins in the budget bill now with the House

Melanie Lauridsen, the AICPA’s vice president–Tax Policy & Advocacy, joined the JofA podcast early Wednesday to provide context on the fast-moving budget bill that was approved by the Senate on Tuesday and is being discussed in the House today.

Lauridsen detailed some tax-related priorities of the AICPA and state societies. She also explained the aspects of the Senate bill that are most likely to face opposition in the House.

On a topic separate from the budget bill, Lauridsen summarized the key points of the national taxpayer advocate’s midyear report to Congress.

In a May JofA episode, Lauridsen explained why certain provisions were being prioritized by the AICPA.

What you’ll learn from this episode:

• The latest on the Senate version of the massive budget bill, H.R. 1, the One Big Beautiful Bill Act.
• Lauridsen’s thoughts on the bill being approved by the House for the president’s signature by the July 4th holiday.
• What tax-specific provisions from the Senate-approved version of the bill are most likely to be examined by the House.
• Highlights of the national taxpayer advocate’s midyear report to Congress.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Neil Amato: Welcome back to the Journal of Accountancy podcast. I’m Neil Amato, and I’m recording this morning, Wednesday, July 2, with Melanie Lauridsen, the AICPA’s vice president–Tax Policy & Advocacy. Melanie, we’ll get right to it. There’s a Senate-approved version of the budget bill with numerous tax provisions now going back to the House of Representatives today.

Regarding some of the AICPA’s tax-related priorities, how are things looking? Let’s start first with the preservation of the SALT deduction for certain passthrough businesses, also known as PTET SALT, also includes that acronym SSTBs. Maybe define some of those acronyms, and tell us where things stand.

Melanie Lauridsen: Sure. As we jump in, one thing I do need to make clear is that right now, whatever we talk about is as of 8:05 a.m. on July 2, but that could change literally by the time that we’re done with this podcast. So just be aware that there are changes that are still happening. They’re coming really fast and furious, and we just have to be cognizant of that.

Let me start defining some things. You already said the passthrough entity tax, commonly used acronym PTET for the SALT, which is the state and local tax. And then, of course, we have the SSTBs, which are the specified service trades or businesses, so that’s another acronym that we use. Let’s go ahead with the SALT issues. In the Senate version, and when I say the Senate version, I mean the Senate-passed version, so it’s not the final bill. It is now going to the House for final negotiations and agreements and their vote.

In the Senate version, we were very successful. When I say “we,” it is the AICPA who brought attention to this issue that would really hurt a lot of our members and their clients. Again, we brought in other stakeholders and organizations. The doctors joined with us, the dentists joined with us, the ABA, the American Bar Association, they also had issues with that. Also an important partner that we need to give a special shoutout to are the state societies because they really went to Congress to talk about this issue because of the unfair, targeted deductions or disallowance of deductions that were happening in the House bill.

In the Senate bill, what we first saw was that the passthrough entity SALT deduction would be limited to half of what passthroughs would be able to get. They did take out the limitation for the SSTBs in the original Senate Finance Committee version, which again, brought us on parity with other passthroughs, but it wasn’t on parity with other corporations. This is really where all that advocacy work, when I mentioned all these members, we all came together, and we went up to the Hill and we talked about this and how unfair this targeting was. In the final Senate version that was passed, it did not include any limitations for the passthrough entities. So it is where we are at today. That is a very big win, and it shows all the advocacy efforts from all the people that come together that we can be successful.

Amato: Thank you for that. I will point out also on the timing front. We normally post JofA podcast episodes on a Thursday, but we’re recording this on Wednesday for same-day posting. So yes, it could change, but we’re going with the news, which is we have the Senate bill, and now the House, obviously, is taking a look. What are some of the other AICPA priority areas, including such items as excess business losses, and where do things stand with some of those?

Lauridsen: The excess business loss, again, is another win that we have. The AICPA, in the House version and in the Senate version, we made some recommendations with the excess business losses, and essentially, we wanted there to be a fix for it because there was a big disallowance and the calculations were one, complicated, but it wasn’t very helpful for our businesses. They actually did, and so the Senate actually fixed it exactly as we recommended for that. That is great news on that front.

Other provisions that are of importance to our membership is the Form 1099-K with the filing threshold, which eventually would drop down to $600 for transactions that you could have through third-party vendors, and you would have to fill out the Form 1099-K. That actually was repealed in the final Senate version, where it is repealed back to the old laws, where the transactions need to be over 200 transactions and over $20,000. That’s very helpful. It’s just more of the work issue for the taxpayers.

Other provisions for our members, the small business firm growth provisions that we have, are the Sec. 174 R&E, research and experimental being able to expense that right away that went through. We also see the Sec. 163(j), which is the business interest loan deductions. Again, that was in the final Senate version, and 100% bonus depreciation. All of these pieces collectively are pieces that help our members to be able to sustain their businesses and invest back into their firms and to their company.

Again, very important. It’s not just about us, it is for all businesses out there. We have the Sec. 199A, where they kept that consistent from the original Senate Finance Committee version to where it’s at now. We see a lot of these provisions. The big difference, I would say, between the House and the Senate is in the Senate, for all these provisions I talked about, they made them permanent, while in the House, they were a temporary fix for them. Of course, these are small nuances with the thresholds, and again, we have to see how that’s going to play out because any small tweak can mean a couple money pay-fors in different ways. We are very hopeful that these provisions are not going to be changed and that they can come through.

Amato: If there are tweaks, does that disrupt the timeline as you see it? What is next? I know it’s hard to predict.

Lauridsen: But that’s a really great question. Yes, Neil. If the House were to start pushing back on certain issues, now, the most controversial issues all along have been the Medicaid issue, which is not within the bailiwick of the AICPA, but that has been highly controversial for both the Republicans and the Democrats. Then the other piece that is also very highly controversial has to do with a SALT piece. There’s a lot of money involved with both of those provisions.

That is where if the House were to start pushing back, it could very easily push out when the final bill would hit the president’s desk. Now, the administration has an absolute desire to meet the July 4th deadline; that’s why we’re recording earlier. As we speak, the House is taking a look. Now, there is the thinking that the votes are there to be able to move forward, but keep in mind, the margins, Neil, are so tight. And if you look what happened on the Senate, it was a tie, 50–50 tie, to pass the Senate. Of course, Vice President JD Vance, he was the tie-breaker.

So when you’re looking at these margins that are so tight, not one more Republican can deviate from this. The same situation is going to play out on the House side, and it will be very tight. To be able to push back, my prediction, this is just Melanie speaking of how I think things will go: Either they’re going to go ahead and be OK with it, and they will move it and we’ll see that July 4th deadline being met, where this bill would hit the president’s desk, and he can sign it into law. But if there were to be any amount of pushback, I would say this would take us until well after July 11, so like through [July 17], potentially, to be able to get something finalized to see something moving. Again, moving really fast, no matter what the situation is.

Amato: Yes. On those tax provisions that are priorities of the AICPA, what’s the likelihood of some of those changing as the House looks at the Senate version of the bill?

Lauridsen: Let’s pull SALT out of it. If you are not talking about SALT, I feel pretty confident about the Sec. 174, Sec. 163(j), 100% bonus depreciation, 199A, excess business losses. I feel very confident the 529 plans. Again, that’s another big provision for us. I feel confident that those would be pretty consistent. There hasn’t been a lot of controversy around them. Again, it comes down to minor tweaking, but they would still be wins for our members and their clients.

The SALT provision is the one that is where I am the most concerned about. It’s not to say that I’m concerned where it wouldn’t pass through. It’s just it has been controversial all along, and we’ve seen some swings within it.

But, having said that, I think since the desire is great to be able to see a July 4th bill, and I hope I don’t look back on this and have to eat my words. I would hope that that would go through pretty consistent to where we’re at right now. We know the $40,000 SALT increase for individuals with the $500,000 income limitations, that is very consistent with the House bill. I don’t see them pushing back on that. It really comes down to the SALT for the passthrough entities, and I would hope, given all that has happened and how hard it was to get to that passing for the Senate, that the House would be able to just move forward with the way things are right now.

Amato: Great. Now one thing that’s not going to change in the next few hours or next few days due to any congressional wrangling is a report that came out, a midyear report to Congress, from the national taxpayer advocate on IRS service. I don’t want to say it got lost in all the budget talk.

Lauridsen: It kind of did, though.

Amato: But it did feel overshadowed, somewhat. That was last week that it was released. The Journal of Accountancy has coverage of that that we will link to, along with our other news coverage of all these key tax provisions mentioned. But in that report, the NTA’s midyear report to Congress, what are some of the key points about IRS service?

Lauridsen: One thing we have to understand is the national taxpayer advocate does a yearly report. This is their midyear report with the objectives for Congress to take a look at. Now, the press really did focus on their charts regarding the personnel reductions, and you know that obviously the ongoing RIFs, reduction in force, has been something that we’ve been monitoring and looking at. There was a lot of focus with that, and I’ll touch based on that in a second. But the report also touched based on other areas where the national taxpayer advocate feels that there should be focus on.

One of those things is to improve the automation and the metrics around enhancing the taxpayer experience. That is important because it’s about how we interact with the IRS. By we, yes, it is our members, but also the taxpayers and how they can get serviced by the IRS. The national taxpayer advocate also focuses on expanding the online accounts, which is something that we’ve had a long-standing provision, especially for the practitioner online accounts and the access that we have, because we don’t just do individuals. We have individuals, we have businesses, we have trusts. Different types of entities that we need to be able to serve.

Being able to expand that allows us to serve the client better, because ultimately, the IRS and us are in the same business. We’re here to serve the taxpayer and the clients to help them be compliant with it. There’s other provisions in there, reducing identity theft victim-assistance resolution, which can take a very long time, and they would like to see come down to certain months. They look at the oversight of unethical tax return preparers, and that’s the preparer regulations aspect of it, which we’ve looked at for years, and we have very strong positions in there. Of course, there’s the appeals independence and operational efficiencies, IRS’s criminal voluntary disclosure programs. There’s also the ERC claim aspect of it. There are a lot of goals that this report is pushing through, which collectively would really help with taxpayer experience.

But Neil, I think what you’re really getting to is, how are tax years going to look at and the services we’re going to get? I think that was your question. Yes, there are concerns with the reduction in force, and we’ve seen, obviously, about a quarter of the IRS, where when we started at the year, we had the IRS had approximately 102,000 employees, and now they’re just about 75,000 employees at the IRS. It’s about a quarter reduction in staff, which is a big number that we’ve seen.

But, we’ve also seen other pieces of information where we saw the administration came forward with their skinny budget, and they proposed a 20% budget cut to the IRS, which brought us down to some of the lowest numbers since 2002. The OMB, the Office of Management and Budget, came forward with more details around what that cut would look like. When we look at it, they had a 33% cut to the enforcement section. They also proposed roughly a 37% cut to the IRS operation support. Operations is the real estate, all the administrative tasks that the IRS has to do to be able to function.

But interestingly enough, they proposed a 30% increase to taxpayer services. Now, that is monetary increases, the budgets, the funding. But overall, given where the IRS is at with those increases, if I had to guess, I would say that the IRS workforce for taxpayer services would roughly be consistent. I don’t see them increasing more.

There are concerns that we are looking at. But then our survey that we do annually with our members has reflected that so far. The service we’ve been receiving has been consistent, Neil. Again, it’s something that we’re watching, keeping a close eye on, and it’s something that we are in the works of having conversations with the IRS and Treasury about modernization, because ultimately, we do need to have our questions answered. We do need to have good services from the IRS because, if we’re going to the IRS, nobody else can answer our questions but the IRS. We need to be able to get answers.

Again, I hope that things can be maintained. There are concerns. There are very good worries there, and a lot of our members feel it, but it is something that we’re monitoring and seeing how we can work through.

Amato: Yeah, I think that’s the theme. This past filing season was still pretty good, but definitely some concerns going forward based on some of the numbers we discussed. Melanie, thank you for joining us for this update on Wednesday, July 2 in the morning, aiming to publish later today. Anything you’d like to add in closing?

Lauridsen: Just keep vigilant. Keep watching. We will continue to give you guys updates. It’s been an exciting time.

Amato: To say the least. Melanie Lauridsen, thank you very much.