The American Institute of CPAs is asking accountants to reach out to their congressional representatives and protest the proposed elimination of the ability of pass-through entities such as accounting firms to deduct state and local taxes.

The AICPA sent out a call to action on Friday urging CPAs to contact their members of Congress and voice their opposition to the “unfair targeting” of pass-through businesses in the tax reconciliation bill moving through Congress, such as those of accountants, dentists, doctors, lawyers and pharmacists, through the elimination of the Pass-through Entity Tax SALT deduction. 

“This would increase taxes on the partners/owners of many service-based businesses, such as accounting firms, discourage the creation and growth of such businesses, and further expand the disparity between C corporations and pass-through entities,” the AICPA warned.

On Sunday night, the bill advanced through a key House committee after several Republicans who had blocked the bill in the House Budget Committee on Friday agreed to let it proceed after winning promises of faster cuts in Medicaid health coverage. But the AICPA warned last week about several provisions in the bill, including the change in the SALT deduction rules, while praising others. 

The AICPA is concerned about language in the legislation, named after President Trump’s description, “One Big, Beautiful Bill,” that would eliminate the ability of certain pass-through entities, including accounting firms, to take advantage of the state and local tax deduction for pass-throughs. 

“This legislation would not only have an impact on the accounting profession, but also on many of their clients,” the AICPA pointed out. “Under this legislation, accounting firms will be worse off than they were after the application of the SALT cap under the Tax Cuts and Jobs Act (TCJA) and before the IRS-approved deductions were authorized. Specifically, the proposal newly subjects local entity level taxes to the individual SALT cap.”

The SALT cap for individual taxpayers has also been a bone of contention for Republican lawmakers in blue states like New York, New Jersey and California, who have been pushing for an expansion of the $10,000 limit in the TCJA. Under the current bill, the SALT cap would increase to $30,000, but some lawmakers would like to see it increase to $80,000 or higher. However, the cap would now be imposed on pass-through businesses under the bill.

“The proposed tax legislation unfairly subjects specified service trades or businesses (SSTBs), such as accountants, doctors, lawyers, dentists, veterinarians, etc., to the individual cap on state and local income tax deductions at the federal level, regardless of partners’/owners’ income level or the state in which they live,” said the AICPA.

“When comparing the tax treatment of state and local taxes for pass-through entities between the TCJA and this proposed bill, the sole change is the targeting of pass-through service providers, who were already substantially limited under the qualified business income (QBI) deduction for SSTBs,” the AICPA pointed out.

The TCJA excluded many firms from claiming the full 20% QBI deduction, which would increase to 23% under the bill.

The AICPA is encouraging accountants to call or email their senators and representatives by Wednesday, May 21, using this link to find and contact their members of Congress. It provided a sample email blurb to send to them:

“I urge you to oppose provisions included in the House Ways and Means Committee’s tax reform legislation that unfairly target the ability of service businesses structured as pass-through entities to deduct their state and local taxes (SALT) from their federal tax liability while providing no such limit to other businesses. This legislation effectively discriminates against particular pass-through businesses by indirectly raising taxes on those entities that are considered the backbone of the American economy. These provisions greatly widen the disparity in treatment between pass-through entities and other kinds of businesses, and I strongly urge you to oppose these provisions of the bill.”

The U.S. Government Accountability Office created a list of questions for policymakers’ oversight of the energy tax expenditures in the Inflation Reduction Act of 2022.

The report, published today, describes selected features and effective dates of each IRA energy tax expenditure, the implementation status and data of each expenditure as of January 2025, and questions to aid the oversight of the expenditures.

The 21 energy-related tax expenditures, which includes 20 credits and one deduction, cover a range of subjects such as clean vehicles, clean energy infrastructure, electricity generation and energy efficient buildings. The Joint Committee on Taxation estimates the expenditures may result in at least $200 billion less in revenue collected between 2022 and 2031. 

The GAO has long recommended greater scrutiny of tax expenditures. For example, in 2005, it recommended that the Office of Management and Budget produce a framework for reviewing the performance of tax expenditures.

“However, as of January 2025, the recommendation has not been implemented, limiting policymakers’ ability to regularly review their effectiveness,” the GAO wrote in its report. “Periodic reviews could help determine how well specific tax expenditures work to achieve their goals and how their benefits and costs compare to those of direct spending programs with similar goals. Since the IRA tax expenditures represent a substantial federal commitment, oversight questions can help provide useful scrutiny.”

The questions the GAO proposed regard evaluating effectiveness: Have the relevant agencies identified which tax expenditures contribute to their agency goals? What information are agencies reporting on the use and effects of the tax expenditure and how does that information relate to goals and measures? And what roles do agencies, including the Department of the Treasury and the Office of Management and Budget, have in overseeing the evaluation of the expenditure?

Other questions regard assessing administration: What have agencies done to minimize the burden associated with planning, recordkeeping, reporting and other compliance costs for taxpayers? What policies and processes does the IRS use to identify tax expenditure fraud risk? And what challenges, if any, have responsible agencies experienced in coordinating the implementation or administration of the expenditure? 

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Public accounting is a growing profession. The growth from 2015 to 2025 in revenues was 125% and in total personnel 113%. These are real numbers and vitiate what the naysayers claim about the doom and gloom of the profession.

Last week I provided an analysis of the Top 100 numbers that appeared in the March 2025 issue. What I did was actually simple and was typical of what I do for clients and teach my students. Rather than accepting the aggregate numbers, I look beneath them. In this situation I did a few things. I broke the total amounts into three groups based on revenues and used that to analyze the relative performance of the three groups, and I think I came up with some reasonable conclusions. You can look at last week’s issue to see what they were.

This week I looked at the changes over the last 10 years and will discuss some of my observations here. The revenue growth was impressive, but it came primarily from the group of 12 and then the other 84, with the lowest percentage increase from the Big Four. Also the growth of employees was the lowest for the Big Four and greatest for the group of 12. To see what this means, I looked at the revenue per employee. The Big Four’s revenue per employee was virtually flat, indicating no growth, which I translate as stagnant efficiency or effectiveness. That would seem to retard profit growth. Running a business with a growing top line and presumably a large growth in technology usage but flat revenues per employee does not make sense. 

However, there was significant growth in revenues per employee in the other groups. I did not use percentages, but dollars of growth. Both of the other groups had similar growth of about $43,000 annual revenue per employee. Looking at the overall total of $13,000 per employee does not provide any insights other than macro growth for the Top 100. If I were managing a Big Four firm, I would seriously look at this. I did not look at each of the Big Four separately. I could have but do not want to make a career out of this as my aim is to provide insights and comparative data to readers. 

Another thing I want to point out is a reiteration of what I wrote last week about the MAS grouping of the Group of 12 being closer to the remaining 84 than the Big Four. Looking at this from 2015 indicates that the MAS group grew similarly to the two smaller groups, while the Big Four grew significantly. Also the A&A for all three declined as a percentage of revenues, while the taxes grew for the group of 12.

I also want to point out that using aggregate data doesn’t usually provide the information clients need. And my “teaching” self wants to inject a lesson here that what I did here can be done for every one of your clients. I do it, and so can you.

A final observation. Last week I provided the average revenues and staffing of the bottom five firms. That was 64.5 million revenues and 312 total employees. Ten years ago, these were $33.2 million and 201 total employees. Revenues almost doubled and headcount grew 50%. This indicates growth with much more efficiency and effectiveness or better pricing. The revenue growth was below each of the three groups, but the lower headcount growth is very impressive. Better numbers could be obtained by segmenting into more groups. Do that if you want. This is a column for accountants with the purpose of providing a method of looking at data more effectively. When I advise my clients, I work out the right data to advise them with. One suggestion for those running an accounting practice in the Top 100 is to look at the five firms above and below you and see how you are doing. Then look further above and consider setting that as a goal.

There is a lot more to do. There always is a lot more to do. Use this and last week’s charts and the Top 100 list and figure out what works for you. Use my process to look beyond the primary chart and come up with helpful observations. And this process should be applied to your business clients.

Do not hesitate to contact me at [email protected] with your practice management questions or about engagements you might not be able to perform.