Following its continued opposition to the severe limitations on the deductibility of state and local tax (SALT) for specified service trades or businesses (SSTBs) included in recent tax legislation passed by the House of Representatives, the American Institute of CPAs (AICPA) sent a second letter to leadership of the Senate Finance and House Ways & Means Committees urging modifications to troubling tax proposals in the One Big Beautiful Bill Act passed by the House and being considered by the Senate. The letter includes recommendations that address the concerning provisions of the Act.
“We are sensitive to the challenges in drafting a budget reconciliation bill that permanently extends tax provisions, enhances tax administrability, and balances the interests of individual and business taxpayers. While we support portions of the legislation, we do have significant concerns regarding several provisions in the bill, including one which threatens to severely limit the deductibility of SALT by certain businesses. This outcome is contrary to the intentions of the One Big Beautiful Bill Act, which is to strengthen small businesses and enhance small business relief,” said the AICPA in the letter.
The AICPA also made recommendations to ensure that the Senate version of the bill would not needlessly disadvantage certain taxpayers but would protect taxpayers, tax professionals and promote tax administrability. These include:
· Retain entity level deductibility of state and local taxes for all pass-through entities
The AICPA is urging Congress to allow business entities, including SSTBs, to deduct SALT paid or accrued in carrying on a trade or business. This critical deduction for pass-through entities (PTEs) satisfies the original intent of the Tax Cuts & Jobs Act, has been approved by the Internal Revenue Service and is currently in effect. The bill, as passed by the House, unfairly targets SSTBs by severely limiting their ability to deduct SALT while allowing the deduction for non-SSTBs.
· Strike the contingency fee provision
Contingent fee arrangements were associated with many of the abuses in the Employee Retention Credit program; allowing contingent fee arrangements to be used in the preparation of the annual original income tax returns is an open invitation to abuse the tax system and leaves the IRS unable to sufficiently address this problem.
· Allow excess business loss carryforwards to offset business and nonbusiness income
The AICPA recommends the bill be modified to remove the amendment to section 461(l)(2) that could effectively provide for a permanent disallowance of any business losses unless or until the taxpayer has other business income.
The letter also warns of the unintended consequences of laws that financially harm so many businesses, cautioning against passing such laws: “Our laws should not discourage the formation of critical service-based businesses and, therefore, disincentivize professionals from entering such trades and businesses.”
“Despite the significant concerns raised, the AICPA appreciates inclusion of many provisions that would alleviate the tax administrative burdens imposed on individuals, businesses, and tax professionals and would enhance tax certainty for expiring tax provisions,” continued the letter.
Among the provisions in the bill which the AICPA supports and has previously advocated for are:
- Allow section 529 plan funds to be used for post-secondary credential expenses.
- Provide tax relief for individuals and businesses affected by natural disasters, albeit not permanent.
- Make permanent the qualified business income (QBI) deduction, increase the QBI deduction percentage, and expand the QBI deduction limit phase-in range.
- Create new section 174A for expensing of domestic research and experimental expenditures and suspend required capitalization of such expenditures.
- Retain the current increased individual Alternative Minimum Tax exemption amounts.
- Preserve the cash method of accounting for tax purposes.
- Increase the Form 1099-K reporting threshold for third-party payment platforms.
- Make permanent the paid family leave tax credit.
- Make permanent extensions of international tax rates for foreign-derived intangible income (FDII), base erosion and anti-abuse tax (BEAT), and global intangible low-taxed income (GILTI).
- Exclude from GILTI certain income derived from services performed in the Virgin Islands.
- Provide greater certainty and clarity via permanent tax provisions, rather than sunset tax provisions.
In addition to its recommendations, the AICPA shared its list of AICPA-endorsed legislation from the 118th Congress, its guiding principles of good tax policy and its 2025 Tax Legislative Compendium containing 69 proposals that are non-controversial simplification and technical changes to provisions in the Internal Revenue Code.
“While we are grateful to Congress for many provisions in this bill, the unfair targeting of certain types of businesses creates inefficiencies in business decision-making and could result in negative, long-lasting impacts on the economy,” said Melanie Lauridsen, Vice President of Tax Policy & Advocacy for the AICPA. “We hope that Congress will consider our recommendations and make the necessary changes that will create parity between all businesses.”
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Tags: Taxes
Keith Botsch June 2 2025 at 2:12 pm
The PTET works exceptionally well for my clients. It’s better than allowing a higher deduction