CPAs Concerned About SALT, Contingent Fee Provisions in Tax Reform Bill

As congressional Republicans move forward with a reconciliation bill that would extend and revise tax provisions, the American Institute of CPAs is homing in on proposals they say could negatively impact accountants and their clients.

Last week, the House passed the One Big Beautiful Bill Act (OBBBA, H.R. 1), which totaled over 1,000 pages and incorporated provisions from 11 House committees — including the taxwriting committee, Ways and Means. As the bill makes its way to the Senate, groups are highlighting proposals they’d like to see changed before the bill is signed into law.

AICPA, in a May 20 letter to Senate and House taxwriting committee leadership, is pushing for revisions to “protect taxpayers and tax professionals” and “promote tax administrability.”

SALT cap woes.

Top of the list for AICPA is a provision in the House-passed bill the group says would prevent pass-through entities that are “specified service trades or businesses” — defined to include businesses performing accounting and legal services — from deducting state and local taxes (SALT).

The 2017 Tax Cuts and Jobs Act limited the SALT deduction individuals could claim to $10,000. However, excluded from that limitation was SALT “paid or accrued in carrying on a trade or business.” These provisions are set to expire at the end of 2025.

OBBBA would extend but increase the individual SALT deduction cap. It also would define “excepted tax” for purposes of the SALT deduction to include certain taxes “paid or accrued by a qualifying entity with respect to carrying on a qualified trade or business” under Code Sec. 199A(d)(2) or “in carrying on a trade or business.” A qualified trade or business does not, however, include the performance of services in several fields, including accounting and law.

OBBBA’s individual SALT deduction provision, Section 112018, saw some last-minute changes in a manager’s amendment before reaching the House floor last week. Those changes include an increase in the SALT deduction cap to $40,000 for individuals, with a phase-down of the credit beginning at $500,000 modified adjusted gross income (and a $20,000 cap for marrieds filing separately with a $250,000 phase-down threshold).

But AICPA’s concerns centered on the portion of the SALT cap proposal that it says “unfairly targets specified service trades or businesses (SSTBs) (as defined under section 199A(d)(3)) by preventing SSTBs from deducting state and local income taxes.” According to the group, the provision would result in “further needlessly widening the parity gap” between SSTBs and C corporations and non-SSTBs.

AICPA told Checkpoint that these concerns remain after the manager’s amendment. In fact, “the divide between SSTBs and non-SSTBs/C corporations would be even greater” after the manager’s amendment, said an AICPA spokesperson. This is due to a correction — which AICPA had anticipated — regarding non-SSTB SALT deduction.

The group also called out several other SALT-cap related provisions it contends would “introduce significant complexity and uncertainty” in its May 20 letter.

Contingent fees.

Another concern for AICPA is a provision in OBBBA that allows tax preparers to use contingent fee arrangements. The bill, specifically, would bar the Treasury secretary from regulating, prohibiting, or restricting such fee arrangements — whether in connection with tax return preparation, refund claims, or related document preparation.

AICPA calls the change “an open invitation to unscrupulous tax preparers to engage in fraudulent preparation activities.” The group cites the role of contingent fee arrangements in Employee Retention Credit program abuses.

While AICPA is pushing Congress to strike the provision entirely, it also suggests alternate language to limit abuse: requiring paid preparers to disclose that a return or claim is prepared under a contingent fee arrangement.

A December 2024 proposed rule issued by the Biden administration’s Treasury took aim at tax prep contingent fees. Under that proposal, charging such fees in connection with tax return or claim preparation would constitute “disreputable conduct.” The rule further defines “contingent fee” to include a fee that is “based on a percentage of the refund reported on a tax return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific tax result attained.”

Excess business losses.

An additional provision noted by AICPA also saw changes before passing the House. The Ways and Means draft would have revised the treatment of excess business losses under Code Sec. 461(l)(2) to provide that these losses no longer carry over as net operating losses (NOLs) for non-corporate taxpayers.

According to AICPA, this change would “effectively provide for a permanent disallowance of any business losses unless or until the taxpayer has other business income.”

The provision was adjusted as it advanced toward full House consideration. A document posted by the House Rules Committee details the change (renumbered as Section 112026). Under the revised proposal, certain disallowed loses for a taxable year would be treated as “a loss attributable to a trade or business of the taxpayer … arising in the subsequent taxable year.”

“While Rules Committee’s modifications to section 461(l)(2) provides a technical and administrative improvement, it does not address concerns around permanent disallowance of losses,” an AICPA spokesperson told Checkpoint. “From a partnership standpoint, this can be problematic when a partner disposes of their interest or when a pass-through entity winds down, where pass-through entities have no opportunities to exhaust business losses.”

AICPA gave the example of a small business generating significant losses and then ceasing operations. “Those excess business losses would carryforward without business income to offset the losses. Then, the business owner’s only source of income thereafter is wage income from another employer (or nonbusiness income).”

As a result, “the owner could be prevented from ever utilizing the excess business losses,” explained the AICPA spokesperson. “In lieu of the proposed modifications, one solution may be to treat carryovers as NOLs, which would be easier to utilize in carryover years instead of excess business losses.”