ABA President James R. Silkenat (Jay Mallin)
American Bar Association President James Silkenat wants to convince members of Congress this week that the leading tax reform proposals on Capitol Hill would harm not only law firms and lawyers but also the businesses and other clients who hire them.
Silkenat will join about 450 lawyers from across the country for the ABA’s annual lobbying push on Capitol Hill. A major focus will be spotlighting a tax reform provision that would fundamentally change how large firms report and pay taxes.
Silkenat earlier wrote Congress to caution that the change would force many law firms to adopt costly new accounting methods and pay taxes on income they have not yet received and may never receive. Now, he will make that pitch in person in Washington.
Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, included the provision in February in his latest draft of The Tax Reform Act of 2014. A similar provision is also a part of the Senate draft legislation. Law firms’ earnings represent a big target for the revenue needed to help make an overall tax reform bill possible.
In an interview at the ABA office on Tuesday morning, Silkenat said he intends to use two days of face-to-face meetings on the Hill this week to highlight how the tax change would affect more than just law firms.
“This has to flow through in some way to clients and nobody wants us to demand payment right when the work is done,” said Silkenat, a corporate partner in the New York office of Sullivan & Worcester. “That’s not good for anybody.”
Under the proposals, firms with gross receipts of greater than $10 million could no longer use the cash method of determining taxable income, but instead would use the much more complex accrual method. The change would increase government revenues by $23.6 billion during the next 10 years, according to an analysis by the Joint Committee on Taxation.
The change would cause financial flow and administrative headaches at law firms that now account for profits when the firm gets paid, Silkenat said in the interview.
“You have people moving in and out of firms. Are they there when the work is done, are they there when the bill is set, are they there when the bill is finally paid, if it’s paid?” Silkenat said.
“My sense is that Congress will recognize the problems that are created here, that this is not tax simplification, but rather this causes problems and causes us to pay tax on fees that we may never be paid,” Silkenat said. “That winds up being a convincing argument for almost everybody.”
Tax reform proposals that feature the provision already faced an uphill battle this year. Former Sen. Max Baucus left as chairman of the Senate Finance Committee to become ambassador to China, and Camp announced he would not seek reelection when his term ends this year.
“My guess an overall tax reform is unlikely to pass this year, but there is some lingering concern this could be sliced off and added to some other bill, which we want to avoid,” Silkenat said.