October 7, 2004

The Honorable Jim McCrery
Chair, Subcommittee on Select Revenue Measures
1102 Longworth House Office Building
U.S. House of Representatives
Washington, D.C. 20515

The Honorable Michael R. McNulty
Ranking Member, Subcommittee on Select Revenue Measures
1102 Longworth House Office Building
U.S. House of Representatives
Washington, D.C. 20515

Re: House Ways and Means Committee, Subcommittee on Select Revenue Measures Hearing on Select Tax Issues, September 23, 2004

Dear Chairman McCrery and Ranking Member McNulty:

The American Institute of Certified Public Accountants (AICPA) is pleased to submit our statement in support of allowing small businesses the flexibility to adopt any fiscal year end from April through November for tax purposes, as proposed in the Small Business Tax Flexibility Act of 2003 (H.R. 3225) for the record of the Subcommittee's September 23, 2004, hearing. We believe this bill will improve the Internal Revenue Code and will give small business start-ups the fiscal year options that will improve their chances of becoming productive, viable and valuable contributors to the American economy. Our detailed comments are attached.

The AICPA is the national professional organization of certified public accountants comprised of more than 350,000 members. Our members advise clients on federal, state, and international tax matters, and prepare income and other tax returns for millions of Americans. They provide services to individuals, not-for-profit organizations, small and medium-sized businesses, as well as America's largest businesses.

Small businesses are the primary source of the Nation's job creation and economic growth. To make these important contributions, start-up businesses must survive. Census data indicates that 20 percent of start-up businesses fail after only one year. After 10 years, 70 percent of these businesses no longer exist. Small Business Administration research indicates that most small businesses struggle with operational, financial, and tax problems. These problems dominate bankruptcy-filing statistics.

H. R. 3225 would give most small start-ups an additional tool to successfully navigate their turbulent beginnings—the flexibility to adopt any fiscal year-end from April through November. This flexibility would increase the prospects for a small business's survival by:

·         Allowing increased productivity during peak business periods by easing recordkeeping burdens.

·         Increasing access to professional advisors by spreading the advisors' workloads out over more of the year.

·         Granting access to marginal amounts of additional operating resources through short tax deferrals.

The seemingly straightforward requirement that most passthrough entity start-ups must use calendar year-ends creates unintended problems for new businesses passing their financial results through to their owners. Almost every one of these start-ups must—regardless of (1) when they began or (2) their natural business cycle—finalize their first-time financial and tax information during the busiest period for the very tax professionals they must rely on so heavily. By allowing these new and often-fragile businesses the flexibility to move their year-ends outside the regular "tax season," Congress could improve their chances for longer-term survival and support the newest small businesses that form the solid foundation of the American economy.

We appreciate the opportunity to continue working with the Subcommittee on Select Revenue Measures, the Ways and Means Committee, Congress, Treasury, and the IRS to reach our common goals of simplifying and improving our tax laws. We would be pleased to discuss this issue further at any time. Please contact me at (202) 414–1705; or Edward S. Karl, AICPA Director, at (202) 434–9228, if we can assist you in any way.

Sincerely,

Robert A. Zarzar
Chair, AICPA Tax Executive Committee

Encl.

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