December 8, 2023


The Number One Source For Business

Not again: Avoid chaos when new tax regulations kick in

Calling it a deluge would be an understatement. When Congress passed the Tax Cuts and Jobs Act of 2017, clients inundated their accounting firms with queries, wanting to know precisely how the tax law changes would affect their businesses and, most importantly, what they should be doing about it.

I know of national tax offices that received more than 500 inquiries a day from field offices seeking clarity on how specific tax provisions would impact their clients. In response, internal firm specialists pumped out wholesale guidance with abstruse and intricate technical details. Often, these technical details served to trigger more questions.

Overwhelmed subject matter experts couldn’t respond in a timely manner to emails and phone calls from the field. In many cases, client-facing partners simply had to admit they didn’t know and couldn’t give a timeline in which they could deliver clear answers.

That’s not what business owners expect from their accounting partners. More than a few business owners and wealthy individuals found new firms to advise them, disappointed by the uncertainty and unsatisfactory answers from their previously trusted professionals.

And guess what? The Biden administration is looking to advance a range of new tax proposals — some of which are likely to modify the 2017 changes in material ways. What lessons can accountants learn from their previous experiences and apply to the next round of tax reform? How do you best serve and safeguard your clients’ interests?

Proactive, not reactive

Particularly during a period of significant tax law change, clients want to know their accountants are going to put them in the best possible position to take advantage of new opportunities. They also want to know they’re shielded from new potential pitfalls and liabilities. This didn’t happen smoothly with the 2017 tax changes.

The TCJA moved through Congress at quicksilver speed. Lawmakers added and removed provisions right up until the final vote, making it almost impossible to advise clients with any degree of specificity.

The firms that handled the difficult situation best were those that got in front of the uncertainty.

The key now, as then, is to be proactive. Accounting partners should start working the phones early in the process. They should be checking in with clients about the upcoming tax overhaul, assuring them they’re following it closely and telling them they’ll be in touch again soon with specific guidance. This is also an excellent time for accounting partners to demonstrate how well they understand — and are prepared to address — the nuances of each client’s circumstances.

As in 2017, firms won’t get all the clarity they need even after the next tax reform bill becomes law. As with virtually any significant piece of legislation, executive agencies will be tasked with writing regulations to provide more clarity. While folks in the Treasury and the IRS, among others, sort through the all-important details, accountants and their clients will be left to speculate about what is likely to result.

Showing you’ve got this

Accountants help their cause by laying the groundwork and setting expectations with clients. The regulatory process is inherently uncertain, but firms demonstrate their expertise by describing the possible new rules, explaining the comment period and suggesting when a final version might appear. Above all, accountants must showcase their deep knowledge of their client’s particular personal and business circumstances throughout the process.

Although clients may not have all the answers they desire, they’ll appreciate they have someone working on their behalf who is ready to act quickly once the stage is set. What to do about the Organization for Economic Cooperation and Development’s global minimum corporate tax rate initiative, which recently attracted 132 signatory countries? Will the top federal individual tax rate climb to 39.6% as proposed? What are the best new tax strategies for pass-through entities? Tax partners may not know yet, but they will have a tailored strategy soon.

When it comes to regulatory changes, it’s also worth reminding clients that nothing is permanent. As a candidate, Biden pledged to try to eliminate the 20% qualified business income deduction for pass-throughs included in the TCJA. Now as president, that provision has disappeared from his tax agenda. There’s an important reminder here. A new administration can move quickly to reverse what a previous administration enshrined in law.

For accounting firms struggling to stay on top of tax changes, it’s worth noting there are rapidly advancing technological solutions that can help professionals comb through thousands of pages of regulations to ferret out information germane to their clients, giving them a better set of tools than Ctrl+F to navigate the Federal Register.

It’s undeniably true that the confused response to the 2017 tax overhaul cost some accounting firms clients. But it works the other way, too: A demonstrated understanding of how Washington works can help grow the practice. With the experience of 2017 still fresh, and intense political polarization promising more whipsawing tax law proposals, accountants who can establish themselves as steady and proactive guides on shifting tax policies will be well positioned to attract new clients through referrals and word of mouth. This is what a competent tax professional looks like in this age.