SYRACUSE — Changing estate-tax laws and potential changes to rules on who can own a CPA firm are two topics that have generated some buzz in the accounting industry of late, according to local certified public accountants (CPAs). Effective April 1, New York began exempting more estates from the state estate tax to get more […]
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SYRACUSE — Changing estate-tax laws and potential changes to rules on who can own a CPA firm are two topics that have generated some buzz in the accounting industry of late, according to local certified public accountants (CPAs).
Effective April 1, New York began exempting more estates from the state estate tax to get more in line with federal exemptions. Between now and 2019, the state’s exemption will increase in steps from the previous $1 million, all the way up to $5.34 million to meet the federal exemption. New York’s current exemption is now just over $2 million. The move to raise the estate-tax exemption is good news for many New Yorkers, says Steven Stanek, a CPA with Daley, LaCombe & Charette P.C. in Manlius.
In the past, he says, he’s seen people who didn’t owe federal estate taxes often taken by surprise to learn they owed estate taxes on the state level. The new changes should alleviate that for many, especially years down the road as the exemption continues to rise.
However, there is a fault in the new legislation that could catch estates that just exceed the exemption with a high tax rate, Stanek says.
“Where the problem lies is in the tax calculation,” he says. Estates that are just $1 over the exemption could be hit with tax rates in excess of 100 percent.
According to the New York State Society of CPAs (NYSSCPA), the fault comes from the accelerated phase-out of a tax credit often used to shrink the size of an estate. Estates that exceed the exemption by 5 percent or less will find it increasingly difficult to use the credit, according to the NYSSCPA.
Ultimately, the estate-tax exemption change is expected to benefit about 90 percent of New York households that would have paid tax under the old $1 million limit.
“That’s a pretty big chunk of New Yorkers,” Stanek says. “For the most part, I think it’s going to offer relief to [many] New Yorkers.”
CPA ownership rules
Another proposed change affects CPA firms directly. Currently, CPA firms must be owned by a certified public account, who is governed by the ethics of the profession.
However, proposed state legislation would open up firm ownership to non-CPAs — something that draws mixed reaction from the accounting community.
The issue is one that the “Big 4” accounting firms have promoted off and on for more than two decades, says Thomas Riley, a CPA and partner with Testone,
Marshall & Discenza CPAs in Syracuse. The Big 4 — Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG — have long lobbied for expanded ownership options, Riley contends.
Such a change, however, would raise some concerns, he notes. As a CPA, Riley says he is bound by industry-specific ethics. A non-CPA owner wouldn’t be bound by those same ethics, he says, and it raises the question of how non-CPA owners would be disciplined.
“People wonder if it’s going to hurt the profession,” Riley says.
The proposed legislation would amend education law to allow non-CPAs to be minority owners of CPA firms, something already allowed in 49 other states.
However, a licensed CPA must still hold a simple majority of the ownership, be responsible for the registration of the firm, and be in charge of attest services. All non-CPA owners must be actively engaged in working for the firm as passive ownership is not permitted under the legislation.
Connecticut passed similar legislation in 2012.
While acknowledging concerns, Stanek points out that the change could also help the profession.
“I think it’s a good thing,” he says, particularly at a time when more and more small firms are looking for merger options. Businesses today need to merge resources
in order to be competitive, he says, and this change would open opportunities for a small CPA firm to join forces with, for example, a financial planner to create a jointly owned firm that can now offer more services to clients.
This would allow two professionals to merge their businesses without one having to give up all ownership rights, Stanek says. It gives businesses more options.
The bill, sponsored by State Sen. Kenneth Lavalle (R–Long Island), is currently before the New York State Legislature’s Higher Education Committee.
Contact The Business Journal News Network at news@cnybj.com
