House Reconciliation Bill: AICPA’s Concerns Over Some Proposals

16 Jun 2025 House Reconciliation Bill: AICPA’s Concerns Over Some Proposals

The House recently passed a sweeping reconciliation package informally known as the One Big Beautiful Bill Act (OBBBA, H.R. 1). Within its many pages are tax measures that could significantly impact a wide range of taxpayers, including owners of pass-through entities and professional service providers.

The American Institute of CPAs (AICPA) has expressed unease about several provisions, noting that they could introduce added costs, complexity, and uncertainty for taxpayers and their advisors. This article offers an overview of AICPA’s chief concerns, the possible effects of these policy choices, and tips for staying ahead of the game as the bill makes its way through the legislative process.

Overview

The OBBBA spans more than a thousand pages and bundles together various measures on both spending and revenue. Although the House approved the bill, it now awaits further scrutiny in the Senate. Given that legislative language often evolves between introduction and final passage, there is an opportunity for lawmakers to refine provisions before the bill arrives on the president’s desk.

If it does become law, the bill could reshape the tax landscape in important ways. Core among the changes are modifications to the state and local tax (SALT) deduction rules, certain tax preparer fee structures, and rules governing excess business losses. Because these topics have significant ramifications for professional service firms and non-corporate taxpayers, the OBBBA is receiving a heightened level of attention from AICPA and other affected groups.

In late May, the AICPA submitted a letter to the chief taxwriting committees in both the House and Senate, outlining its worries about the bill’s tax provisions.

Key concerns and implications

SALT deduction issues for Specified Service Trades or Businesses (SSTBs)

Perhaps the most striking concern is the SALT deduction framework that applies to partnerships, S corporations, and other pass-through entities. Under the 2017 Tax Cuts and Jobs Act, the SALT deduction available to individuals was capped at $10,000, though state and local taxes “paid or accrued in carrying on a trade or business” were not subject to this limit if the entity was a pass-through. The OBBBA proposes adjusting the SALT cap for individuals upward but would exclude certain service-based businesses, including accounting and legal services, from deducting SALT at the entity level.

AICPA contends that this change would widen the disparity between SSTBs and other types of businesses. By keeping professional service activities from deducting state and local taxes at the pass-through level, the measure could result in higher overall tax liability and further complicate tax planning. Professional service providers, such as CPAs and attorneys, may find themselves at a disadvantage compared to C corporations and pass-throughs not classified as SSTBs under current law.

Contingent fee arrangements for tax preparers

The second issue sparking concern is the bill’s stance on contingent fee arrangements for tax preparers. Under OBBBA, tax preparers could operate using fee structures based on refunds or tax savings, with almost no regulatory constraints from the Treasury Department. AICPA regards this as a troubling shift, emphasizing that such arrangements have historically opened the door to inflated claims, unethical behavior, and potential fraud. Citing previous examples, especially the controversies surrounding the Employee Retention Credit, AICPA believes an unmonitored environment elevates the risk of unscrupulous practices that reflect poorly on the tax preparer profession.

To stave off abuse, AICPA has suggested striking the contingent fee clause altogether or, at a minimum, requiring explicit disclosure that a return was prepared under a contingent fee arrangement. In that scenario, taxpayers would be made aware that their preparer’s compensation is directly tied to the level of tax savings or refund requested, enabling them to better gauge the risks posed by aggressive filing positions.

Excess business losses for non-corporate taxpayers

A third element that caught the AICPA’s attention is the revised treatment of excess business losses for non-corporate taxpayers. Here, the OBBBA suggests limiting or eliminating how these losses can be carried forward as net operating losses. Although the bill was slightly amended before the House vote, clarifying that the losses would generally carry into the following tax year as losses arising from that year, AICPA warns it could still result in permanent disallowances.

To illustrate, imagine a small business generating significant losses in its final years of operation before ultimately dissolving. Under the system contemplated by the bill, the owner may never see those losses offset again because there is no further “trade or business” income to apply them to. Wages and other nonbusiness income do not count for this purpose. The end result is that the taxpayer’s deductions essentially vanish, leaving them with no mechanism to recoup at least a portion of their losses. By contrast, if those losses had been allowed to convert to standard net operating losses, the individual might have had more flexibility to claim them in subsequent years.

AICPA has suggested that excess business loss carryovers could be treated similarly to net operating losses. This approach would help ensure that entrepreneurs and small business owners who undergo a wind-down are not unnecessarily penalized.

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