Pioneer Specialists: From the Inception of the Income Tax, CPAs Have Been at the Forefront of Providing Advice and Assistance to Clients

EXECUTIVE SUMMARY * CPAs played a key role in shaping the U.S. income tax framework. Recommendations from an AICPA predecessor organization persuaded lawmakers to make allowances for the accrual method and helped to form the basic structure of corporate and individual income taxes-one that exists to this day. * The income tax was intended to more fairly distribute the tax burden across geographical areas and classes. High tariffs had created higher prices for goods, hurting the agriculturally based lower classes, mainly in the South and Midwest. In 1913, only 2% of the workforce had to pay income taxes, and paying it became a status symbol for the wealthy. * The Revenue Act of 1942, designed to raise funds to pay for World War II, changed the nature of the income tax from e class tax to a mass tax. The percentage of workers filing tax returns jumped from 5% in 1939 to 90% in 1945. * With millions now paying income taxes, sales soared for CPA J.K. Lasser's guide for taxpayers to prepare their own returns. * The rapid growth of the tax services business caught the eye of the American Bar Association, which asserted that CPAs were practicing law without a license in giving tax advice to clients. Years of debate and dialogue involving the ABA and the AICPA led to a resolution that saw professionals from both sides allowed to represent clients before the IRS or the Treasury Department. * Technological advances have dramatically altered tax preparation over the past 30 years. From the advent of the personal computer to the ability of CPAs and taxpayers to directly prepare and file tax returns online, technology now holds a central role in tax services. * As predicted in a 1913 JofA editorial, the introduction of income tax services led to expanded relationships between clients and accountants. The ability of CPA tax practitioners to distinguish themselves as trusted client advisers will prove critical in the future as technology continues to transform the tax sector. ********** CPA tax preparers can count themselves as part of a specialty with a background that reflects many of the struggles and victories that have left indelible impressions on their profession and the country at large. With a history replete with class struggles, competitive challenges, technological advancement, and legislative triumphs and setbacks, tax practitioners have forged a path of achievement and innovation that has made their specialty among the most vibrant in the accounting profession. Rarely is genuine longevity achieved without its fair share of new directions and obstacles to success--both the expected and unexpected--and it has never been truer than for pioneering tax practitioners. When taking a look back at the specialty's early roots, a vivid picture emerges of the circumstances that have brought tax services to the prominent position they hold today TWO LEGISLATIVE MILESTONES AND THEIR IMPACT Most major U.S. tax-law changes occur during times of national crisis, and that was as true in the early days of our country, when the federal government relied on revenue-producing excise taxes and tariffs, as it is today For instance, one of the first federal income tax laws was signed by President Abraham Lincoln in 1862. Its purpose was to help finance the Civil War and, similar to most income tax laws of the day, it was repealed several years later, after the war crisis had passed. The Wilson-Gorman Tariff Act of 1894 imposed a 2% income tax to fund reductions in tariff rates; however, the U.S. Supreme Court held that tax to be unconstitutional because it violated the prohibition against unapportioned direct taxes under Article 1, Section 9, of the U.S. Constitution. The modern individual income tax law was enacted in 1913 after ratification of the 16th Amendment to the U.S. Constitution overcame the legal challenges to unapportioned direct taxes. …