Washington tax lawyers and accountants, who normally make money by reducing the tax bills of their clients, are lobbying Congress and the Treasury to save some dollars for themselves.
Their concern centers on a provision of President Reagan's proposed tax plan that they argue would significantly increase the tax bills of such professionals as architects, engineers, lawyers, accountants, consultants and lobbyists.
The proposal could have a particularly heavy impact in the Washington area, with its hundreds of professional service firms. Already, lawyers and accountants have formed an ad hoc coalition that will lobby congressional tax writers directly and encourage lawyers in other parts of the country to contact their representatives.
The proposed change would alter the way sellers of services calculate their income for tax purposes. Now, many such businesses use the cash method of accounting. They declare income when they actually get paid, and they take deductions for businesses expenses as those expenses are incurred, even if the expenses come the year before the payment.
The Reagan plan would require many of those firms to switch to another accounting method, called accrual, for tax purposes. That method -- which most large corporations use -- stipulates that income must be declared when it is earned, not when it is received. Thus, a law firm would be considered as having earned income when it sends a bill, not when the bill is paid.
The proposal is designed to keep firms from taking deductions in one year but delaying payment of taxes on income related to those deductions in subsequent years. Time is money in the tax business, and paying taxes later rather than sooner means that, because of inflation, the taxes are paid in cheaper dollars. And the money can earn interest for the taxpayer in the interim.
"Many of us are tax lawyers and we study this a lot. Obviously, our pocketbooks are at stake," said Lipman Redman, a partner with Melrod, Redman & Gartlan who is active in the coalition. "It's not reform, it's not simplification, it's not good tax policy, and we think it just doesn't make economic sense."
More than 100 firms have signed on with the lobbying coalition, and Redman said he has lost count of how many other firms have joined since that number was reached. Redman predicted that "by the time we get fully cranked up, we'll have 1,000" firms in Washington and around the country.
Opposition to the Reagan proposal is not limited to lawyers or the Washington area. Large farm operations would be affected, and farmers are engaging in some heavy lobbying of their own. Texas cattle ranchers have called on Treasury Secretary James A. Baker III to talk taxes, for example, and angry chicken farmers have met with other Treasury officials.
Small-business associations -- which traditionally have clout in Congress -- also are fighting the proposal; they are urging members to talk to legislators during the August congressional recess.
"The provision would force a substantial record-keeping and accounting burden on small businesses," said Abe Schneier, issues coordinator of the National Federation of Independent Businesses.
Switching to the new accounting system from the old system also would result in higher taxes. Affected taxpayers would have six years to adjust, but the Treasury Department estimates that the shift in accounting methods would raise tax revenue by more than $1 billion a year by 1988.
"If it accelerates income, it is a tax increase," said Donal E. Flannery, managing partner of Peat, Marwick, Mitchell & Co. "Instead of being taxed when you receive your money, you're being taxed when you have the right to receive it."
Opponents of the change contend that they would be treated differently from other kinds of businesses. Department stores that sell goods on the installment plan, for example, declare as income only the payments they receive, even if the full amount is still owed. The same is true for manufacturers.
Treasury officials point out that other provisions of the tax code are kinder to professional firms than to other types of businesses. And they say the proposed accounting change would exempt firms with annual receipts of less than $5 million (unless they use the accrual method in other types of financial reporting). Treasury estimates that 103,000 corporations, 4,000 partnerships (1 percent of the total) and 300 noncorporate farmers would be affected.
Most of the individuals and companies affected by the change also would benefit from the lower overall tax rates in the administration's tax plan. Because of this, it is unclear whether many professionals will actually have a net tax increase if the accrual plan is passed by Congress.
But the change would cover many industries in addition to wealthy lawyers. A list provided by the ad hoc coalition says that affected businesses could include doctors, dentists, television stations, oil drillers, advertising agencies and financial institutions.
The change would create an additional problem for firms that aren't always paid as much money as they ask for. Clients can owe money to doctors, lawyers or accountants for years and may never pay the full amount. The difference can be written off eventually as a bad debt, but not until long after taxes have been paid on the income.
"If it goes bad, you pay the tax, and you don't get it back until you take the bad debt deduction three years later," said former IRS commissioner Sheldon S. Cohen, a Washington tax lawyer.
The lobbying effort on behalf of these businesses so far has been fragmented. The lawyers say they keep in touch with the farm lobby, for example, but they don't coordinate all the time.
The farm groups seem to have been more successful than the lawyers and accountants in meeting with officials at the Treasury Department. Representatives of the American Farm Bureau talked about cash and accrual accounting with Baker last week, and former Arkansas governor Frank White brought in chicken farmers from his state to meet with Assistant Secretary Ronald A. Pearlman. Pork producers and nursery growers also have been involved in the lobbying.
Farmers also are likely to have more sympathy in Congress, where the House and Senate tax-writing committees have representation from agricultural areas.
The professionals have been a little slower off the mark, but that is not for lack of concern about the issue. At its annual convention in Washington earlier this month, the American Bar Association endorsed a resolution opposing the accounting change. Association officials solemnly assured the assembled members that this resolution did not conflict with the ABA's official position in favor of tax reform.