The tax accounting profession has been thrown into turmoil by an IRS announcement that it will start enforcing an obscure accounting rule. The so-called "one plus one equals two" rule is considered archaic and unworkable by many accounting professionals. The Internal Revenue Service issued a policy guideline stating the rule would start to be enforced for 2004 tax returns.
The rule relates to arithmetic formulae applied to calculations of a variety of tax return metrics. It essentially states that when an additional item is added to a pre-existing item, the result should be exactly two. Modern accounting methods typically give a result of three, four, or even billions in some cases.
"Implementation of this regulation will require a massive overhaul of our entire tax methodology," said Sam DiPiazza, CEO of the PricewaterhouseCoopers consulting firm. "It will also mean scrapping most of our financial application software and starting over, possibly with abacuses." The so-called "Big 5" accounting firms typically apply the more modern "one plus one equals whatever" rule.
House Majority Leader Tom DeLay expressed dismay over the IRS decision. "Corporate America has made a huge investment in costly lobbyists to insure the tax code does not include these kinds of onerous regulations," he said. "Congress will not tolerate having decades of tax code obfuscation tossed out the window." DeLay also claimed that enforcing the rule would damage entrepreneurship. "Let's not crush the dreams of future Bernie Ebbers or Ken Lays," he said.
IRS commissioner Mark W. Everson downplayed the impact of the regulation. "We will not blindly enforce OPOET," he said in a written statement. "A result of three or four will be acceptable in some cases, as long as the appropriate supporting documentation is provided."
Mr. Everson's comments did not allay the concerns of many tax accountants. A spokesman for H & R Block, a large tax preparation company, said they would need to spend millions to retrain their accountants on the new rule. "It doesn't help that most of our employees aren't too good at math to begin with," she admitted.
Companies that publish tax preparation software see opportunities in the new guidelines. TurboTax is offering to upgrade existing customers to version "1+1" for $39.95, plus tax of course.
