Proposed tax reform could affect at large law firms

January 1, 2014 A proposal for tax reform - which is currently before congress - could significantly affect the operations at large US law firms. Under the proposed law, law firms with gross receipts of greater than $10 million would be taxed according to a more complex accrual method. Income would have to be reported earlier—even before cash is received—and would likely "generate an unexpected, front-loaded income tax liability that must be paid by law firm partners over a proposed four-year period," according to an analysis published by Price Waterhouse Coopers.

Law firms would need to decide whether and how to share the additional tax burden with partners, while setting up new accounting processes and systems.

"Firms should not be sitting back waiting to see if and when this goes through," said David Gaulin, national assurance leader for PwC's law firm services practice. "They should be setting up work streams to model it out and think about how it's going to impact their organization, and make sure there are no negative consequences.

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