The AVMA has joined rising opposition to a recently enacted tax provision that affects veterinarians selling practices that use the accrual accounting method.
In November 1999, the 106th Congress passed the Ticket to Work and Work Incentives Improvement Act of 1999 (HR 1180), which President Clinton signed into law Dec 17. One of the provisions of the law prohibits businesses that use the accrual method of accounting from selling assets in installments and spreading out their tax liability.
Although initially thought to affect only large companies, the law also applies to small businesses.
Seller financing has been an attractive option for veterinary practices. It allows the seller to get a better price for the business, obtain additional interest income, and retain a financial interest in the success of the practice.
Likewise, the buyer can structure the sale advantageously in terms of the business assets and liabilities, obtain convenient financing that might be difficult to get commercially, and keep the seller motivated to help maintain the good will of the practice.
In recent years, many veterinarians have converted to accrual accounting to comply with IRS requirements. Now under the new law, veterinarians using the accrual method who sell their practice and personally carry the loan over several years must pay all capital gains taxes in the first year of the sale.
On Jan 18, the AVMA joined 40 organizations in signing a letter that the provision be repealed or that small businesses be exempt. Those opposing the legislation include the US Chamber of Commerce, National Federation of Independent Business, and Small Business Legislative Council.
The letter was sent to Sen William Roth (R-DE), chairman of the Senate Finance Committee, and Rep Bill Archer (R-TX), chairman of the House Ways and Means Committee. A similar letter was sent to US Treasury Secretary Lawrence Summers requesting clarification of the new law.
Then on Jan 26, Sen Conrad Burns (R-MT) introduced a bill (S 2005) to repeal the law, and Rep Wally Herger (R-CA) followed with companion legislation (HR 3594) in the House on Feb 8.
The AVMA has signed letters of support for this legislation and, through its Governmental Relations Division in Washington, DC, will monitor the bills closely and lobby for their passage.
The AVMA-GRD will also continue to learn about all of the law's implications for veterinarians wishing to sell their practices.