According to coverage in The Daily Journal, Robert Blashek, a tax partner at O’Melveny & Myers, said the impact could hit law firms, particularly large ones, very hard. One of the most potentially explosive repercussions would be an across-the-board increase in law firm debt, assuming (quite reasonably, I believe) that market pressures would force firms to advance the money to partners to pay their unfunded tax liability. For an AmLaw 25 firm, this could easily amount to $50-$100-million of additional debt. For firms who have already pledged a large proportion of their WIP and A/R, it’s not clear under what terms, if at all, banks would be willing to lend such amounts.

Said David Roberts, partner in charge of RBZ LLP, an LA-based public accounting firm, “To say this could be the death [knell] for many law firm’s wouldn’t be too far fetched.” Elliot Freier, a tax law specialist at Irell & Manella, took a similarly harsh view: Firms would have to “jump a high hurdle” to provide that certain income would never be received, showing that there was some “identifiable event” making it clear that it wouldn’t be able to collect from a client.

“In the meantime the government has your money and you haven’t seen a dime; it’s a rather unpleasant situation.”

And Freier is also not optimistic that Congress will hold its fire until it can mount a concerted effort at comprehensive tax reform: “With Congress, anything can happen. I have seen the most amazing things done in the name of generating revenue.”

Finally, let me address head-on an undercurrent of commentary that has arisen to defend the supposed merits of accrual accounting as a superior measure of an organization’s true economic performance. This view, as well-intentioned as it may be, is just plain wrong for a few critical reasons. Let us not succumb to the temptation of getting bogged down in the “cash beats accrual/accrual beats cash” debate and lose sight of the one enormous issue here.

Why are the accrual acolytes wrong-headed?

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