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Friday, January 11, 2019

Tax reform reminders

The Tax Cuts and Jobs Act enacted on December 22, 2017 was mostly effective starting in 2018. That was not enough time for anyone to get a good understanding of all of its over 100 changes and the effect and relevance.  The IRS has issued a lot of guidance, but there wasn't enough time to even get all of this finalized by the time any estimated tax payments for 2018 returns were due. 

If any practitioners have ever used Reg. 1.163-8T, 1.163-10T or temporary regulations under section 469, that's a reminder that guidance for some areas changed or added by the Tax Reform Act of 1986 are not yet final!  And there are areas of many Code sections without sufficient guidance, such as Section 1202 added in 1993, but now widely used due to its now 100% gain exclusion (rather than the original 50%) and its reference in new Section 199A on the qualified business income deduction.

So, a few reminders to consider for yourself and if you're a practitioner, your clients:
  • Regulations and other IRS guidance are likely to continue through the extended due date of 2018 returns (and likely beyond).
  • Some issues might not get addressed! Look at the legislative history; read the Bluebook from the Joint Committee on Taxation (JCT), although there are a few places it conflicts with IRS guidance.
  • IRS Notices, such as Notice 2018-76 on deductibility of client meals, are often transitional or interim guidance. So, the rule might be different for 2019 than what the IRS told us for 2018.
  • Non-binding guidance is also being issued by the IRS: forms, instructions, publications, websites, FAQs, information letters, and news releases. But look at them still; they might just be clarifying the statute. If you rely on an FAQ, be sure to make a copy of it. The IRS can change an FAQ and has no archival responsibilities for this informal, non-binding guidance.
  • There are areas where what the JCT Bluebook says and IRS guidance are not the same. For example, page 189 of the Bluebook says that a meal connected with an entertainment event is non-deductible entertainment. In contrast, Notice 2018-76 says if separately charged, the food (client meal for example) is still 50% deductible.
  • There are several areas where the TCJA had errors where the change that Congress said it intended in the committee reports did not make it into the statute. The statute controls what the law is. Congress needs to enact a technical corrections bill to make any of these changes. It was unable to do so in the 115th Congress (in 2018) other than the grain glitch fix. Will any of these corrections be made in the 116th Congress?  Certainly there will be a challenge to doing so in the House now controlled by Democrats although all members have constituents who want some of these taxpayer favorable corrections made (not all of the corrections are taxpayer favorable thought). The real problem to enactment and why we didn't see technical corrections enacted in the 115th Congress is that 60 votes are needed in the Senate. [See former Ways & Means Committee Chair Brady's technical corrections bill introduced on the last day of the 115th Congress and the JCT explanation of it (JCX-1-19).]
  • State treatment of the TCJA provisions might not be clear or complete. For example, California does not (yet?) conform to most of the TCJA provisions. Will it even conform to some? If yes, will that be retroactive to 1/1/18?

What do you think?

Practitioners will want to be sure clients are aware of these issues so they are not caught by surprise or think the practitioner told them something in error where, for example, the rule works one way for 2018, but under updated guidance, works differently for 2019; or is changed for 2018 due to a technical correction being enacted.

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