TCJA Reminders/Tips for Practitioners and Their Clients

Otherwise known as the Tax Cuts and Jobs Act (P.L. 115-97; 12/22/17)

Following is an excerpt from my February Note from the AICPA Tax Executive Committee Chair. For complete note (for AICPA Tax Section members) - click here.

Given the number of TCJA changes, incomplete guidance and many other issues, I offer the following suggestions to share with your clients to help them avoid surprises later.

1. The TCJA is comprised of over 100 changes with little time for the IRS to issue guidance on all of them before 2018 returns are due.
   
2. A good amount of guidance has been issued, but much of it is transitional or interim. That means the guidance might only apply for 2018; a rule could apply differently in 2019.
   
3. The Joint Committee on Taxation’s Bluebook, which explains the TCJA, states over 70 times that technical corrections may be needed to achieve what legislators intended. For example, footnote 209 of the Bluebook states that a technical correction may be needed to reflect the intent that wages are not considered when calculating an excess business loss under the new Sec. 461(l).  Form 461, Limitation on Business Losses, used for measuring an excess business loss, though,  includes wages (the form follows the statute, as required).
   
   Be sure clients know that if technical corrections are enacted, they are usually effective back to enactment date (Dec. 22, 2017 for the TCJA) and may require filing an amended return. Some corrections will result in less tax paid while others, such as the Sec. 461 correction, can result in more tax owed.
   
4. It’s also possible technical corrections won’t be enacted, or the changes won’t be retroactive to Dec. 22, 2017. The law is not clear as to how much time can pass between original enactment date and passage of technical corrections legislation where a retroactive amendment is viewed as permissible by the courts. That was an issue the U.S. Supreme Court addressed in Carlton in 1994 (512 U.S. 26), finding a span of just over one year permissible but not stating a permissible maximum time between legislative enactments.
   
5. There are likely new federal-state tax differences, and some states may still be considering conformity. Again, amended returns might be needed or the state tax rule might be different for 2019 than for 2018.
   
6. The effective date of regulations often needs further scrutiny. If a rule in a regulation is also in the statute or a reasonable interpretation of the statute, the effective date of the statute controls. This was covered by the Tax Court in Argo Sales Company Inc.(105 TC 86 (1995)). There, the court stated: “The absence of regulations does not relieve us of the duty of interpreting our tax laws. While it has been stated in the context of a regulation applied retroactively by the Commissioner that ‘if the interpretation of the statute embodied in the regulation is correct, one must conclude that the statute has meant the same thing all along, with or without the regulation,’ that does not mean that where a regulation is not applied retroactively that the statute has no meaning prior thereto without the regulation. It simply falls on us to interpret the statute without the aid of a regulation.”

Note that among many areas, this seems pertinent to a rule on measuring qualified business income (QBI) highlighted in the final Sec. 199A regulations (T.D. 9847). In the Form 1040 instructions and in Publication 535, Business Expenses (p. 51), the IRS summarizes this rule as follows: “[QBI] also includes other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income, self-employed health insurance, and contributions to qualified retirement plans.” In making this statement, the IRS makes no reference to a choice of following the proposed or final regulations, likely implying that the rule is in the statute (in addition to the final regulations at Regs. Sec. 1.199A-3(b)). The effective date of Sec. 199A is tax years beginning after Dec. 31, 2017.

Any other tips you have to share?