A group of tax attorneys have just released an updated version of a report on the pending GOP tax bill, under the title “The Games They Will Play.” The report maintains that the bill is more open to tax avoidance strategies than many people realize, and that, as a result, it is likely to generate less revenue than promised. Despite revisions in conference, the report says,
The legislation is still likely to cost more than the current estimates of over $1 trillion, to advantage the well-advised (and their advisors) in ways that are both deliberate and inadvertent, and to face legal roadblocks like WTO non-compliance that could undermine key components of the legislation. Finally, the bill includes glitches that could lead to haphazard and unexpected results that could arbitrarily favor or penalize taxpayers.
Problematic areas include:
- Opportunities to use C-corporations to shelter income. “Pre-existing safeguards to avoid these kinds of consequences are already inadequate and will be even more so in light of the planning incentives that this rate differential creates.”
- The bill creates a new, lower rate on pass-through income. Supposed safeguards against abuse appear to be even weaker after passage through the conference committee than before.
- Limitations on the deductibility of state and local taxes are supposed to bring in revenue to offset other revenue losses. However, the report notes that the bill leaves open a number of strategies that state and local governments can use to maintain tax deductibility of at least part of their revenue streams.
- Parts of the bill are open to international challenge under WTO rules.
The report’s authors note that some of these problems could be fixed by the IRS through appropriate proactive administrative measures, for which they provide a tentative agenda. However, they caution that the IRS
Will be constantly challenged as a result of its lack of resources, the ambiguous lines that are drawn, the lack of principle underlying those lines, and the tax benefits at stake.
We are deeply concerned by the challenges ahead for the tax system and its administration over next several years. Treasury and the IRS are being handed a herculean task of immediately implementing a large number of complex and ambiguous provisions in just a few short weeks.
My take: This is what happens when you try to rush through a “great Christmas gift to middle-income people” without taking the time for extensive hearings and careful drafting.