HIGHLIGHTS FROM THE 2017 USC GOULD SCHOOL OF LAW TAX INSTITUTE
We recently attended the 2017 USC Tax Institute. This conference has the regular experts providing commentary on new legislation and the current events. This year there were speakers from the U.S. Department of Treasury, the District Attorney’s Office - Tax Division, Professors, Lawyers and Accountants. We thought some of the high points would be of interest to your business.
*Elimination of Section 1031 Exchange continues to be a revenue score sheet item in the budget reconciliation process. There have been multiple proposals to eliminate 1031 deferrals. The sentiment of the panel of experts who make a living in the area and are close to the lobbying efforts to keep it in the code, stated their current attitude is “Exchange While You Can”.
*There has been more prevalent commentary about conforming to a few other countries that allow immediate expensing of building costs in a real estate purchase. The panel thought this could be paired with the elimination of Section 1031 Exchange.
*Non-safe harbor Section 1031 reverse exchanges have seen new life as a result of a recent published court case named, Bartell, where a taxpayer followed the safe harbor guidance closely but for the length of the parking arrangement through the accommodator being 17 months instead of the safe harbor 180 days.
*The Treasury is studying corporate tax reform whereby corporate tax would be levied against cash flow. This is viewed as a consumption based tax that will promote reinvestment. Here is a link to a white paper at the Department of Treasury: https://www.treasury.gov/resource- center/tax-policy/tax-analysis/Documents/WP-116.pdf
*In 2015, law was passed to change the regime for auditing partnerships (ref. to Jeff Olson's article from January). This legislation eases the IRS assessment and collection burden from the partner level to the entity level for audit adjustments associated with a partnership. The purpose of the new law was to reduce the administrative burden for collecting the tax from IRS enforcement to the partnerships and force the partnerships to deal with their partners directly in indemnification to the partnership for their distributive share of assessed taxes. Partners can elect to amend their tax returns in order to recoup over-assessed tax associated with their distributive share of an audit adjustment made at the partnership level. In this fashion, the partners can make use of offsetting attributes at their level. These rules are not effective until tax years beginning in 2018 and more practically will not be encountered until audits occur in the year 2020 pertaining to the 2018 tax year. This law passed as a large revenue raiser offsetting other government spending initiatives. If these regulations stand, we expect a significant increase in partnership audits (note: LLC’s are partnership for income tax purposes). The IRS has historically avoided large partnership audits due to the administrative burden of assessing and collecting the tax through the complex and tiered ownership structures. It will be important to have partnership experts preparing your tax returns. There will also be widespread partnership amendments necessary for partners to agree on how to manage indemnities associated with assessed tax and authority for audit representation.
*The criminal and civil divisions of the IRS enforcement are playing hard ball with off shore account holders that did not join with Voluntary Compliance and Disclosure. The IRS is taking action to track Swiss bank accounts that were closed by Americans and moved to other countries. They have already broken bank secrecy laws with their John Doe summons process and other pressure points with many of the Tax Haven countries.
We are all seeing first hand that there is potential for big change in the income tax system with the newly elected and appointed political regime. We appreciate your business and your business referrals.
If you would like more information regarding the new legislation and tax policy updates, please do not hesitate to call our office at (949) 260-1430.
Scott L. Skinner, Managing Partner
SKINNER FOUCH & OLSON LLP