David Rosenbloom Responds to Tax Reform Q&A

Caplin & Drysdale’s H. David Rosenbloom, a Member of the firm’s Tax Controversies, International Tax, and Tax Litigation practice groups, responded to the following questions concerning Tax Reform. For the full article, please visit this link.

Is the new tax code designed to be more beneficial to some states than others?

I am not sure it is correct to think about benefit to states. It is probably more accurate to think about industries, and then figure out the states where those industries are located. I can't give you a complete list of special deals for industries, but I am aware of benefits for oil and gas, real estate, and exporters. There is also a gigantic benefit for farmers who sell agricultural products to cooperatives, but the provision operates to the detriment of other possible purchasers of agricultural products (Cargill, ADM) and the Republicans are scrambling to try to fix that.

Who will be the most negatively affected by the new tax code in the long run? Are there any negative implications?

In terms of negative effects, there are a number of answers. States with high income and property taxes are certainly targeted because their residents lose the ability to deduct most of the state and local tax payments. There has been a great deal in the press about that. Insofar as the international provisions are concerned, I fear that harm will gradually be done to U.S. relationships with other countries, to the overall detriment of the U.S. and its multinational companies. We can't go it alone in the tax world, not anymore.

Is the new tax code as much a “loophole haven” as the last one? If so, how and why?

There are plenty of loopholes, not to mention mistakes, oversights, and just plain weird policy decisions in the new law. On the other hand, it must be said that there are also a number of loophole closers. The biggest loophole opener is probably the new 20 percent deduction for "qualified business income" of taxpayers other than corporations. No one is quite sure how this will operate, but the benefit is so large, and the tax authorities ate so outgunned, that this is bound to be a recipe for trouble. The biggest loophole closer is the new and somewhat astonishing minimum tax on the foreign income of foreign corporations controlled by U.S. persons.

Is the new tax code increasing or decreasing the complexity of the tax preparedness process? Would the average person spend more or less time/money to prepare their tax returns?

No "average person" in the United States prepares his own tax returns. Are you kidding? But in general, I doubt that below a certain (fairly high) income level, things have not gotten more complex and, in fact, they may be somewhat eased by the larger standard deduction, which will reduce the number of taxpayers who itemize. Above that income level, the world always only grows in complexity.