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The New Tax Law
BY JOHN SAVIGNANO, CPA
The new tax law was enacted
at warp speed. President Trump
signed the legislation on December
22, 50 days after a bill was first
introduced in the House. So, it’s
no surprise that it’s full of slipups,
snafus and drafting mistakes unintended
by taxwriters.
Congressional GOPers want to
fix the errors by passing what are
called technical corrections. But
Democrats may not be keen to
go along. They’re loath to give
Trump another legislative victory
when it comes to tax changes. Also,
Republicans can’t use the same
budget reconciliation procedures
to bypass the 60-vote requirement
in the Senate that they used to pass
the package.
That doesn’t mean Republicans
won’t try. Staff members are drafting
language with the hope that
they can attach it to this month’s
spending bill or another vehicle
in order to rally some Democratic
votes. Chances of success are
uncertain at this time.
We’ll discuss some of the mistakes
in the law.
Let’s start with depreciation for
restaurant, retail and leasehold
remodeling. It’s now consolidated
under the grouping of qualified
improvement property (QIP).
Congressional Republicans intended
to give QIP a 15-year depreciable
life and to make it eligible
for 100% bonus depreciation. But
the new statutory language doesn’t’
reflect this intent, accidentally
making QIP ineligible for bonus
depreciation.
The rule barring net operating
loss carrybacks contains an oversight.
The statutory language says
that the general prohibition on
NOL carrybacks applies to NOLs
arising in tax years ending after
December 31, 2017, while the conference
committee used an effective
date for NOLs arising in years
beginning after December 31, 2017.
The law as currently written allows
calendar-year filers to carry back
2017 losses, but fiscal-year taxpayers
with 2017 losses are prohibited
from doing the same.
There’s a big loophole in the tax
treatment of hedge fund managers.
The new law requires fund managers
who take a share of partnership
profits as compensation for services
to hold their partnership interest
for at least three years for the profits
to be long-term capital gains.
The law exempts partnership interests
held by corporations, and fund
managers say that includes S corporations.
However, the Revenue
Service recently announced that
it will issue regulations to clarify
that the exemption applies only
to C corporations. Some tax advisers
question whether IRS has overstepped,
saying that only Congress
can fix this.
John Savignano is a partner with
Savignano Accountants & Advisors
located at 47-46 Vernon Blvd., Second
Floor, in Long Island City. If you have
any questions or require additional
information, please call John at 718-
707-0955.
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