McDermott extended its popular Tax in the City® program to Seattle, with a meeting on October 12 at the Amazon headquarters. McDermott established Tax in the City® in 2014 as a discussion and networking group for women in tax aimed to foster collaboration and mentorship, and to facilitate in-person connections and roundtable events around the country. One of the most attended Tax in the City® events to date, the meeting featured a CLE/CPE presentation about Privilege and the Ethics of Social Media by Cate Battin, Kristen Hazel and Jane May, followed by a roundtable discussion led by Elizabeth Chao, Britt Haxton, Sandra McGill and Diann Smith.
Here’s what we covered at Seattle’s Tax in the City®:
- Privilege Update: Practice discipline with your privileged documents so as to minimize the risk of an inadvertent disclosure. For example, affirmative reliance on an opinion to avoid penalties could waive privilege.
- Ethics Case Studies: We walked through case studies regarding return errors, documentation retention policies, inadvertent disclosure, social media and more. We used our cell phones to vote on what we would do when faced with these dilemmas, and discussed our ethical and legal duties in those scenarios.
- Five Key Elements from GOP Tax Reform Framework:
- Corporate tax rate reduction from 35 to 20 percent: Lower corporate rates may make corporations a more useful acquisition vehicle than they currently are. In anticipation, companies are seeking to defer taxable income until a reduced tax rate occurs. Strategies include generating losses and deductions now via accounting method changes or prepayments of expenses. The lower rate is unlikely to apply at the state level.
- Full capital expensing: Full capital expensing when property is placed in service may produce a discrete event with respect to effective tax rate. Consistency in the rate may be more desirable. Whether full expensing applies to states may depend on whether it is implemented as an amendment to the existing depreciation regime versus introduced as a new provision. States may also limit loss carryforwards that are a result of differences between the timing of federal and state deductions.
- Reduced interest deduction: Know your debt: existing debt may be grandfathered, so modifications to existing loans should be carefully considered.
- 25 percent pass-through tax rate: This change is an attempt to address concerns that tax reform measures proposed to date do not adequately consider small and family-owned businesses organized as sole proprietorships, partnerships, and S corporations.
- Transition to territorial tax system with dividend exemption: This change aims to make the United States more competitive relative to other developed countries. In anticipation of this change, companies are seeking to reduce foreign Exploration and Production (E&P) and Controlled Foreign Corporation (CFC) cash assets. One strategy is to distribute cash from foreign subsidiaries with low earnings and high stock basis. From a state tax perspective, this change poses challenges for apportionment and the inclusion/exclusion of dividends from the state tax base.
- Taxation of the Digital Economy: On both the international and state level, the digital economy raises important questions regarding character, nexus and source. There is a lot of momentum in the European Union right now regarding taxation of the digital economy. The European Union is considering implementing one or more of the proposals that the writers of the Base Erosion and Profit Shifting (BEPS) Action 1 report considered, but did not recommend for the multilateral instrument: changing permanent establishment rules to remove the physical presence requirement; imposing a withholding tax on digital transactions; and imposing an equalization levy. States are also addressing digital transactions, in some cases by drafting new legislation to address digital services and products and in other cases by reinterpreting existing laws to include digital services.