A Look Back – and Thanksgiving in New England, 2017

Loyal readers of this missive may recall that in our last two annual tax updates, “Make America Great Again!” and “Okay, Now What?” we considered the possibility that real tax reform might at some point be enacted.

When Mr. Trump was elected president, with a Republican majority in both houses of Congress, the possibility of major tax reform became, perhaps, a likelihood, inasmuch as key goals of both the president and the Republicans were a “huge” tax cut and the reform of the broken system of business taxation, in particular, the taxation of international operations of U.S. businesses.

As if to whet our appetites, last year was – as noted in these materials with both nostalgia and a lingering dollop of PTSD – the 30th Anniversary of the Tax Reform Act of 1986, the last truly great effort at simplifying the Code and enhancing the fairness of our tax system.

“A fine is a tax for doing wrong. A tax is a fine for doing well.”

“For every tax problem there is a solution which is straightforward, uncomplicated and wrong.”

“Politicians and diapers have one thing in common; they should both be changed regularly, and for the same reason.” ~ José Maria de Eça de Queiroz

“The only difference between death and taxes is that Congress doesn’t meet every year to make death worse.” ~ Will Rogers

And now here we are, a year after the election and 10 months after the president took office, and nothing has yet been accomplished! Instead, Congress and the administration have frittered away the year since our last update by debating such trivialities as immigration restrictions, health care in America and how to pay for it, Russian meddling in U. S. elections, border walls, and the like, while such critical items as whether private jets should still qualify for like-kind exchanges; local income taxes should no longer be deductible; whether the character of income from a carried interest should turn on how long the interest is held; or whether or not partners in law firms are “job creators” who should be entitled to a reduced tax rate on their hard-earned pay remain unresolved.

So, for our legislators and the administration, we practitioners are still waiting, but are now hoping that our holidays and/or year-end vacation plans will not be totally screwed up by your unaccountable delay in getting the job done.

In fairness, however, I must note that some progress has been made. As we sit down to draft these scribblings on Thanksgiving weekend, the House of Representatives has passed the Tax Cuts and Jobs Act, and the Senate Finance Committee has reported out its version of tax reform which, it is hoped, will be voted on by the Senate shortly.1 Unsurprisingly, no House Democrats voted in favor of the Tax Cuts and Jobs Act. More surprising, perhaps, is that 13 GOP representatives voted against the Act, 12 of whom are from high-tax states whose residents would be affected by the proposed cutback in SALT deductions. The 13th dissenter was North Carolina Representative Walter Jones who, according to Bloomberg said, “My no vote is for the next generation so they won’t be bankrupt.” Speaker of the House Ryan pointed out that “getting 227 members to agree on something as complicated as the tax code is extraordinary.” Amen, Mr. Speaker. But not all non-Democrats are happy. The National Association of Realtors, for example, warned that the home values of middle-class homeowners will fall as a result of the Act, while big corporations get huge benefits. Guess it turns on whose ox is being gored since I suspect not many realtors voted for Bernie Sanders last year. In other words, whose swamp is it that’s being drained?

It is not our purpose to summarize here the provisions of the Tax Cuts and Jobs Act; we have already given a seminar on tax reform proposals and, if and when legislation is finally enacted, we plan to be back to discuss its salient elements (i.e., our “Who’s Zooming Who” report). Instead, since it’s somewhat in our nature to bitch and to complain despite the numerous benefits in life that have been bestowed on your author, we simply remind our readers that as we predicted last year, your legislative solons will not get around to finishing their work on tax reform until the worst possible moment.

There is something traditional and reaffirming for a tax lawyer (and, I’d guess, just about every other American) about spending Thanksgiving with family in New England, although one could do without the apparent requirement here that all residents put on a Tom Brady jersey when leaving their homes, no matter how short in duration or trivial their trip. You see, New Englanders know a thing or two about taxes. New Hampshire’s state motto is “live free or die,” which I think has something to do with its having no personal income tax, which makes southern New Hampshire like Miami Beach, only colder and, in any event, a likely destination for expatriated citizens of Massachusetts. And Boston residents, back in the day, demonstrated that they were not always humorless Yankees, by donning Native American costumes and tossing cartons of British tea into the harbor to protest taxation without representation. Bostonians, like their fellow Americans in, say, New York, New Jersey, California, and Connecticut, for example, would learn in years to come that the taxation with representation was no big deal either, but that’s a story for another day.

OT, we mourn the passing of George Michael, late of the 1980s pop duo Wham! Long-time readers will recall our rather inexplicable habit of reciting some verse or other from the Wham! discography in each year’s materials. Goodbye, George, we’ll miss you.

As usual, we outline a number of those cases and rulings that we found significant, or just plain stupid. These materials are not intended to be exhaustive — after all, what fun would that be and, in any event, your author otherwise remains both gainfully employed and engaged in spending quality time enjoying the resurgence of Philadelphia’s sports teams. We nevertheless hope in here to have highlighted some tax items from the past year which should be useful in your practice, or at least entertaining.

Although I alone prepared this outline, so that none of my colleagues is responsible for either the final selection of cases or the discussion of their contents. I again thank my good friend and colleague, Tom Gallagher, whose well-developed sense of Schadenfreude inspired him to call to my attention a number of cases of “lovable losers”2 who made the included list in our decision of “what to leave in, and what to leave out.”3

So come along with me, fellow traveler, as we take a tour of selected 2017 tax developments. As always, I am honored by your time and attention.