THE NOT QUITE DEFINITIVE GOP TAX ACT SEMINAR

Yesterday I attended the NJ chapter of the National Association of Tax Professionals’ “The Definitive Tax Cuts & Jobs Act Seminar” in Mt Laurel NJ. 

Obviously, at this point in the year, it cannot really be the “definitive” seminar on the GOP Tax Act.  To quote one of the seminar speakers, who expressed what might very well be the theme of the day, “There’s so many things in this law we are not sure of”.  But it was comprehensive.

Much of the mechanics of how the new laws will be applied and how they will interact with existing unchanged Tax Code Sections will remain unknown until the IRS issues regulations and various interpretations are tested in Tax Court.

Let me cut to the chase and give you the bottom line, at least from my point of view, of the discussion on the new Section 199A deduction (20% of "Qualified Business Income").  The sessions on this topic verified the underlying truth of a famous quote from Mark Twain – “Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself.”

Based on my 47 tax seasons of experience preparing tax returns, which is by no means all inclusive, nothing that has ever appeared in the United States Tax Code has ever been as complicated, convoluted and nonsensical as Section 199A.  Hearing the discussion of this new deduction has proven that not a single Congressperson actually read the Tax Cuts and Jobs Act before voting on it (to be fair - just as not a single Congressperson actually read the Affordable Care Act before voting on it).

Any simplification accomplished in the GOP Tax Act has been, in certain circumstances, substantially overshadowed by the complexity of this monstrosity. 

It will take several years for Congress to pass the needed technical corrections and the IRS to issue all the needed regulations for Section 199a, for various interpretations to be tested in Court, and for tax preparers to get a good handle on and feel confident with the application of the many aspects of the Section.  By the time all this is done, I predict, it will have been repealed.

I actually learned something new at the seminar – something that I had not seen in any of the dozens of publications, articles and blog posts I had read on the GOP Tax Act.  It involves loans from employer retirement plans that are unpaid upon an employee’s termination.

If permitted by the plan document, employees can borrow from their, for example, 401(k) plan balances, paying the plan back over time.  If the employee is terminated, or the plan itself is terminated, before the full amount borrowed is paid back the outstanding balance is treated as a distribution from the plan and taxed as such, with a Form 1099R being issued to identify the amount.  The outstanding balance is deemed to have been repaid to the plan, and cash distributed to the employee.  As with any retirement plan distribution, the employee can “rollover” all or part of the distribution into an IRA within 60 days of the date of the distribution and avoid paying tax on this amount.

Now the employee has until the due date of the return for the year of termination, including extensions, to rollover the amount.  The example given in the presentation explains that a taxpayer who was terminated on January 5, 2018 with an outstanding plan loan balance has until October 15, 2019 (if the 2018 return is extended) to come up with the amount of the presumed distribution (the outstanding plan loan amount as of January 5, 2018) and “rollover” this amount to an IRA.  That is a lot more than 60 days.

This new rule is permanent – it does not “sunset” in 2025.

As usual, the speakers were well-informed (as well as they could be with the new Act) and gave good presentations.  Tax attorney Alan Kornstein did an excellent job of summarizing the many complexities of Section 199a, pointing out its areas of confusion and unclarity (is that a word?).  Several days could be devoted to this topic, which I do believe national NATP is doing (click here), and Alan did the best he could in his allotted time.  My only criticism of the day’s schedule is that the last presentation was redundant and confusing.  More time should have been given to Alan.  Anyway, kudos to Anthony and Rose and company.

An aside:  On Wednesday I posted that I was looking forward to attending “the GOP Tax Act workshop” on the NJNATP Spacebook group page.  A fellow member commented – “Do you feel that referring to it as the ‘GOP Tax Act’ politicizes it?”

By calling the legislation the GOP Tax Act I was not attempting to “politicize” anything.  I was not making a political comment nor was I criticizing the Act.  I was merely making a statement of fact.  Calling a spade a shovel, if you will.  “The Tax Cuts and Jobs Act” is the GOP Tax Act.  It was written and passed exclusively by the Republican Party.     

Just as, which the same member also commented, the ACA is called “Obamacare” – it was written and passed by Democrats.  In both cases the legislation is based on a good and laudable premise but was written hastily without bipartisan input and passed hastily without proper discussion and debate.  As I have posted in the past, both Acts contain good, bad and ugly.

TTFN