Friday, December 22, 2017

Big Development for Water in the West - Federal Implied Reserved Water Rights Doctrine Applies to Groundwater

Overview

Water issues are big in the West.  Couple that fact with the fact that the Federal Government owns about 28 percent of the land area of the United States, with approximately 50 percent of that amount is concentrated in 11 Western states (excluding Alaska).  Recently, a federal appeals court held that that the federal implied reserved water rights doctrine categorically extends to groundwater.  The court’s decision could have significant implications for the usage of water in the West – a very big issue for affected farmers and ranchers.  It could also have an impact on water policy. 

For today’s blog post, I asked Washburn Law School’s water law expert, Prof. Burke Griggs, to take a look at the recent case and project the important implications for agriculture and Western water policy in general.  Here’s what Burke had to say:

Western Water Rights

Across the West, most water rights are granted under and governed by state law. Federal law touching on water rights has generally deferred to state law, most prominently in legislation such as the General Mining Law of 1872, the Desert Land Act of 1877, and the Reclamation Act of 1902. Since Winters v. United States, 207 U.S. 564 (1908), however, the Supreme Court has recognized that Native American tribes can be entitled to water rights under federal law, rights that supersede many of these state rights. Specifically, when the United States withdraws land from the public domain and reserves it for a particular federal purpose—as for a reservation intended to be the permanent home for a Native American tribe—then the federal government has impliedly reserved sufficient unappropriated water supplies required to effect the purpose of the reservation. These federal implied rights are based upon the belief that the United States, when establishing Indian reservations, “intended to deal fairly with the Indians by reserving for them the waters without which their lands would have been useless.” Arizona v. California, 373 U.S. 546, 600 (1963).

The Winters doctrine thus reserves water to the extent it is necessary to accomplish the purpose of the reservation, and it only reserves water if it is appurtenant, or connected to, the land that has been withdrawn and reserved. Once established, however, Winters rights vest on the date of the reservation, and are thus superior to the rights of future appropriators; and unlike most state-law granted water rights, they are also immune from abandonment. Because most western states follow the prior appropriation doctrine—first in time, first in right—Winters inserted a substantial exception into the operation of their water rights systems. This was due both to the seniority of tribal rights (which antedate most state law water rights, since most Indian reservations were established in the nineteenth century) and the size of the rights (which are large, because they must be sufficient to satisfy irrigation rights - the usual, agrarian purpose of the reservations). For example, the Winters right of the Kickapoo Tribe in Kansas dates from 1834—twenty years before Kansas became a territory pursuant to the Kansas-Nebraska Act of 1854, and twenty-seven years before it became a State. 

Since the 1970’s, many western tribes have obtained recognition of their Winters rights, primarily through state law water-rights adjudications. The United States holds substantial water rights across the West, not only in its trustee capacity for Native American Tribes, but also for national monuments, national forests, and other public lands. But because the United States generally enjoys sovereign immunity from state court proceedings, Congress enacted the McCarran Amendment, 43 U.S.C. § 666, which waives that sovereign immunity so that the United States must participate in such state court adjudications. Because, pursuant to Winters, tribes frequently hold some of the most senior and largest water rights in the basins at issue, the extent of their Winters rights has figured prominently in these adjudications.  In addition, because groundwater has become a major source of supply for irrigators and other water users across the West since Winters, these state-court adjudications have been forced to address the issue of whether Winters rights extended to groundwater.

For the most part, state courts have held that Winters rights do extend to groundwater. See, e.g., In re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source, 989 P.2d 739 (Ariz. 1999). The logic behind such an extension should be uncontroversial, at least from a hydrological standpoint; surface and groundwater supplies are connected to one another. As the Arizona Supreme Court wrote in the Gila case, “some [Indian] reservations lack perennial streams and depend for present and future survival substantially or entirely upon pumping of underground water. We find it no more thinkable in the latter circumstance than in the former that the United States reserved land for habitation without reserving the water necessary to sustain life.” Id. at 746.  State courts and federal district courts deciding the issue of whether Winters rights extend to groundwater have mostly held in the affirmative, or have refused to exclude groundwater from the scope of Winters. See, e.g., Tweedy v. Texas Co., 286 F. Supp. 383 (D. Mont. 1968) and Confederated Salish and Kootenai Tribes v. Stults, 59 P. 3d 1093 (Mont. 2002); see also United States v. Washington Dep’t of Ecology, 375 F. Supp. 2d 1050 (W.D. Wash. 2005). Wyoming has held otherwise. See In re the General Adjudication of All Rights to Use Water in the Big Horn River System, 753 P.2d 76 (Wyo. 1988), aff’d by an equally divided Court, Wyoming v. United States, 492 U.S. 406 (1989). 

Recent Case

In Agua Caliente Band of Cahuilla Indians v. Coachella Valley Water District, 849 F.3d 1262 (9th Cir. 2017), the court held that the federal implied reserved water rights doctrine, first established in Winters, categorically extends to groundwater.  The case is notable as the first federal appellate case to reach a decision on this issue, and its reasoning follows multiple state court decisions across the West.  On November 27, 2017, the U.S. Supreme Court denied certiorari in the first phase of the case, allowing the Ninth Circuits holding to stand.  Coachella Valley Water District v. Agua Caliente Band of Cahuilla Indians, No. 17-40, Vide No. 17-42, 2017 U.S. LEXIS 7044 (U.S. Sup. Ct. Nov. 27, 2017).

Background.  The case arose as a declaratory judgment action (where the court determines the rights of the parties without ordering any action be taken or that damages be awarded) brought by the Agua Caliente Band of Cahuilla Indians (“Tribe”), seeking a declaration that the Tribe was entitled to federal water rights that supersede state law—including rights to groundwater that lie beneath the tribe’s reservation. The most important of these rights, as noted above, is the federal implied reserved water right first established in Winters

The Agua Caliente case was brought outside of the context of a state-court adjudication. Indeed, in many respects, the case does not present the usual facts of a reserved water rights claim. The Tribe’s reservation in the Coachella Valley of California dates to 1876-77, and consists of approximately 31,000 acres interspersed in a checkerboard pattern amid several cities within Riverside County, including Palm Springs, Cathedral City, and Rancho Mirage. By placing the Tribe on the reservation, the United States sought to protect the Tribe and, in the words of the Commissioner of Indian Affairs in 1877, secure them “permanent homes, with land and water enough.” Unfortunately, the Coachella Valley receives less than six inches of precipitation annually, and the Whitewater River System—the only supply of surface water in the area— can only provide between 4,000 and 9,000 acre-feet of water every year, most of which flows during the winter months. Therefore, almost all of the water in the valley comes from the underlying aquifer—the Coachella Valley Groundwater Basin (“Basin,”) which supports nine cities, 400,000 people, and 66,000 acres of farmland. Given the size of this cumulative demand, it is no surprise that pumping vastly exceeds recharge in the basin by 240,000 acre-feet per year. By 2010, the aquifer had become over-drafted by 5.5 million acre-feet. The Tribe, however, does not pump groundwater from its reservation lands. Rather, it obtains most of its water supplies by purchasing groundwater from the defendant water agencies—the Coachella Valley Water District and the Desert Water Agency (“water agencies”). (The Tribe also holds a small surface-water right from the Whitewater River, pursuant to a 1938 state court decree.)

Trial court.  Alarmed by the state of groundwater overdraft in the Basin, the Tribe brought its suit against the water agencies in 2013, seeking a declaration that the Tribe had Winters rights extending to the groundwater supplies in the Basin. In 2014, the United States, acting in its trustee capacity for the Tribe, successfully intervened in the case, and also alleged that the Tribe enjoyed Winters rights. In 2015, the district court held that the reserved rights doctrine applies to groundwater, and that the United States had reserved appurtenant groundwater for the Tribe when it established the Tribe’s reservation in the Coachella Valley. The water agencies perfected an interlocutory appeal whereby the appellate court (the U.S. Court of Appeals for the Ninth Circuit) would rule on the issue of Winters rights before the trial concluded. 

Ninth Circuit.  Given the diversity of state court decisions concerning whether Winters rights extend to groundwater, and the lack of a federal appellate decision on the issue, the appeal provided the first opportunity for a federal appeals court to rule on the issue. In a straightforward decision, the Ninth Circuit upheld the trial court’s decision extending Winters rights to groundwater. The court based its decision on three related holdings. First, it held that the United States clearly intended to reserve water under federal law when it created the Tribe’s reservation. The appellant water agencies argued that Winters and its progeny should not apply in this case, because the Tribe has been able to satisfy its water needs by purchase from them.  Thus, according to the water agencies, the Tribe should be treated as any other private water user obtaining its water rights under state law.  The Ninth Circuit disagreed, noting that the underlying purpose of the reservation was to establish a tribal homeland supporting an agrarian society.  That purpose would be entirely defeated, the court reasoned, without sufficient water supplies held under federal law. Thus, the Tribe was entitled to a reserved water right for the Agua Caliente Reservation. 

Next, the Ninth Circuit held that the Tribe’s Winters right extended to groundwater. In so holding, the court cited the Arizona Supreme Court’s holding in the Gila River case.   It was necessary for the Tribe to access groundwater in the Coachella Valley Basin because surface supplies were clearly inadequate—a reservation without an adequate supply of surface water must be able to access groundwater as well. Thus, the court held that the reservation and establishment of the Agua Caliente Reservation carried with it an implied federal reserved right to use water from the aquifer.

Neither of the Ninth Circuit’s first two holdings seems controversial, given the logic and the scope of Winters and its progeny.  However, the third and final holding addressed a more complicated issue: how the Tribe’s Winters right exists in relation to water rights recognized under California state water law. California (like Nebraska and Arizona, to name two) follows the reasonable use/correlative rights doctrine for groundwater.  At the Ninth Circuit, the water agencies argued that the Tribe’s state law water rights rendered its claim for Winters rights unnecessary.  Their argument was layered: 1) because the Tribe enjoys correlative water rights under California law; and 2) because the Tribe has not drilled for water under the Agua Caliente Reservation; and 3) because the Tribe held some (but not sufficient) surface water rights under state law pursuant to the 1938 state court adjudication of the Whitewater River, then the Tribe, according to the water agencies, did not need a federal reserved right to prevent the purposes of the reservation from being entirely defeated. The Ninth Circuit rebuffed the agencies’ argument.  It determined that 1) the Tribe’s Winters rights pre-empted state water rights; 2) the Tribe’s lack of groundwater pumping did not defeat those Winters rights, because they are immune from abandonment; and 3) the proper inquiry was not one of current necessity, but whether water was envisioned as necessary for the reservation’s purpose at the time the reservation was created. Thus, the Ninth Circuit held, the issue of the Tribe’s state law-based water rights did not affect the existence of its Winters water right. In sum, the Ninth Circuit’s analysis produced a categorical holding: Winters always applies as a matter of federal pre-emption, regardless of how a state allocates groundwater rights.

Supreme Court Review?

The Ninth Circuit’s decision provoked substantial amicus participation on appeal to the Supreme Court. States as legally diverse as Minnesota and Nevada, as well as property-rights advocacy groups such as the Pacific Legal Foundation, submitted amicus briefs. Both the appellants and the amici supporting them made two general arguments in opposition to the Ninth Circuit’s holding:  1) that Winters should be limited to surface water supplies governed by state-law prior appropriation regimes (such as Montana, where Winters originated); and 2) that the Ninth Circuit’s holding will interfere with and even take long-established groundwater rights secured under state law. The Supreme Court’s denial of certiorari, like all of its denials, did not give its reasons.

Conclusion

The arguments involved Agua are important arguments to make, especially as groundwater has become the dominant supply of water across the West. However, the logic of Winters presents formidable obstacles to limiting its scope to surface water supplies only—especially in the Coachella Valley and other desert basins which lack substantial surface water supplies. The Court’s denial of certiorari has allowed the Ninth Circuit’s decision to stand.

The Ninth Circuit’s decision also has important implications for California, which enacted the Sustainable Groundwater Management Act (SGMA) in 2014, an ambitious act that requires local “groundwater sustainability agencies” to establish sustainable groundwater management plans during the next decade or so. Because the Ninth Circuit’s decision establishes strong (and largely non-negotiable) rights for tribes within California’s groundwater basins, it probably complicates the already formidable task of achieving the necessary goal of groundwater management at the level of sustainability.

Across the West, the other implications of the decision likely depend upon what remains the primary vehicle through which tribal rights are clearly established: basin-wide adjudications of water rights undertaken in state courts pursuant to the McCarran Amendment.

P.S.  Absent anything of major significance in the ag law and tax world next week, this is the final post of 2017.  However, that doesn’t mean that I will be sitting idly by.  I will be continuing to prep two courses for the spring semester – one for the law school and one for Kansas State University.  I will also be updating my treatise for the changes triggered by the new tax law and other relevant developments, and preparing materials for the Jan. 10 seminar/webinar on the new tax law.  In addition, travel begins on Jan. 4 as I head for engagements in Illinois and Tennessee before the Jan. 10 event.  Radio and TV interviews also continue as usual next week.  The next post is scheduled for January 1 and will be Part 1 of the top ten ag law and tax developments of 2017. 

To all of my readers, have a wonderful Christmas with your families!  See you on January 1.

December 22, 2017 in Water Law | Permalink | Comments (0)

Thursday, December 21, 2017

Another Tax Bill Introduced, Year-End Planning, and Jan. 10 Seminar/Webinar

Overview

As I mentioned at tax seminars this fall, the tax bill that the Congress was considering and will soon be signed into law (probably on Dec. 22, 2018) did not address the provisions that expired at the end of 2016.  Those provisions needed separate legislation to be in play for 2017.  Well, on December 20, Senator Hatch (R-UT) introduced S. 2256 into the Senate.  It's the (seemingly) annual extenders bill.

For many of the readers of this blog, here are some of the most relevant provisions that the bill would renew for 2017:

Credits:

  • Credit for certain nonbusiness energy property
  • Credit for residential energy property (as modified)
  • Qualified fuel cell motor vehicle credit
  • Alternative fuel vehicle refueling property credit
  • Credit for 2-wheeled plug-in electric vehicles
  • Second generation biofuel producer credit under 
  • Credits for biodiesel fuel, biodiesel used to produce a qualified mixture, small agri-biodiesel producers, renewable diesel fuel and renewable diesel used to produce a qualified mixture
  • Credit for construction of new energy efficient homes
  • Credit for geothermal heat pump property, small wind property, and combined heat and power property

Cost-Recovery Provisions:

  • 3-year depreciation for race horses two years old or younger. 
  • 7-year recovery period for motorsports entertainment complexes.
  • Accelerated depreciation for business property on an Indian reservation.
  • Special depreciation allowance for second generation biofuel plan property.

Other:

  • Exclusion for discharge of indebtedness (within a limit) on a principal residence. 
  • Treatment of mortgage insurance premiums as deductible qualified residence interest.
  • Deduction for qualified tuition and related expens
  • Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
  • The alternative 23.8 percent maximum tax rate for qualified timber gains of C corporations.
  • Energy efficient commercial buildings deduction.

Late Year-End Planning

Much of the year-end planning deals with shifting income to next year to take advantage of lower rates and accelerating itemized deductions to this year.  However, there are some other planning opportunities that can perhaps be taken advantage of over the next few days.  Here are some thoughts – again each taxpayer’s situation will be different and this is not an exhaustive list of every possible opportunity.

  • Wait until next year to convert a regular IRA to a Roth IRA.
  • If a Roth IRA was converted to a regular IRA earlier this year, complete a recharacterization by December 31, 2017.
  • Don’t bill clients until late next week or in early January to ensure that the income won’t be received until 2018 (cash basis businesses).
  • For accrual businesses, take a break and complete jobs next year (not a problem for construction businesses).
  • Hold-off on having debt cancelled until next year.
  • As I mentioned on Monday’s post, pay the last installment of 2017 estimated taxes this month and pay 2017 real property taxes that are due next year by then end of this year.
  • Pay some of next years anticipated charitable contributions and tithe and offerings this year to the extent cash flow will allow. For famers, consider additional grain gifts to charity this year.
  • For taxpayers working out arrangements with creditors, delay any debt reduction until next year.
  • See if medical expenses might be incurred in 2017 that will help clear the 7.5 percent of AGI floor for 2017 (maybe a year-end visit to the optometrist or dentist or getting that physical next week (after Christmas is always a great time for that) is in order instead of waiting until January). In addition, for businesses, if health insurance premiums would normally be paid in January, pay them this month.
  • For taxpayers thinking about exercising an incentive stock option, it may be a good idea to wait until 2018 if alternative minimum tax might be an issue. The AMT exemption is higher next year.
  • Do a like-kind exchange of qualified personal property this year. But, even if it’s not done this year, it really is of little concern because 100 percent expensing is the rule next year. Will the particular state couple?  That’s always a question to ask.
  • For businesses, have business meetings with clients next week to be able to write-off half of the cost of food and beverages. Do it next month and none of it is deductible. 
  • For taxpayers other than those on active military duty, incur moving expenses by year-end.
  • Pay employee business expenses this year that would otherwise be paid in 2018.
  • Birth a child (or twins or triplets, etc.) before the stroke of midnight on Dec. 31.
  • Make a substantial gift to Washburn Law School's Rural Law Program before January 31.

January 10 Seminar/Webinar

On January 10 I will be joined by Prof. Lori McMillan of Washburn Law School in presenting a 2-hour seminar/webinar on the new law.  This seminar is for everyone to learn how the new tax law will impact individual taxpayers and businesses.  Should a business be reorganized?  What about existing estate plans?  How does the new pass-through tax system apply?  What are the special rules for farmer and their businesses?  What about cooperatives?  What are the nuts and bolts of the new law?

You can register for the event here:  https://www.agmanager.info/present-tax-landscape-implications-individuals-businesses-investors-and-others

Conclusion

The fun is just beginning.  It’s beginning to look a lot like Taxmas!!

December 21, 2017 in Income Tax | Permalink | Comments (0)

Wednesday, December 20, 2017

Christmas Shopping Season Curtailed? - Bankruptcy Venue Shopping, That Is!

Overview

Under current law, a business has options concerning where it can file bankruptcy.  Those places include the state in which the business is organized, the location where the business has significant business assets or conducts business, or (in certain situations) where the parent company or affiliate has filed bankruptcy.  That can create a tough situation for a farmer that has a claim against the bankrupt company if they have to travel far from their farming operation to participate in the bankruptcy.  An example of this was the VeraSun bankruptcy that impacted farmers across parts of the Midwest and the Great Plains a few years ago.

Now, according to Bloomberg News and the Wall Street Journal, it looks like legislation will be introduced into the Congress that would change where a bankrupt company can file bankruptcy.  See, e.g., https://www.wsj.com/articles/lawmakers-to-propose-making-bankrupt-companies-file-for-protection-close-to-home-1513644954?reflink=djemBankruptcyPro&tpl=db;   This is known as “venue” and the bill is known as the “Bankruptcy Venue Reform Act of 2017.”  If introduced this week, the bill may be tucked into the Omnibus spending bill that the Congress will vote on late this week.  It’s a big deal for farmers, employees, retirees of bankrupt debtors (and other creditors).    

Bankruptcy venue reform – today’s blog post topic.

Why Tightening Venue Matters

Several prominent bankruptcy cases filed in recent years illustrate why modifying existing venue rules matters.

VeraSun Energy Corporation (VeraSun).  In early November 2008, Sioux Falls-based VeraSun and twenty-four of its subsidiaries filed for Chapter 11 bankruptcy protection to enhance liquidity while it reorganized.  VeraSun got in financial trouble when it bought corn contracts at a high price and then corn prices dropped by about 50 percent before the specified delivery date in the contracts.  VeraSun had failed to protect itself on the board of trade.  That big price drop caused VeraSun to lose hundreds of millions of dollars. Of course, VeraSun was using the contract to hedge against corn prices going up and the farmer sellers were using them to hedge against a price decline.  The corn farmers guessed right and the contracts worked to their advantage.  However, VeraSun’s bankruptcy meant that  VeraSun could force farmer sellers to hold their grain in a dropping market since it was not required to assume or reject the contracts until its plan of reorganization was to be heard several months down the line.  If the contracting farmer sold his corn to minimize his loss, and the price of corn increased so that it made economic sense for VeraSun to enforce the purchase contract, the farmer would be forced to make up the difference.  Many farmers sought to have the bankruptcy court force VeraSun to make decisions regarding assuming or rejecting the out-of-the money corn contracts quickly, so they would not be faced with a problem if the market rebounded.  The bankruptcy court in Delaware was not willing to force VeraSun to act on a plant-by-plant basis, opting instead to allow each individual farmer to hire counsel in Delaware to press his case involving his contracts.  This was cost prohibitive.  There were over 6,000 midwestern farmers affected by this bankruptcy.

Later in the case, lawyers from Delaware and New York sent threatening letters to the farmers who had been paid for their corn promptly in accordance with state grain elevator laws demanding that they repay all sums they had been paid within 90 days of the case filing claiming that they were preferential transfers.  The farmers organized, and defensive letters were sent back to the threatening lawyers who then opted to not file the threatened preference lawsuits.  If the case had been filed in the Midwest, it would have been more likely that lawyers familiar with agricultural law would not have sent the preference demand letters because they would have known the prompt payment requirements of state grain elevator laws and would have recognized that these payments were in the ordinary course of business of both VeraSun and the farmers it paid. 

In addition, farmers who were unpaid when the bankruptcy was filed became creditors in the VeraSun bankruptcy and had to file claims and participate in the bankruptcy process to have any hope of getting paid.  Those farmers were scattered across the Midwest and Great Plains where Verasun had ethanol and biodiesel plants.  None of them were located in Delaware, where VeraSun filed its bankruptcy petition. 

Why did Verasun file bankruptcy in Delaware when it didn’t have any ethanol plants located in Delaware and wasn’t headquarted there?  Because the an affiliated company organized in Delaware filed Chapter 11 filed bankruptcy in Delaware.  Because of that, all of the affiliated companies could also file in Delaware under the applicable venue rule of the Bankruptcy Code.  That meant that farmers with claims against VeraSun had to participate in Delaware bankruptcy proceedings rather than in the jurisdiction where the contracts were to be performed.  That’s a frustrating, and expensive, proposition for farmers.   Ultimately, VeraSun ended up selling seven of the plants to Valero Energy Corporation, and the rest to other companies in 2009.

A short video about the VeraSun bankruptcy effects on farmers, as told by an Iowa farmer, can be found at: https://www.youtube.com/watch?v=7GdifLvuRdw

Peregrine Financial Group, Inc. (PFG).  PFG was an Iowa-based financial firm that was shut down in 2012 after it was put under investigation for a $200 million shortfall in customer funds.  PFG’s Peregrine’s chief executive office was arrested and charged with making false statements to the Commodity Futures Trading Commission (CFTC).  At the time of PFG filed Chapter 7 it had over $500 million in assets and over $100 million in liabilities.  PFG filed bankruptcy in Illinois even though it was headquartered in Iowa.  Similar to the VeraSun bankruptcy, many Midwest farmers were impacted by PFG’s bankruptcy. 

Solyndra, LLC.  The solar-panel maker Soyndra, LLC, filed Chapter 11 in 2011 in Delaware.  Solyndra had received $535 million in federal financing (under the Obama Administration’s “stimulus” program) and a $25.1 million tax break from the State of California. Upon filing, the California-based company suspended its manufacturing operations and laid-off approximately 1,100 employees triggering both Federal and California Worker Adjustment and Retraining Notification Act issues.  The employees affected by the mass layoffs resided in California.  By filing in Delaware, Solyndra made it more expensive and burdensome for the laid-off employees to pursue their claims.  The result for the employees was an out-of-court settlement of only $3.5 million (less 33% for their attorneys' contingent fee) on their claim of $15 million.  One can only imagine the result if the case had been filed in California and the employees had easy access to the court deciding their fates.

Winn-Dixie Stores, Inc. (WD).  WD was a supermarket chain headquartered in Florida.  In April 2004, Winn-Dixie announced the closure of 156 stores, including all 111 stores located in the Midwest.  On early 2005, WD filed Chapter 11 bankruptcy.  To establish venue in technical compliance with the statute, the WD formed a new entity in New York shortly before the Chapter 11 filing and admitted it did so to establish venue.  The bankruptcy court stated that the current statute contains a loophole allowing companies to file in venues that are not proper even if they have literally complied with the statute.  The court transferred the case to Florida, with the judge stating, “…simply because I don’t believe it just to exploit the loophole in the statute to obtain venue here.” In re Winn-Dixie Stores, Inc., Case No. 05-11063 (RDD) (Bankr. S.D.N.Y. April 12, 2005) Hearing Transcript at 167. 

In re Houghton Mifflin-Harcourt Publishing Co. (HM).  HM was a publishing company that filed its case in the Southern District of New York in 2012.  The United States Trustee filed a Motion to Change Venue.  Unlike the court in WD that transferred venue, the bankruptcy court in HM found there was no statutory basis for venue in the Southern District of New York, but chose to defer transfer of venue until after confirmation of the plan.  The court even chided the United States Trustee for filing the Motion to Change Venue.  In re Houghton Mifflin Harcourt Publishing Co., Case No. 12‐12171 (RFG), Decision on U.S. Trustee Motion to Transfer Venue of these Cases, (June 22, 2012, Bankr. SDNY).

Boston Herald.  Last week, provided another example of forum shopping at the expense of retirees, employees and the local community.  The Boston Herald (Herald), a local Boston, MA, newspaper announced plans to sell the newspaper to GateHouse Media after filing Chapter 11 bankruptcy in Delaware.  The only connection that the Herald has to Delaware is that its holding company is incorporated in Delaware.  Eighteen of its 30 largest creditors reside in Massachusetts or New Hampshire and most are individual retirees. 

Changing Venue as an Option?

The WD bankruptcy judge’s transfer of the case is a rarity.  Very few cases are ever transferred.  Indeed, some venue-change proceedings have turned into costly extended proceedings with evidentiary trials and extensive briefing.  For instance, the Patriot Coal Corporation (a St. Louis-based spin-off of Peabody Energy Corporation) filed Chapter 11 bankruptcy in 2015.  On a motion to transfer venue from the Southern District of New York, the bankruptcy court took four months to issue a 61-page decision based on facts that were largely uncontested and involved the manipulation of current venue law.  Venue was determined to be in the Southern District of New York.  Based on a review of the interim fee applications filed in the Patriot Coal case, it can be estimated that the debtor spent approximately $2 million and the creditors spent an additional $1 million to litigate the venue challenge.  The court’s opinion “demonstrates the near impossibility of having venue transferred away from New York.” See Bill Rochelle, Patriot Shows Futility of Moving Cases from NY, Bloomberg (11/29/12).

In In re Enron Corp., 274 B.R. 327 (Bankr. S.D. N.Y. 2002), the court stressed the importance of case administration, and noted the “learning curve” the court acquired in the first month of the case in denying a motion to change venue filed shortly after the filing of the case.  Enron and other cases such as In re Jitney JungleCase No. 99‐3602 (Bankr. D. Del.) and the WD case mentioned above demonstrate that by the time courts consider venue transfer motions, most of the important first day or “second day” motions relating to debtor-in-possession financing, sale procedures, break-up fees and the like would have already been entered and have become final. The reorganization case would have progressed forward so far and taken such a direction that it bears the indelible imprint of the first court. Such was the case with Jitney Jungle. By the time this case was transferred to New Orleans there was little that the New Orleans bankruptcy judge said that he could do because of the actions taken or orders previously entered in Delaware. Similarly, in Winn-Dixie, by the time the Florida judge received the case, so much of substance had already been ordered in the case that there was little the Florida judge could do but administer the orders of the prior judge.

Bankruptcy Venue Reform Act of 2017

The goal of the legislation is to drastically reduce the ability of companies to forum shop bankruptcies by denying access to justice for creditors of companies that choose to file their bankruptcies primarily in the Southern District of New York and Delaware.  The legislation does this will by eliminating place of incorporation as a proper venue as well as eliminating the affiliate rule allowing the companies to file a Delaware affiliate first in Delaware, then file the rest of the cases in Delaware.  Under the bill, venue is appropriate only in the district court for the district where an individual debtor is domiciled, resides, or where their principal assets have been located for the 180-day period immediately preceding the bankruptcy petition, or for a longer portion of the 180-day period than the domicile, residence or principal asset were located anywhere else.  The same 180-day rule applies to a business debtor, but in terms of the debtor’s principal place of business rather than residence or domicile. 

Venue is also proper in jurisdictions where there is already a pending bankruptcy case concerning an affiliate that directly or indirectly owns, controls, is the general partner, or holds 50 percent or more of the outstanding voting securities, of the person or entity that is the subject of the later-filed case if the pending case was properly filed in that district.  The bill also says that changes of ownership or control of a person or entity or assets or principal place of business within a year before bankruptcy filing that is done with the purpose of establishing venue are to be ignored.  A court could still transfer a case in the interest of justice or for the convenience of the parties.

Conclusion

Currently, bankruptcies can be filed in several places, including the state of organization of the company, the district where a company has significant business assets or conducts business, or in the district where a parent or an affiliate has filed bankruptcy.   The proposed legislation will make it difficult for bankruptcies to be filed remotely from the company’s assets or headquarters.  The idea is to increase fair access to justice for the parties affected by a bankruptcy.  The bill is a big deal for bankruptcy reform and fairness to creditors.  While similar legislation was introduced in 2011, it was opposed by the Obama Administration.  Individuals and businesses interested in the matter should contract their Congressional Representatives and Senators immediately and request Senators to Co-sponsor the bill and ask their Representatives to support it. 

December 20, 2017 in Bankruptcy | Permalink | Comments (0)

Monday, December 18, 2017

House and Senate to Vote on Conference Tax Bill This Week

Overview

The Congress appears to finally be on the brink of a major overhaul of the Tax Code this week.  The stated goal is to get a bill to the President’s desk before Christmas.  Prior blog posts have highlighted both the House-passed version (http://lawprofessors.typepad.com/agriculturallaw/2017/11/comparison-of-the-house-and-senate-tax-bills-implications-for-agriculture.html) and the Senate-passed version (http://lawprofessors.typepad.com/agriculturallaw/2017/12/senate-clears-tax-bill-on-to-conference-committee.html).  The Conference Committee produced a bill based largely on provisions drawn from both bills and produced a result for the two bodies to consider.

Today’s post takes a look at the major provisions on the Conference Committee bill that will be voted on this week.  On January 10, 2018, Prof. Lori McMillan and I will conduct a two-hour seminar/webinar on the new law (assuming that the bill passes this week, as expected).  If there is no new law by Jan. 10, we will update practitioners on the status of the law for 2017 and going forward.  Registration for those attending in person and online is available here:  https://www.agmanager.info/present-tax-landscape-implications-individuals-businesses-investors-and-others

Now, a look at the major provisions in the Conference Committee bill. 

Note:  This is my attempt to understand the statutory language as it modifies current law.  The text of the language is nearly 500 pages, with many interrelated provisions.  Any mistakes in interpreting that language are my own.

Individual Provisions

Income tax rates.  The conference agreement temporarily replaces the existing rate structure with a new rate structure for 2018-2025.  Seven rate brackets are provided from 10 percent to 37 percent.  The benefit of the 12 percent bracket is not phased-out for taxpayers with adjusted gross income in excess of $1,000,000 ($1,200,000 in the case of married taxpayers filing jointly).  Also, the conference bill generally retains present-law maximum rates on net capital gains and qualified dividends.

Standard deduction.  Starting for tax year 2018, through tax years beginning before 2026, the basic standard deduction is increased for all individuals.  It will be $24,000 for MFJ, $18,000 for HOH and $12,000 for all other individuals.  The amount of the standard deduction is indexed for inflation using the C-CPI-U for taxable years beginning after December 31, 2018.   The additional standard deduction for the elderly and the blind remains unchanged.

Inflation adjustments.  For tax years beginning after 2018, the basic standard deduction and the marginal tax brackets are indexed for inflation utilizing the chained CPI-U.

Personal exemptions.  Effective for tax years beginning after 2017, the deduction for personal exemptions is suspended through 2025.  The suspension does not apply to taxable years beginning after December 31, 2025.

Repeal of overall limitation on itemized deductions.  The bill repeals the overall limitation on itemized deductions.  The provision is effective for taxable years beginning after December 31, 2017 and before 2026.

Commodity gifts.  Under current rules, a parent can gift grain to a child and eliminate the self-employment tax on the gifted grain and, under the “kiddie-tax” rules, the tax rate of the child is generally the parent’s rate.  However, under the bill, in most situations, the tax rate of the child will be the tax rates applicable to estates and trusts.  Thus, once the child has $12,500 of unearned income, the tax rate applicable to the child will be 37 percent on all excess amounts. This provision is applicable for tax years 2018 through 2025.

Family and individual tax credits.  Effective for tax years beginning after 2017 through 2025 child tax credit is temporarily increased to $2,000 per qualifying child (one that hasn’t attained age 17 during the tax year), with up to $1,400 (indexed to the next lowest multiple of $100) of the credit refundable.   In addition, the bill provides for a $500 nonrefundable credit for qualifying dependents other than qualifying children.  In order to receive the child tax credit (i.e., both the refundable and non-refundable portion), a taxpayer must include a Social Security number (that is issued before the due date for the filing of the return for the tax year at issue) for each qualifying child for whom the credit is claimed on the tax return.  If a taxpayer can’t claim the child tax credit for an otherwise qualifying child because the child didn’t have a Social Security number, the $500 nonrefundable credit can still be claimed.  The credit is phased out for MFJ taxpayers with AGI exceeding $400,000 (not indexed for inflation). 

Home mortgage interest.  For taxable years beginning after December 31, 2017, and before January 1, 2026, a taxpayer may deduct interest paid on up to $750,000 (MFJ) of acquisition indebtedness, unless the debt is incurred before December 15, 2017, in which case the limit is $1,000,000.  For taxable years beginning after December 31, 2025, a taxpayer may treat up to $1,000,000 (MFJ) of indebtedness as acquisition indebtedness, regardless of when the indebtedness was incurred.  The additional deduction for interest attributable to home equity debt is suspended for tax years beginning after 2017 and before 2026. 

Deduction for State and local taxes.  For tax years beginning after 2017, for individuals, State, local, and foreign property taxes and State and local sales taxes are allowed as a deduction only when paid or accrued in carrying on a trade or business, or an activity that produces income.  Thus, only those deductions for State, local, and foreign property taxes, and sales taxes, that are presently deductible in computing income on an individual’s Schedule C, Schedule E, or Schedule F are allowed.  However, an itemized deduction of up to $10,000 may be taken for the aggregate of state and local real property taxes not paid or accrued in carrying on a trade or business or an income-producing activity, plus either state and local income tax or sales tax.   It is also not possible to claim an itemized deduction in 2017 for a pre-payment of income tax for a future tax year in order to avoid the dollar limitation applicable for tax years after 2017. 

Personal casualty and theft losses.  Beginning in 2018, and lasting through 2025, a taxpayer may claim a personal casualty loss (subject to certain limitations) only if the loss was attributable to a disaster declared by the President. 

Deduction of charitable donations.  For tax years beginning after 2017, the bill increases the percentage limit for contributions of cash to public charities from the current 50 percent of the taxpayer’s contribution base to 60 percent.  Effective for tax years beginning after 2016, the bill eliminates the possibility that a charity can substantiate a contribution of a donor via the charity’s return. 

Repeal of certain miscellaneous itemized deductions subject to the two-percent floor.  Effective for tax years beginning after 2017 and before 2026, the bill suspends all miscellaneous itemized deductions that are subject to the two-percent floor under present law. 

Medical expenses.  For taxable years beginning after December 31, 2016 and ending before January 1, 2019, the threshold for deducting medical expenses returns to 7.5 percent for all taxpayers.  It had been increased by Obamacare to 10 percent, thus making it more difficult for taxpayers to deduct medical expenses.  For 2017 and 2018, the threshold applies for purposes of the AMT in addition to the regular tax.

Alimony.  The bill specifies that alimony and separate maintenance payments are not deductible by the payor spouse, and are not income to the recipient.   Income used for alimony payments is taxed at the rates applicable to the payor spouse rather than the recipient spouse.  The treatment of child support is not changed.  The provision is effective for any divorce or separation instrument executed after December 31, 2018, or for any divorce or separation instrument executed on or before December 31, 2018, and modified after that date, if the modification expressly provides that the amendments of the bill apply to such modification.

Moving Expenses.  The bill, effective for tax years beginning after 2017 and before 2026, generally suspends the deduction for moving expenses and repeals the exclusion for qualified moving expense reimbursement except for members of the military on active duty. 

Alternative Minimum Tax (AMT).  Under the bill, the individual AMT exemption amount and phase-out threshold are both increased for tax years beginning after 2017 and before 2026.  The exemption goes to $109,400 (MFJ) and the phase-out begins at $1,000,000 (MFJ). 

Treatment of business income of individuals.  For tax years beginning after 2017 and before 2026, an individual business owner (other than the owner of a personal service business with income of $315,000 (MFJ) and above for the tax year) as well as an owner of an interest in a pass-through entity is entitled to a deduction of 20 percent of the individual’s share of qualified business income (QBI).  QBI is the net amount of income, gain, deduction and loss attributable to the business less net long-term capital gains.  However, the deduction comes with a limitation. The limitation (computed on a business-by-business basis) is the greater of (a) 50 percent of the W-2 wages paid with respect to the qualified trade or business, or (b) the sum of 25 of percent of the W-2 wages with respect to the qualified trade or business plus 2.5 percent of the unadjusted basis, immediately after acquisition, of all qualified property.  But, the wage limitation does not apply if the business owner's income is less than $315,000 (MFJ).  As noted, the ability of a personal service business to claim the deduction is phased-out once taxable income reaches $315,000 (MFJ). The phase-out range is $100,000 (MFJ).  

The 20-percent deduction is not allowed in computing adjusted gross income.  It’s allowed as a deduction reducing taxable income.  Thus, for example, the provision does not affect limitations based on adjusted gross income.  However, the deduction is available to both nonitemizers and itemizers.  The QBI deduction is allowed when computing AMT.  Thus, it does reduce AMTI.

Business-Related Provisions

Corporate tax.  A flat 21 percent tax corporate rate applies, effective for tax years beginning after 2017.

Corporate AMT.  The AMT is repealed for tax years beginning after 2017.  For corporations, the AMT credits offsets regular tax liability and is refundable for tax years beginning after 2017 and before 2022 in an amount equal to 50 percent (except it is 100 percent for tax years beginning in 2021) of the excess minimum tax credit for the tax year over the amount of the credit allowable for the year against regular tax liability.  Thus, the full amount of the minimum tax credit will be allowed in taxable years beginning before 2022.

Cooperatives.  An agricultural or horticultural cooperative engaged in the MPGE (manufacturing, production, growth or extraction) of an agricultural or horticultural product, the marketing of such a product that a patron has conducted MPGE on, or the provision of supplies or services to farmers is entitled to a deduction (computed separately from the patron with no pass-through to the patron) equal to the lesser of (a) 20 percent of the cooperative’s taxable income (gross income less qualified cooperative dividends) for the taxable year or (b) the greater of 50 percent of the W-2 wages paid by the cooperative with respect to its trade or business, or the sum of 25 percent of the W-2 wages of the cooperative with respect to its trade or business plus 2.5 percent of the unadjusted basis immediately after acquisition of qualified property of the cooperative.  The deduction can't exceed the cooperative's taxable income for the year.

In addition, for tax years beginning after 2017, trusts and estates are eligible for the 20-percent deduction.  Rules similar to the rules under current I.R.C. §199 apply for apportioning between fiduciaries and beneficiaries any W-2 wages and unadjusted basis of qualified property under the limitation based on W-2 wages and capital.

Loss limitation for non-corporate taxpayers.  For taxable years beginning after December 31, 2017 and before January 1, 2026, excess business losses of a taxpayer other than a corporation are not allowed for the taxable year.  The excess losses are carried forward and treated as part of the taxpayer’s net operating loss (“NOL”) carryforward in subsequent taxable years.  NOL carryovers generally are allowed for a taxable year up to the lesser of the carryover amount or 80 percent of taxable income determined without regard to the deduction for NOLs.  A two-year carryback rule applies for NOLs arising from a farming business.  The carryback is to each of the two taxable years preceding the taxable year of the loss.

An excess business loss for the taxable year is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. 

The threshold amount for a taxable year is $500,000 (net) on a joint return. The threshold amount is indexed for inflation.    In the case of a partnership or S corporation, the provision applies at the partner or shareholder level.  Each partner’s distributive share and each S corporation shareholder’s pro rata share of items of income, gain, deduction, or loss of the partnership or S corporation are taken into account in applying the limitation under the provision for the taxable year of the partner or S corporation shareholder. 

Business interest.  For tax years beginning after 2017, deductible business interest (interest paid or accrued on debt allocable to the trade or business, including investment interest) is limited to business income plus 30 percent of the taxpayer’s adjusted taxable income (taxable income computed without business interest expense, business interest income, NOLs, the 20 percent QBI deduction, and other adjustments as provided in forthcoming regulations) for the tax year that is not less than zero.  The deductible amount is determined at the tax-filer level except for pass-through entities where it is made at the entity level.  Any disallowed amount is treated as paid or accrued in the succeeding tax year.  However, businesses entitled to use cash accounting (as noted below) are not subject to the limitation, but large cash accounting businesses such as personal service businesses are limited in the deductibility of business interest.  Special rules apply to excess business interest of partnerships. 

An electing farm business (as defined by I.R.C. §263A(e)(4) and including an agricultural or horticultural cooperative) that is barred from using cash accounting can make an irrevocable election to not be subject to the limitation on the deductibility of interest.  In return, such farm businesses (not farm landlords) must use alternative depreciation on farm property with a recovery period of 10 years or more.  However, the election out will likely result in the inability to qualify otherwise eligible assets for bonus depreciation (in accordance with I.R.C. §263A).  In addition, a farm business that elects out of the limitation on deducting interest must use ADS to depreciate any property with a recovery period of 10 years or more.  This provision is also effective for tax years beginning after 2017.

Cash accounting.  Cash accounting is available for taxpayers with annual average gross receipts that do not exceed $25 million for the three prior taxable year periods (the “$25 million gross receipts test”).  The $25 million amount is indexed for inflation for taxable years beginning after 2018.   The provision expands the ability of farming C corporations (and farming partnerships with a C corporation partner) that may use the cash method to include any farming C corporation (or farming partnership with a C corporation partner) that meets the $25 million gross receipts test.   The provision retains the exceptions from the required use of the accrual method for qualified personal service corporations and taxpayers other than C corporations.  Thus, qualified personal service corporations, partnerships without C corporation partners, S corporations, and other passthrough entities are allowed to use the cash method without regard to whether they meet the $25 million gross receipts test, so long as the use of the cash method clearly reflects income.  In addition, the provision also exempts certain taxpayers from the requirement to keep inventories, and from the uniform capitalization rules.  In the case of a sole proprietorship, the $25 million gross receipts test is applied as if the sole proprietorship is a corporation or partnership.  In the case of a sole proprietorship, the $25 million gross receipts test is applied as if the sole proprietorship is a corporation or partnership.

Business-provided meals.  Beginning in 2018, the current 100 percent deduction for amounts incurred and paid for the provision of food and beverage associated with operating a business drops to 50 percent.  The provision applies to amounts incurred and paid after December 31, 2017 and until December 31, 2025, that are associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes and are for the convenience of the employer.  After 2025, the amount goes to zero.  Thus, the provision allowing a deduction for meals provided to employees for the convenience of the employer is repealed for amounts paid or incurred after 2025. 

Partnership losses.  When determining a partner’s distributive share of any partnership loss, the partner takes into account the distributive share of the partnership’s charitable contributions and taxes, except that if the fair market value of a charitable contribution exceeds the contributed property’s adjusted basis, the partner is not to take into account the partner’s distributive share of the charitable contribution as to the excess.  The result of this provision is that basis is not decreased by the excess fair market value over basis.  The provision applies to partnership taxable years beginning after 2017. 

Cost-Recovery Provisions

Expensing.  The bill allows for full expensing of assets presently eligible for “bonus” depreciation under I.R.C. §168(k) for property place in service after September 27, 2017 through December 31, 2022 (see below).  After 2022, the provision is phased-out by 20 percentage points every year thereafter with a complete phaseout for property placed in service beginning in 2027.  The same rules apply to plants bearing fruits and nuts. 

Expense method depreciation.  The maximum amount a taxpayer may expense under I.R.C. §179 to $1,000,000, and increases the phase-out threshold amount to $2,500,000 for tax years beginning after 2017.  The $1,000,000 and $2,500,000 amounts are indexed for inflation for tax years after 2018.   In addition, some additional types of property are specified to qualify for I.R.C. §179, including qualified real property. 

Bonus depreciation.  First-year “bonus” depreciation is extended through 2026 at 100 percent for property acquired and placed in service after September 27, 2017, and before 2023.  The 100-percent allowance is phased down by 20 percent per calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022.  It is not required that the original use of the qualified property commence with the taxpayer.  Thus, bonus applies to new and used property.  A transition rule provides that, for a taxpayer’s first taxable year ending after September 27, 2017, the taxpayer may elect to apply a 50 percent allowance instead of the 100 percent allowance.

Luxury autos.  For passenger automobiles placed in service after December 31, 2017, for tax years ending after 2017, and for which bonus depreciation is not claimed, the maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period.  The limitations are indexed for inflation for passenger automobiles placed in service after 2018.  The provision removes computer or peripheral equipment from the definition of listed property.  Such property is therefore not subject to the heightened substantiation requirements that apply to listed property.

Farm property.  The bill shortens the depreciable recovery period from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer and is placed in service after December 31, 2017. The provision also repeals the required use of the 150-percent declining balance method for property used in a farming business (i.e., for 3-, 5-, 7-, and 10-year property).  The 150 percent declining balance method will continue to apply to any 15-year or 20-year property used in the farming business to which the straight-line method does not apply, or to property for which the taxpayer elects the use of the 150-percent declining balance method.   For these purposes, the term “farming business” means a farming business as defined in I.R.C. § 263A(e)(4). 

Depreciation of real property.  Unlike the prior versions, the conference committee bill maintains the present law general MACRS recovery periods of 39 and 27.5 years for nonresidential real and residential rental property, respectively.  As for qualified improvement property (QIP), it was apparently the intent of the drafters (according to the conference report) to maintain eligibility for I.R.C. §179 and bonus depreciation.  However, that is not the result that the statutory language produces.  Under the revised statutory language, for assets placed in service after 2017, (QIP) (qualified leasehold improvement property; qualified restaurant improvement property; qualified real property) no longer exist and there is no provision in the Code identifying QIP as 15-yr property.  It's not in the 15-yr property list of I.R.C. §168(e)(3)(E).  Also, QIP is removed from the definition of qualifying property for bonus depreciation purposes.  As a result, it doesn't have any defined cost recovery period which therefore leaves it as 39-yr property and ineligible for bonus depreciation.  However, it remains eligible for I.R.C. §179 expensing.  Absent a technical correction, the only argument or claiming post September 27, 2017, QIP as being eligible for bonus is legislative intent based on the language of the conference report.   

Education-Related Provisions

Education saving plans.  For distributions made after 2017, the bill allows I.R.C. §529 plans to distribute up to $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school on a per-student basis. 

Student loan debt.  The bill modifies the exclusion of student loan discharges from gross income, by including within the exclusion certain discharges on account of death or disability.  The provision is effective for discharges after 2017 and before 2026.

Rollovers between Qualified Tuition Programs and Qualified ABLE programs.  Amounts from an I.R.C. §529 plan account can be rolled over to an ABLE account without penalty, provided that the ABLE account is owned by the designated beneficiary of that I.R.C. §529 account, or a member of the designated beneficiary's family.  The rolled-over amounts count towards the overall limitation on amounts that can be contributed to an ABLE account within a taxable year, with any excess includible in the gross income of the distribute.  The provision is effective for distributions after date of enactment through 2025

Retirement-Related Provisions

ABLE accounts.  Effective for tax years beginning after the date of enactment, the contribution limit to an ABLE account is increased with respect to contributions made by the designated ABLE account beneficiary.  The provision does not apply to tax years beginning after 2025. 

Qualified retirement plan distributions.  For tax years beginning in 2016 and 2017, a special provision is included that waives the 10 percent early withdrawal penalty for distributions from a qualified retirement plan in the event of a qualified disaster in 2016, up to $100,000.

Recharacterization of IRA contributions.  For tax years beginning after 2017, the current rule that allows a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA does not apply to a conversion contribution to a Roth IRA.  Thus, recharacterization cannot be used to unwind a Roth conversion.  However, recharacterization is still permitted with respect to other contributions.  

Transfer Taxes

Estate and gift tax.  Effective for estates of decedent’s dying and gifts made after 2017 and before 2026, the bill doubles the existing amount of the estate and gift tax (coupled) exemption for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026.  Thus, for 2018, it will be $11.2 million per person.

Other Provisions

Obamacare.  For months beginning after 2018, the bill eliminates the “Roberts tax” that is imposed on a taxpayer that fails to acquire government-mandate health insurance (known as “minimum essential coverage”).

Like-kind exchanges.  For exchanges completed after 2017, the bill modifies the provision providing for nonrecognition of gain in the case of like-kind exchanges by limiting its application to real property that is not held primarily for sale.

Domestic Production Activities Deduction (DPAD).  The bill repeals the deduction for income attributable to domestic production activities, effective for non-corporate taxpayers, ag and horticultural cooperatives, and corporations for tax years beginning after 2017.    

Unchanged Provisions

The following provisions in the current Tax Code remain unchanged:

  • Credit for the elderly and permanently disabled
  • Credit for plug-in electric drive motor vehicles
  • The American Opportunity Tax Credit
  • The Lifetime Learning Credit
  • Deduction for student loan interest
  • Deduction for qualified tuition and related expenses
  • Exclusion for qualified tuition reductions
  • Exclusion for interest on United States savings bonds used for higher education expenses
  • Exclusion for educational assistance programs
  • Deduction and exclusions for contributions to medical savings accounts
  • Deduction for certain expenses of school teachers
  • Employer-provided housing
  • Gain on sale of principal residence
  • Exclusion for dependent care assistance programs
  • Exclusion for adoption assistance programs
  • Minimum age for allowable in-service distributions from an IRA
  • Rules governing hardship distributions from an IRA
  • Employer-provided child care credit
  • Credit for portion of employer social security taxes paid with respect to employee tips
  • Credit for electricity produced from certain renewable resources
  • Energy investment tax credit
  • Extension and phaseout of residential energy efficient property credit
  • Credit for producing oil and gas from marginal wells
  • Cost basis of specified securities determined without regard to identification

Conclusion

The conference committee bill is a fairly good blend of the House and Senate bills.  Whether the bill will benefit a particular taxpayer is highly dependent on the taxpayer’s facts.  But, clearly, many taxpayers and businesses will benefit.  Personally, if the bill passes the House and Senate and becomes law, I will be making 2018 charitable contributions before the end of 2017, pre-paying the last quarter of 2017 estimated taxes that would normally be paid in January of 2018 and pre-paying the last half of the 2017 real property taxes that aren’t due until sometime in 2018.  That technique will likely then be employed on an every-other-year basis. 

What’s your strategy?  Attend (either in-person or online) on January 10 and learn what the planning options are.  Here's the registration link for the event that is co-sponsored by the Kansas Society of CPAs and the Iowa State Bar Association: http://washburnlaw.edu/employers/cle/taxlandscape.html.  See you then.

December 18, 2017 in Income Tax | Permalink | Comments (0)

Thursday, December 14, 2017

Bitcoin Fever and the Tax Man

Overview

Many people have gotten involved in the current Bitcoin “craze.”  But, just what is Bitcoin, and what are the tax implications of Bitcoin transactions?  The IRS is interested in making sure that all Bitcoin transactions are fully reported and the tax paid.  It is also certain that underreporting is occurring.  A recent case makes that last point clear.

Today’s blog post looks at the Bitcoin phenomenon, and the interest of the IRS in making sure that Bitcoin transactions are reported properly. 

What is Bitcoin?

Bitcoin, is a digitalized currency (a type of cryptocurrency) that serves as a worldwide payment system.  A bitcoin is not a tangible item of property, it’s just a balance that is maintained on a public ledger in the digital cloud along with all Bitcoin transactions as a decentralized digital currency.  The Bitcoin network operates as “peer-to-peer” with transactions occurring directly between users.  That means that the transactions are anonymous, but can be verified by network “nodes” and are recorded in a “blockchain” ledger. 

A bitcoin results from a “mining” process and can be exchanged for other currencies as well as products and even services.  A Bitcoin balance is maintained by the use of “public” and “private” “keys.”  These keys are simply long strings of numbers and letters linked through the mathematical algorithm that was used to create them. The public key (comparable to a bank account number) is the public address to which others may send bitcoins. The private key (comparable to an ATM PIN) is meant to be a guarded secret, and is only used to authorize Bitcoin transmissions.

In addition, a bitcoin is not issued by a bank or government and has no intrinsic value by itself.  A bitcoin is not legal tender.  But, in spite of all of this, Bitcoin is popular and other digital currencies (known as “Altcoin”) have developed.  Data exists showing that, as of early 2015, there were more than 100,000 merchants and vendors that accepted bitcoin as payment.  There are millions of users, and the amount presently in circulation is estimated to exceed $7 billion.    

Bitcoin can be an effective way of transferring money, but that is different from being a sound investment because of its lack of intrinsic value.  It is highly volatile, and since its emergence in 2009, Bitcoin has gone through numerous cycles of spikes and valleys in value.  It is much more volatile as gold or the U.S. dollar. These significant swings in value can produce big “winners” when the pendulum swings upward, but big “losers” are also produced when the pendulum swings wildly the other way.     

Reporting Cash Transactions

What does the Code say about reporting Bitcoin transactions?  If bitcoin is cash, I.R.C. §6050I requires a person engaged in a trade or business to report via Form 8300 a transaction in which more than $10,000 in cash is received.  Reporting is also required if more than $10,000 in cash is received during any 12-month period in two or more related transactions.  But, is bitcoin cash?  Not according to the IRS.  In March of 2014, the IRS stated that all virtual currencies, including bitcoins, would be taxed as property rather than currency.  IRS Notice 2014-21, 2014-16 I.RB. 938.  Thus, gains or losses from bitcoins held as capital will be realized as capital gains or losses, while bitcoins held as inventory will incur ordinary gains or losses.

Recent Case

In United States v. Coinbase, Inc., No. 17-cv-01431-JSC, 2017 U.S. Dist. LEXIS 196306 (N.D. Cal. Nov. 28, 2017), the IRS served a summons on the defendant, a virtual currency exchange, seeking records of the defendant’s customers for multiple years.  The defendant (America’s largest platform for exchanging bitcoin into U.S. dollars) didn’t comply with the request, and the IRS sued to enforce the summons in accordance with I.R.C. §§7402(b) and 7604(a).  The IRS later narrowed the scope of the summons so that it applied to fewer of the defendant’s account holders.  Nevertheless, the summons still applied to more than 10,000 account holders. 

The reason for the summons, of course, was because the IRS believes that many taxpayers engaged in Bitcoin transactions are not properly reporting the resulting gain or loss, or are not reporting anything at all.  In its petition to enforce the summons, the IRS provided data showing that approximately 84 percent of taxpayers file returns electronically and that capital gain or loss for property transactions (such as Bitcoin) is reported on Form 8949 that is attached to Schedule D (Form 1040).  The IRS noted that Form 8949 includes a space where the taxpayer is to report the type of property sold.  The IRS also noted that its analysis of its data showed that only 800-900 taxpayers electronically filed a Form 8949 that included a property description that is “likely related to bitcoin” in each of the years at issue – 2013-2015. 

When the IRS narrowed its summons, it sought information of the defendant’s account holders having accounts “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-2015 period.”  That excluded the defendant’s customers who only bought and held bitcoin during 2013-2015 or for which the defendant filed Forms 1099-K during that same timeframe.  The narrowed summons still applied to 14,355 of the defendant’s account holders and 8.9 million transactions.  For those accounts, the IRS wanted registration records for each account, the name, address, tax identification number, date of birth, account opening records, copies of passport or driver’s license, all bitcoin wallet addresses, and all public keys for all accounts. The IRS also wanted the records of “Know-Your-Customer” diligence, as well as agreements or instructions granting a third-party access, control or transaction approval authority.  The IRS also sought all information that would identify transactions, their balances and how they were conducted, and any correspondence that the defendant had with the user or any third party with account access.  The IRS was also after all periodic statements of account or invoices. 

The defendant still refused to comply with the summons, narrowed as it was.  However, as time went on, the parties started negotiating.  But, they couldn’t come to an agreement and the defendant claimed it was too difficult to comply with the summons. The IRS pressed on in court. 

The issue before the court was the reasonableness of the IRS narrowed summons.  The court noted that it was reasonable to the extent it sought information that would aid the IRS in closing the reporting gap between the number of the defendant’s virtual currency users and bitcoin users that reported gains or losses to the IRS during the 2013-2015 time period.  In other words, the difference between the defendant’s 5.9 million customers, six billion transactions, and only 800-900 e-filed returns with a property description related to bitcoin.  That created, the court noted, an inference that more of the defendant’s customers were trading bitcoin than were reporting gains on their returns.  The court determined, based on this data, that the IRS had met the standard of making a minimal showing of meeting the good faith requirement for issuing a summons.  In addition, the court rebuffed the defendant’s arguments that the IRS expert was not qualified to testify on the matter.  After all, the court pointed out, he was the senior manager on the IRS virtual currency investigation team and personally supervised the analyst who performed the search that generated the data to support the summons.  Neither the statute nor applicable caselaw required the IRS to do anything more for the summons request to be granted.  In addition, the defendant’s claim that their customers filed paper returns in a greater proportion that the general population was unfounded.  In addition, the court held that the narrowing of the summons was not arbitrary, but was based on information gleaned from the defendant during negotiations over the summons request. Importantly, the court held that the IRS summons request involved compliance and not general research into bitcoin data.  So, the court approved the narrowed summons request and determined that the IRS had not abused the process or showed a lack of good faith.  However, the court determined that certain documents were not required to be provided to the IRS.  Those included the defendant’s records of “Know-Your-Customer” diligence; agreements or instructions granting a third-party access, control or transaction approval authority; and correspondence between the defendant and the user or any third party with access to the account with transaction activity.

Conclusion

Bitcoin seems to be all the rage.  The current speculative bubble will burst at some point, but then another bubble is likely to pop back up.  Clearly, the IRS is aware of the virtual currency world and is quite interested in making sure that gains (and losses) are reported properly.  In addition, they are interested in assessing penalties for not filing appropriate information returns.  The penalty is assessed on each instance of a failure to file the appropriate return.  If the failure to file the required information return is determined to be an intentional disregard of the requirement, the penalty (for the years at issue in the case) is $250 per return with no maximum total limit.  That could be a huge sum for the defendant, and it’s probably what the IRS is actually after.  They simply don’t have the resources to go after very many individual taxpayers that aren’t reporting Bitcoin gains.  But, they will certainly make a show of a few of the more prominent individual taxpayers. 

In any event, practitioners would be wise to ask clients about any virtual currency transactions, make sure Form 1099-K is filed when required, and maintain good records. 

December 14, 2017 in Income Tax | Permalink | Comments (1)

Tuesday, December 12, 2017

Electronic Logs For Truckers and Implications for Agriculture

Overview

There are several provisions in federal law that regulate the transport of livestock, other animals, poultry, fish, and insects.  Those rules generally concern animal health and safety, and driver safety.  The rules also apply to the transport of agricultural livestock.   However, in some instances, exceptions exist that apply to agriculture.    

On December 18, 2017, the U.S. Department of Transportation (USDOT) Final Rule on Electronic Logging Devices (ELD) and Hours of Service (HOS) is set to go into effect.  80 Fed. Reg. 78292 (Dec.16, 2015).  The final rule, which was issued in late 2015, could have a significant impact on the livestock industry and livestock haulers.  The new rule will require truck drivers to use electronic logging devices instead of paper logs to track their driving hours starting December 18. The devices connect to the vehicle's engine and automatically record driving hours.

The Obama Administration pushed for the change to electronic logs purportedly out of safety concerns.  But, what will be the impact of the new final rule on the livestock industry?  The federal government has a long history of regulating the transport of livestock in interstate commerce.  Today’s post examines provides a brief history of the federal regulation of transporting animals in interstate commerce and the implications for agriculture of finalizing the USDOT ELD and HOS rule.

Animal Welfare Act

As originally enacted in 1966, the Animal Welfare Act (7 U.S.C. §§ 2131 et  seq.) addressed the problem of an increase in the theft of pets and their sale for research.  The legislation was subsequently expanded to cover the mistreatment of animals in transportation and animal fighting ventures by any live bird, dog or other mammal except man.  The rules do not bar hunting with animals.

The major provisions of the legislation include licensing of those who handle pets, those who handle animals who might be used for research and ultimate dealers, exhibitors and auction operators.  The purchase of dogs and cats for research purposes is prohibited except from authorized operators.  The Act covers warm blooded animals used for research and experimentation.  Humane standards are imposed for the handling, care and transportation of animals covered by the Act.  Health certificates are required.  A five-day waiting period applies before dogs and cats can be sold by dealers and exhibitors.  Animals must be marked or otherwise identified.

”28 Hour Law”

The precursor to the present “28 Hour Law” was passed in 1873 to prevent cruelty to animals in interstate commerce by common carrier.  The Act was repealed in 1906 and replaced with the “28 Hour Law.” 15 U.S.C. § 1825(a).

The Act, sometimes referred to as the “Food and Rest Law,” prohibits some carriers from transporting animals beyond certain time limits.  For example, common carriers engaged in interstate commerce must unload animals for rest, water and feeding into properly equipped pens every 28 hours for at least five consecutive hours.  The Act applies to cattle, sheep, swine and other animals.  The original application of the law was with respect to trains, but the USDA revised existing regulations in 2006 to also apply to trucks.  However, the Act does not apply to the transport of animals by airplane.  Thus, the Act applies to transport by rail, boat or truck. 

Upon request, the 28-hour time limit may be extended to 36 hours.  Similarly, if the time period was exceeded because the unloading of animals was prevented “by storm or other accidental or unavoidable causes which cannot be anticipated or avoided by the exercise of due diligence and foresight,” the 28-hour time limit does not apply. 

A special rule exists for sheep.  Sheep do not have to be unloaded when the 28-hour time period expires at night.  In that event, the sheep can be continued for 36 hours without written consent.  A similar exception applicable to all animals is that no unloading is required if the animals have proper food, water, space and an opportunity to rest.  However, that is not usually the case with railroads and with other kinds of carriers. 

Monitoring Driver Hours – The FMCSA Final Rule

In the 1930s, the federal government established hours of service (HOS) rules for truck drivers.  Under the rules, truckers are required to maintain logbooks to record on-duty as well as off-duty hours.  It’s those rules that are set to change.  As noted above, the Federal Motor Carrier Safety Administration (FMCSA) issued a final rule in 2015 requiring most motor carriers and interstate truck drivers to start using electronic logs to ensure drivers are complying with hours-of-service rules. 80 Fed. Reg. 78292 (Dec.16, 2015). The final rule is set to go into effect on December 18, 2017.  It is estimated that the new rule will apply to more than three million truckers.  Presently, there are more than 200 ELDs that are self-certified and have been registered with the USDOT.

The FMCSA claims that the goal of the ELD mandate is to make roadways safer by providing the government with a greater ability to more closely track driver hours.  For fiscal year 2017, the FMCSA notes an increase of over 11 percent in citations for falsifying driver logs and a 14.8 percent increase in the number of truck drivers put out of service for falsifying logs.  During that same timeframe, false log violations accounted for 16.2 percent of the 186,596 out-of-service orders issued to truck drivers.  The FMCSA asserts that these statistics are justification for the ELD and HOS final rule. 

The Owner-Operator Independent Drivers Association (OOIDA) challenged the final rule based on a violation of privacy rights (Fourth Amendment), but the U.S. Court of Appeals for the Seventh Circuit rejected the argument.  Owner-Operator Independent Drivers Association, Inc., et al. v. United States Department of Transportation, et al., 840 F.3d 879 (7th Cir. 2016), cert. den., 137 S. Ct. 2246 (2017).   The court determined that the ELD mandate constituted a reasonable administrative inspection under the Fourth Amendment involving a pervasively regulated industry, and was not arbitrary or capricious.  The U.S. Supreme Court declined to hear the case, and a subsequent effort to override or delay the ELD rule legislatively failed.

The Trump Administration has instructed the FMCSA (and state law enforcement officials) to delay the December 18 enforcement of the final rule by delaying out-of-service orders for ELD violations until April 1, 2018, and not count ELD violations against a carrier’s Compliance, Accountability, Safety Score.  Thus, from December 18, 2017 to April 1, 2018, any truck drivers who are caught without an electronic logging device will be cited and allowed to continue driving, as long as they are in compliance with hours-of-service rules.

Impact on agriculture.  The agricultural industry has raised concern over how the ELD rule will impact its stakeholders.  Data indicate that the livestock sector has consistently been one of the safest of the commercial hauling sectors. The Large Truck Crash Causation Study, conducted by the Federal Motor Carrier Safety Administration (FMCSA) and the National Highway Traffic Safety Institute, showed that of 1,123 accidents involving trucks hauling cargo, only five involved the transportation of livestock. Another report, the Transportation Institute’s Trucks Involved in Fatal Accidents Fact-book 2005, shows that livestock transporters accounted for just 0.7 percent of fatal accidents.

Exceptions.  There are numerous exceptions to the ELD final rule.  While the mandate is set to go into effect December 18, 2017, the FMCSA has granted a 90-day waiver for all vehicles carrying agricultural commodities.  Other general exceptions to the final rule exist for vehicles built before 2000, vehicles that operate under the farm exemption (a “MAP 21” covered farm vehicle; 49 C.F.R. §395.1(s)), drivers coming within the 100/150 air-mile radius short haul log exemption (49 CFR §395.1(k)), and drivers who maintain HOS logs for no more than eight days during any 30-day period. 

Several ag groups have also petitioned the FMCSA for a limited exemption from ELDs for agricultural trucks.  There still remains a chance (slim as it may be) that an exemption for ag could be slipped into the tax bill that House and Senate conferees are presently marking up, or in an appropriations bill to continue the funding of the federal government. 

One rule that is of particular concern is an HOS requirement that restricts drive time to 11 hours.  This rule change occurred in 2003 and restricts truck drivers to 11 hours of driving within a 14-hour period.  Ten hours of rest is required.  That is a tough rule as applied to long-haul cattle transports.  Unloading and reloading cattle can be detrimental to the health of livestock.  An exemption from that restriction seems to be in order.

Conclusion

The federal government has long been involved in the regulation of the interstate transport of livestock and drivers.  The FMCSA final rule is generally opposed by the transportation industry as well as the ag industry.  Fortunately, some exemptions exist to relieve the burden on livestock transporters.  Nevertheless, the finalization of the rule and eventual implementation merits attention. 

December 12, 2017 in Regulatory Law | Permalink | Comments (0)

Friday, December 8, 2017

Should I Enter Into An Oil and Gas Lease?

Overview

Rural landowners can have various opportunities to earn income from their land that is in addition to income from crop and/or livestock production.  For some landowners, that might include the possibility of leasing some of the property for oil and gas production.  But, what should be considered before entering into a lease?   This past May, David Pierce, Burke Griggs, Shawn Leisinger and I took our Rural Law Program to Dodge City, KS for a presentation.  David Pierce made a presentation on oil and gas leases, and I took some notes of his discussion for future use on the blog. 

Today’s post takes a brief look at what Prof. Pierce highlighted as some of the basic issues to be think about before entering into an oil and gas lease.  Any lack of clarity in the commentary below is mine.

Possible Strategies

Doing nothing.  It’s important to remember that when a landowner is approached about entering into an oil and gas lease that an acceptable strategy is to do nothing.  There is no obligation to lease in a state (such as Kansas) that doesn’t have a compulsory “pooling” statute.  But, while there is no obligation to lease, if the land is not owned outright by one person any cotenant has the power to develop, and authorize others to develop, without the consent of other cotenants.  If that happens, there is then a duty to account to other cotenants for their share of the net proceeds (production revenue minus all reasonable costs of drilling, completing, and operating the well).  Similarly, if one cotenant seeks to develop the minerals, that could give rise to another cotenant seeking a partition. 

Similarly, when parents leave a tract of land to multiple children, and the parents don’t hold the leasing rights for the benefit of others that may create a duty to lease.  The children end up with undivided interests in the entire tract.  This means that the children receive all of the surface rights associated with the tract plus an undivided percentage interest in the oil and gas rights, plus the right to execute oil and gas leases for all of the undivided interests in their tract.  That last point is key.  Each child will end up with the right to enter into any lease covering the oil and gas rights held collectively by all of the siblings.    

A related issue to that of a cotenant developing the property without the consent of other cotenants is that, for a proposed horizontal well, a lessee might seek to use another provision in state law to consolidate nonconsenting parties.  This can happen if a state has a compulsory unitization statute.   Kansas has such a statute, but it has never been tested in court.  On the other hand, Ohio has used its compulsory unitization statute to combine the acreage necessary to conduct horizontal drilling into a shale formation.

Doing nothing presently.  Another viable strategy is that the landowner may simply not enter into an oil and gas lease at the present time.  Perhaps the up-front bonus money is not enough to allow the landowner to hire an attorney that is well-versed in oil and gas law for representation in the negotiation process.  In any event, with this approach the landowner could gain strength in any future negotiation process.

Other Questions to Ask

Its also important for a landowner to understand who they are dealing with.  Is it the developer or an intermediary?  If the landowner is dealing with an intermediary, the intermediary will be looking to sell the lease and probably receive an overriding royalty in the lease.  That’s an important point.  The profit the intermediary retains upon selling the lease could have been the landowner’s if the deal is struck directly with the developer.

Also, it’s a good idea for a landowner to determine what the party seeking the oil and gas lease is planning for the landowner’s property and the nearby area.  When is drilling to begin?  Is there a formation that they are trying to develop?  Have wells already been drilled in that area?  Have wells been drilled elsewhere?  Have other local landowners already executed leases and, if so, how many acres are under lease?  What is being paid to other landowners in terms of a bonus and royalty rate?  Can the landowner get the best deal that is offered?  Will the developer match the best deal another developer offers?  What can be learned about the company that is investing in the development of the land that will be leased?

Standard Lease Form?

One basic principle of oil and gas development is that there is not standard form for an oil and gas lease.  See, e.g., Kansas Natural Gas Co. v. Board of Commissioners of Neosho County, 89 P.750, 751 (Kan. 1907).  Thus, all of the terms of an oil and gas lease are negotiable.  But, an oil and gas lease should address three general topics:  1) the rights granted by the lease; 2) the duration of those granted rights; and 3) the amount of compensation that the lessor will receive during the lease term.

Successful Negotiation

While the terms of an oil and gas lease are negotiable, a party to the lease will not be satisfied with the contractual arrangement unless certain key points are achieved.  The lessee (developer) wants exclusive development rights and associated use rights that are broad enough to allow the lessee to develop.  In addition, the lessee must have adequate time to conduct the operations required to extend the lease.  Also, the lessee must ensure that the leased land can be developed under existing law regulating oil and gas operations.  From an economic standpoint, once the lessee commits funds to develop the lease, the lessee needs to be able to maintain the lease in effect as necessary to fully enjoy the benefits of its investment.  In that same vein, the anticipated economic returns must be adequate to justify the risks involved.

From the lessor’s standpoint, it is important to receive an adequate financial incentive to part with the oil and gas and related surface rights.   The lessee also wants continuing control over the surface estate prior before electing to make use of the surface to develop the leased land.  Likewise, the lesssor wants continuing control over all other mineral and related rights not encompassed by the rights granted to the lessee.  The lessor wants the ability to easily determine when the lease terminates in whole or in part, and the ability to easily determine the royalty due.  It’s also important the lessor gets an assurance that as development progresses the impacted surface will be timely and properly reclaimed so it can be devoted to other uses.  Similarly, the lessor wants the assurance that any disputes will be determined locally where the land is located, and that the lessor is able to access local courts to address disputes.

The Bonus and Obligation to Lease

Some of the most important details of the oil and gas lease transaction are not reflected anywhere in the oil and gas lease.  Usually the lease contains a recitation similar to the following:

“Lessor, in consideration of      one       Dollars ($   1.00    ) in hand paid, receipt of which is here acknowledged . . . .”.  As that recitation indicates, the lease is presented as a unilateral grant by the lessor, and the lease is typically signed only by the lessor. 

As for what makes the agreement binding on the parties, a conveyancing analysis is used to bind the lessee applying the requirements of delivery and acceptance.  Likewise, some lessees still use a sight draft to create a situation where the parties may, or may not, be bound pending the lessee’s review and approval of the lessor’s title.  The sight draft can create problems if it is not clear whether a contract to lease, with performance conditions, has been created or whether no obligation exists because the lessee is not bound in any way.  This creates opportunities for the lessor in a rising leasing market and opportunities for the lessee in a declining leasing market.  Thus, it is best to avoid the situation by nailing down the moment when the parties become bound. Perhaps the best approach is for a landowner to remain unbound, and free to deal with anyone, up until the landowner has the bonus money in hand. This places the urgency on the lessee to close the deal quickly.

Conclusion

These are some basic initial considerations for a landowner to work through before entering into an oil and gas lease so that the best negotiated deal can be struck.  Useful information for those thinking about getting into an oil and gas lease.

December 8, 2017 in Real Property | Permalink | Comments (0)

Wednesday, December 6, 2017

Are Taxes Dischargeable in Bankruptcy?

Overview

For Chapter 7 and 11 filers, there is a possibility that taxes could be dischargeable in bankruptcy.  That’s because under those bankruptcy code provisions, a new tax entity is created at the time of bankruptcy filing.  That’s not the case for individuals that file Chapter 12 (farm) bankruptcy or 13 and for partnerships and corporations under all bankruptcy chapters.  In those situations, the debtor continues to be responsible for the income tax consequences of business operations and disposition of the debtor's property.  Thus, payment of all the tax triggered in bankruptcy is the responsibility of the debtor.  The only exception is that Chapter 12 filers can take advantage of a special rule that makes the taxes a non-priority claim.

A new Tax Court case involving a Chapter 7 filer, illustrates how timing the bankruptcy filing is important for purposes of being able to discharge taxes in a Chapter 7.

Taxes discharged in bankruptcy, that’s the focus of today’s post.

The Bankruptcy Estate as New Taxpayer

The creation of the bankruptcy estate as a new taxpayer, separate from the debtor, highlights the five categories of taxes in a Chapter 7 or 11 case.

  • Category 1 taxes are taxes where the tax return was due more than three years before filing. These taxes are dischargeable unless the debtor failed to file a return or filed a fraudulent return. 
  • Category 2 taxes are the taxes due within the last three years. These taxes are not dischargeable but are entitled to an eighth priority claim in the bankruptcy estate, ahead of the unsecured creditors. 
  • Category 3 taxes are the taxes for the portion of the year of bankruptcy filing up to the day before the day of bankruptcy filing. If the debtor's year is closed as of the date of filing, the taxes for the first year, while not dischargeable, are also entitled to an eighth priority claim in the bankruptcy estate.  If the debtor's year is not closed, the entire amount of taxes for the year of filing are the debtor's responsibility.
  • Category 4 taxes are the taxes triggered on or after the date of filing and are the responsibility of the bankruptcy estate. Taxes due are paid by the bankruptcy estate as an administrative expense.  If the taxes exceed the available funds, the tax obligation remains against the bankruptcy estate but does not return to the debtor.
  • Category 5 taxes are for the portion of the year beginning with the date of bankruptcy filing (or for the entire year if the debtor's year is not closed) and are the responsibility of the debtor.

The Election To Close the Debtor’s Tax Year 

In general, the bankrupt debtor’s tax year does not change upon the filing of bankruptcy.  But, debtors having non-exempt assets may elect to end the debtor’s tax year as of the day before the filing.

Making the election creates two short tax years for the debtor.  The first short year ends the day before bankruptcy filing and the second year begins with the bankruptcy filing date and ends on the bankrupt’s normal year-end date.  If the election is not made, the debtor remains individually liable for income taxes for the year of filing.  But, if the election is made, the debtor’s income tax liability for the first short year is treated as a priority claim against the bankruptcy estate, and can be collected from the estate if there are sufficient assets to pay off the estate’s debts.  If there are not sufficient assets to pay the income tax, the remaining tax liability is not dischargeable, and the tax can be collected from the debtor at a later time.  The income tax owed by the bankrupt for the years ending after the filing is paid by the bankrupt and not by the bankruptcy estate.  Thus, closing the bankrupt’s tax year can be particularly advantageous if the bankrupt has substantial income in the period before the bankruptcy filing.  Conversely, if a net operating loss, unused credits or excess deductions are projected for the first short year, an election should not be made in the interest of preserving the loss for application against the debtor’s income from the rest of the taxable year.  Even if the debtor projects a net operating loss, has unused credits or anticipates excess deductions, the debtor may want to close the tax year as of the day before bankruptcy filing if the debtor will not likely be able to use the amounts, the items could be used by the bankruptcy estate as a carryback to earlier years of the debtor (or as a carryforward) and, the debtor would likely benefit later from the bankruptcy estate’s use of the loss, deduction or credits.

But, in any event, if the debtor does not act to end the tax year, none of the debtor’s income tax liability for the year of bankruptcy filing can be collected from the bankruptcy estate.  Likewise, if the short year is not elected, the tax attributes (including the basis of the debtor’s property) pass to the bankruptcy estate as of the beginning of the debtor’s tax year.  Therefore, for example, no depreciation may be claimed by the debtor for the period before bankruptcy filing.  That could be a significant issue for many agricultural debtors.

Consider the following example:

Sam Tiller, a cash method taxpayer, on January 26, 2016, bought and placed in service in his farming business, a new combine that cost $402,000.  Sam is planning on electing to claim $102,000 of expense method depreciation on the combine and an additional $150,000 (50 percent of the remaining depreciable balance) of first-year bonus depreciation as well as regular depreciation on the combine for 2016. However, during 2016, Sam’s financial condition worsened severely due to a combination of market and weather conditions.  As a result, Sam filed Chapter 7 bankruptcy on December 5, 2016.

If Sam does not elect to close the tax year, the tax attributes (including the basis of his property) will pass to the bankruptcy estate as of the beginning of Sam’s tax year (January 1, 2016).  Therefore, Sam would not be able to claim any of the depreciation for the period before he filed bankruptcy (January 1, 2016, through December 4, 2016).

Recent Tax Court Case

In Ashmore v. Comr., T.C. Memo. 2017-233, the petitioner claimed that his 2009 tax liability, the return for which was due on April 15, 2010, was discharged in bankruptcy.   He filed Chapter 7 on April 8, 2013. That assertion challenged whether the collection action of the IRS was appropriate.  As indicated above, the Tax Court noted that taxes are not dischargeable in a Chapter 7 bankruptcy if they become due within three years before the date the bankruptcy was filed.  Because the petitioner filed bankruptcy a week too soon, the Tax Court held that his 2009 taxes were dischargeable and could be collected.  As a result, the IRS settlement officer did not abuse discretion in sustaining the IRS levy.  In addition, the Tax Court, held that the IRS did not abuse the bankruptcy automatic stay provision that otherwise operates to bar creditor actions to collect on debts that arose before the bankruptcy petition was filed. 

Conclusion

The Tax Court’s conclusion in Ashmore is not surprising.  The three-year rule has long been a part of the bankruptcy code.  Indeed, in In re Reine, 301 B.R. 556 (Bankr. W.D. Mo. 2003), the debtor filed the Chapter 7 bankruptcy petition more than three years after filing the tax return, but within three years of due date of return.  The court held that the debtor’s tax debt was not dischargeable.

Timing matters.

December 6, 2017 in Bankruptcy, Income Tax | Permalink | Comments (0)

Monday, December 4, 2017

Senate Clears Tax Bill - On To Conference Committee

Overview

My post of November 20, 2017, compared the House and Senate proposed tax bills.  At that time the House had passed its bill, but the Senate was still working its way through a different piece of tax legislation.  Now, with numerous last-minute amendments, the Senate has approved (51-49) a tax bill that sets the stage for the Conference Committee to work out the differences and produce a final bill for the President’s signature.  In reality, the final Senate version is not much different from the version I wrote about on November 20, but there were some last-minute amendments (primarily offered as revenue-related provisions) that were included in the bill that make the final version a bit different.

Or is there a process that will short-circuit working out the differences between the two bills?

Today’s post examines the final version of the Senate bill as approved on December 2, 2017.  The reader can refer to my November 20 post for a look at the House bill.  That post is accessible here: http://lawprofessors.typepad.com/agriculturallaw/2017/11/comparison-of-the-house-and-senate-tax-bills-implications-for-agriculture.html

For readers interested in learning more and getting continuing education in the process, on Dec. 14 I will be covering the tax rules that are in place at that time at a live seminar from Pittsburg State University.  That seminar will also be live simulcast over the web.  You can register for that seminar/webinar here:  https://www.agmanager.info/events/kansas-income-tax-institute  On January 10, 2018, I will be conducting a seminar/webinar on the new tax law (if we have one) which will include insight into planning issues related to the changes in the Code.  Prof. Lori McMillan of Washburn Law will be on the program with me. That seminar/webinar will be live from the law school in Topeka, Kansas.  The event is sponsored by Washburn University School of Law and the Kansas State University Department of Ag Econ and the Kansas Society of CPAs.  Be watching this blog and my website – www.washburnlaw.edu/waltr for further information about registration.

Now, the key provisions in the Senate tax bill – The Tax Cuts and Jobs Act. 

Major Individual Income Tax Provisions

Rate brackets.  The Senate bill retains the existing structure of seven brackets, but changes the bracket margins and rates.  For 2017, the percentage rates are 10, 15 (up to $77,400 mfj), 25, 28, 33, 35 and 39.6 percent.  Under the Senate bill, for tax years 2018 through 2025, the rates would be 10, 12, 22, 24, 32, 35 and 38.5 percent.  The compressed bracket rates remain for estates and trusts, with the top rate of 38.5 percent applying at income above $12,500.  The brackets would be adjusted for inflation for tax years beginning after 2018.

Standard deduction/personal exemption.  The Senate bill also nearly doubles the standard deduction by taking it to $24,000 for a married couple filing jointly.  Along with this, the bill eliminates the personal exemption (presently $4,050) that a taxpayer can claim for themselves, spouse and dependents, but retains the additional standard deduction for the aged or blind.  Thus, a taxpayer would itemize deductions only if itemized deductions exceed the standard deduction.    

Note:  The reduction in marginal rates (depending on a taxpayer’s income level) increases the after-tax cost of charitable donations which, for some taxpayers, will reduce the incentive to make charitable donations.  When this is combined with elimination of many itemized deductions and the near doubling of the standard exemption, the impact on charitable giving is magnified.  Presently, it is estimated that over 80 percent of total charitable giving is from taxpayers that itemize deductions, with this group giving approximately $240 billion annually.  A negative impact on charitable would also likely result from the elimination or a reduction in the impact of the federal estate tax on high wealth taxpayers.  For some taxpayers, making extra charitable donations by the end of 2017 may be a good tax planning move. 

Itemized deductions.  For tax years beginning after 2017 and before 2026, the Senate bill eliminates the allowance of miscellaneous itemized deductions that, in the aggregate, exceed two percent of the taxpayer’s AGI.  In addition, the overall limitation on itemized deductions does not apply to tax years beginning after 2017 and before 2025. 

Other deductions.  The bill eliminates most deductions, including the deduction for state and local taxes.  However, the bill was amended at the last minute to allow an itemized deduction of up to $10,000 in property taxes.  Other deduction provisions include:

  • Mortgage interest deduction is allowed up to $1 million, but interest on home equity loans would not be deductible for tax years beginning after December 31, 2017 and before January 1, 2026.
  • The existing $250 deduction for certain expenses of schoolteachers is increased to $500 for tax years beginning after 2017 and before 2026.
  • In addition, the bill allows all taxpayers an itemized deduction for medical (and dental) expenses exceeding 7.5 percent of a taxpayer’s AGI for tax years beginning after 2016 and ending before 2019. The bill also applies the 7.5 percent threshold for tax years 2013 through 2016 for a taxpayer (or spouse) that has attained age 65 by the end of the tax year. 
  • As for charitable contributions, the total amount that can be deducted in a tax year beginning after 2017 and before 2026 is limited to 60 percent (up from 50 percent) of the taxpayer’s contribution base. A five-year carryover applies to amounts not deductible due to the percentage limitation.
  • The existing deduction for qualified moving expenses is suspended for tax years 2018 through 2025, except such expenses incurred by active duty members of the military that move pursuant to a military order and the move is incident to a permanent change of station. R.C. §217 is similarly conformed.

Exclusion of gain on sale of personal residence.  The Senate bill increases the time that a taxpayer must own and use a home as their principal residence to be able to exclude a portion (or all) of the gain on sale.  Under the modified provision, for a taxpayer to exclude up to $500,000 of gain (MFJ) on sale or exchange of the residence, the taxpayer must own the residence and use it as the taxpayer’s principal residence for five-out-of-eight years.  The provision applies for sales or exchanges occurring after 2017 and before 2026.  However, the five-out-of-eight-year rule does not apply to any sale or exchange for which there was a written binding contract in effect before 2018. 

Credits.  The Senate bill doubles the child tax credit, setting it at $2,000 per child under age 18 (rather than the current under age 17 limit) through 2024.  The $2,000 amount of the credit reverts to $1,000 after 2025.  In addition, the enhanced amount of the credit is not refundable.  Thus, for lower income families that don’t have a filing requirement (which is more likely to be the case with the doubling of the standard deduction), the enhanced child tax credit will be of no effect.  Also, the credit doesn’t begin to phase-out until AGI reaches $500,000 (MFJ). 

Taxpayers with dependents that don’t qualify for the child tax credit but do meet certain requirements are eligible for an additional $500 (nonrefundable) credit for each such dependent.

Casualty and theft losses.  For tax years beginning after 2017 and before 2026, personal casualty and theft losses are only deductible to the extent they are attributable to a Presidentially-declared disaster.  However, this rule does not apply to any net operating loss carried over to a tax year beginning after 2017 and before 2026 from a tax year beginning before 2018.        

Alternative Minimum Tax (AMT).  The Senate bill retains the AMT.  For tax years beginning after 2017 and before 2026, the exemption (MFJ) is increased to $109,400 (from $78,750) and to $70,300 from $50,600 (single). 

Estate tax.  The Senate bill doubles the base amount of the applicable exclusion to $10 million, with the exclusion remaining adjusted for inflation for decedents dying and gifts made in 2018 through 2025.  Thus, the applicable exclusion will be $11.2 million per person in 2018.  Stepped-up basis is retained, as is the gift tax and the existing rules for portability of the unused exclusion at the death of the first spouse.

Commodity gifts.  Under current rules, a parent can gift grain to a child and eliminate the self-employment tax on the gifted grain and, under the “kiddie-tax” rules, the tax rate of the child is generally the parent’s rate.  However, under the Senate bill, in most situations, the tax rate of the child will be the tax rates applicable to estates and trusts.  Thus, once the child has $12,500 of unearned income, the tax rate applicable to the child will be 38.5 percent on all excess amounts. This provision is applicable for tax years 2018 through 2025.

Like-kind exchanges.  The Senate bill eliminates like-kind exchanges for personal property exchanges, but retains the existing rules for real property exchanges.  An interest in a partnership that has elected to be excluded from subchapter K is treated as an interest in each of the partnership’s assets and not as an interest in the partnership.

Fringe benefits.  The Senate bill leaves unchanged the taxation to the individual taxpayer with respect to fringe benefits.

Obamacare.  The Senate bill repeals the “Roberts Tax” by eliminating the mandate that a taxpayer acquire government-approved health insurance. 

Business-Related Provisions

Corporate rate.  The Senate bill repeals the existing rate structure for C corporations and replaces it with a flat 20 percent rate for tax years beginning after 2018.  Thus, the 15 percent bracket on the first $50,000 of corporate income is eliminated.  This amounts to a tax increase (as compared to current law through 2018) for corporations with $75,000 of taxable income and less.  For example, under current law the tax owed on $75,000 of corporate taxable income is $13,750 while the tax liability under the new law would be $15,000. 

AMT.  The corporate AMT is retained at a 20 percent rate with an exemption of $40,000. 

Pass-through entities.  The Senate bill establishes a deduction to be applied against the lesser of a pass-through entity owner’s qualified business income (limited to 50 percent of W-2 wages subject to FICA) or 23 percent of the owner’s taxable income less net capital gain for the tax year.  Qualified business income does not include any amount of reasonable compensation the owner receives from the pass-through entity, and also does not include the amount of any guaranteed payment.  Those amounts are not entitled to the deduction and are taxed at ordinary income rates.  To prevent a pass-through owner from recharacterizing wage income as the owner’s share of business profit, the deduction is limited to one-half of the Form W-2 wages paid by the pass-through entity or the entity’s share of the pass-through income passed through to the owner.  However, this limitation only applies if the owner’s taxable income exceeds $500,000 (mfj).  The taxable income limit is adjusted for inflation for tax years beginning after 2018.

Note:  An owner of a pass-through service business is eligible for the deduction if taxable income is under $500,000 (mfj).  However, the deduction is not available on the first $500,000 if the provision has been fully phased-out.  Also, when determining alternative minimum taxable income, “qualified business income” is determined without regard to any adjustments under I.R.C. §§56-59.

Cooperatives.  An agricultural or horticultural cooperative that is subject to part I of Subchapter T and is engaged in manufacturing, growing, producing or extracting any agricultural or horticultural product, or is engaged in the marketing of agricultural or horticultural products that its patrons have manufactured, produced, grown or extracted, or provides supplies to farmers or other similar cooperatives, can claim a deduction equal to the lesser of 23 percent of the cooperative’s taxable income for the tax year or 50 percent of the cooperative’s W-2 wages related to the cooperative’s trade or business.  This provision, however is only available for tax years beginning after 2018 and before 2026.

Cost recovery.  The Senate bill allows for full expensing of assets presently eligible for “bonus” depreciation under I.R.C. §168(k) for property place in service after September 27, 2017 through December 31, 2022. After 2022, the provision is phased-out by 20 percentage points every year thereafter with a complete phaseout for property placed in service beginning in 2027.  The same rules apply to plants bearing fruits and nuts.  The bill also increases the maximum base amount deductible under I.R.C. §179 to $1,000,000 and the beginning of the phase-out to $2,500,000 of qualified property placed in service.  Both amounts remain subject to inflation adjustments.  In addition, qualified property for purposes of I.R.C. §179 includes I.R.C. §1245 property or, by election, certain qualified real property.

“Luxury” automobiles.  Under §280F, passenger automobiles, trucks and vans are subject to special annual depreciation limits, known as luxury auto limits. Under the Senate bill, the first-year depreciation for certain automobiles is increased to $10,000, with subsequent years set at $16,000, $9,600, and then $5,760.  Computer equipment is removed from the definition of “listed” property. 

Farm property.  The five-year MACRS rule that was in effect for machinery and equipment used in a farming business and placed in service in 2009 is restored for such property placed in service after 2017.    In addition, the use of the 150 percent declining balance method for farm property is repealed for such property placed in service after 2017 in tax years ending after 2017.  Thus, farm property, except for farm buildings and land improvements, will be eligible for the 200 percent declining balance method.  

Real estate.  The bill changes the applicable depreciable recovery period for residential rental property from 27.5 years to 25 years, and changes the applicable depreciable recovery period for nonresidential real property from 39 years to 25 years.  Eliminated from the category of “15-year property” are qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.   

Loss limitation.  For tax years beginning after 2017 and before 2026, the excess farm loss rule of I.R.C. §461(j) will not apply.  In essence, that rule limits the deductibility of farm losses exceeding the greater of $300,000 for a farmer that receives a Commodity Credit Corporation loan.  However, the Senate bill includes an overall $500,000 limit on the deductibility of losses from all businesses of the taxpayer. 

Cash accounting.  For tax years beginning after 2017, a corporation or partnership with average gross receipts for the three taxable years ending with the taxable year preceding the taxable year not exceeding $15 million can use the cash method of accounting (the present limit is $1 million).  For family corporations, the limit is $25 million.  The $15 million limit applies to farming corporations, except that family farm corporations have a $25 million limit.  Both the $15 million and $25 million amounts are adjusted for inflation for tax years beginning after 2018.  There remains no limit for S corporations. 

Inventories.  Small businesses using cash accounting that are not required to use inventories when accounting for income can treat the inventories as a non-incidental material or supply (or whatever categorization the taxpayer uses for their books and records) for tax years beginning after 2017.  The “small business” for this purpose is one allowed to use the cash method of accounting under the provision noted above.    

Business interest.  For tax years beginning after 2017, deductible business interest is limited to business income plus 30 percent of the taxpayer’s adjusted taxable income for the tax year that is not less than zero.  Any disallowed amount is treated as paid or accrued in the succeeding tax year.  However, businesses entitled to use cash accounting are not subject to the limitation, but large cash accounting businesses such as personal service businesses are limited in the deductibility of business interest.  Special rules apply to excess business interest of partnerships. 

An electing farm business (as defined by I.R.C. §263A(e)(4)) is not subject to the limitation on the deductibility of interest deduction.  In return, such farm businesses that elect out of the interest deductibility limitation must use alternative depreciation on farm property with a recovery period of 10 years or more.  However, the election out will likely result in the inability to qualify otherwise eligible assets for bonus depreciation (in accordance with I.R.C. §263A)

Net operating losses (NOLs).  For tax years beginning after 2017, the Senate bill limits net operating losses to the lesser of the aggregate of the NOL carryovers to the tax year plus the NOL carryback to the tax year, or 90 percent of taxable income computed without regard to the NOL allowed for the tax year.  The 90 percent amount drops to 80 percent for tax years beginning after 2022.  For tax years ending after 2017, NOL carrybacks are disallowed, but an NOL can be carried forward indefinitely.  A two-year carryback is allowed for farming NOLs with an election available forgo the two-year carryback. 

Fringe benefits.  The Senate bill reduces or eliminates the deduction for entertainment expenses presently allowed under I.R.C. §274(a)(1)(A).  The 50 percent expense deduction for entertainment expenses is limited to 50 percent of food and beverage expenses.  The deduction for corporate-provided meals is limited to 50 percent of such qualified meals.  The existing deduction for qualified transportation fringe benefits is eliminated.  Expenses associated with the operation of an employer-provided eating facility are disallowed as are associated expenses for food and beverages.  All of these provisions are effective for amounts paid or incurred after 2017, except for the provision governing employer-provided meals.  That provision is eliminated for amounts paid or incurred after 2025. 

Domestic Production Activities Deduction (DPAD).  The Senate bill repeals the DPAD for any taxpayer other than a C corporation for tax years beginning after 2017.  Thus, the DPAD is eliminated for agricultural and horticultural cooperatives for tax years beginning after 2017.  For C corporations, the DPAD is eliminated effective for tax years beginning after 2018.

Family and medical leave.  The Senate bill creates a credit for an eligible employer a paid family medical leave credit in an amount equal to 12.5 percent of normal hourly wages paid to a qualifying employee during any period in which the qualifying employee is on family and medical leave (not to exceed 12 weeks).  The credit is increased by .25 percentage points for each percentage point by which the rate of payment exceeds 50 percent.  Any leave paid by a State or local government or required by State or local law is not taken into account in determining the amount of paid family and medical leave that the employer provides.  In other words, if a state or locality mandates a level of family or medical leave, there is no credit.

Partnership losses.  When determining a partner’s distributive share of any partnership loss, the partner takes into account the distributive share of the partnership’s charitable contributions and taxes, except that if the fair market value of a charitable contribution exceeds the contributed property’s adjusted basis, the partner is not to take into account the partner’s distributive share of the charitable contribution as to the excess.  The result of this provision is that basis is not decreased by the excess fair market value over basis.  The provision applies to partnership taxable years beginning after 2017. 

Miscellaneous Provisions

  • The Senate bill expands the qualifying beneficiaries of an electing small business trust, effective January 1, 2018.
  • Effective for distributions after the date of enactment, the Senate bill amends I.R.C. §1371 concerning cash distributions after the post-termination transition period when an S corporation converts to a C corporation.
  • For tax years beginning after 2017, the Senate bill imposes a tax on excess tax-exempt organization executive compensation.
  • For tax years beginning after 2017, Roth IRA contributions would not be able to be recharacterized as traditional IRA contributions.
  • For organizations with multiple unrelated trades or businesses, unrelated business taxable income is computed separately for each trade or business activity. Except for a carryover provision, the new rule applies to tax years beginning after 2017.
  • The deduction for amounts paid in exchange for college event seating rights is repealed effective for contributions made in tax years beginning after 2017.
  • The provision that waives the substantiation requirement for charitable gifts of $250 or more if the donee organization files a return that contains the necessary written acknowledgement substantiation concerning the gift, is eliminated for contributions made in tax years beginning after 2016.
  • The current system for the taxation of capital gains remains unchanged.
  • Farm income averaging remains unchanged.
  • The prohibition on the production of oil and gas from a portion of the Artic National Wildlife Refuge is removed, presumably upon enactment.

Conclusion

Both the House and Senate will now vote to advance their respective bills to the conference committee that will be assembled.  While the bills are different, there are many similarities.  One possibility is that the House conferees will simply adopt the Senate bill.  If that is done, the Senate bill will then be presented to the President for signature. 

My view is that the individual provisions will be beneficial to many taxpayers.   But, taxpayers residing in states with an income tax that would normally itemize deductions under current law will not likely see a rate reduction, unless their taxable income is between $480,000 and $1 million, and they can no longer be able to deduct state income tax or sales tax.  But, as always, the specific taxpayer’s situation will determine how beneficial, if at all, the new tax system will be.  On the corporate side, the new changes do pose additional complexity. 

It is still possible that the wheels come off of the House and Senate proposals and a bill is not able to be presented to the President this year.  However, it no longer looks like that will be the case.

December 4, 2017 in Income Tax | Permalink | Comments (0)