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A Look Ahead at the ABA Section of Taxation Meeting

David Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Worldwide Tax Daily. This week, looking ahead to the ABA. With the American Bar Association Tax Section meeting in Washington beginning May 10, we at Tax Notes and the larger tax community are looking for indications of where the regulations implementing the Tax Cuts and Jobs Act are heading.

With officials of the IRS and Treasury on the agenda to speak about many areas of the implementing rules, this could be one of the most consequential ABA meetings since 2013. That was when IRS acting director of Exempt Organizations, Lois Lerner, revealed the improper targeting of Tea Party groups for review.  

While we're not expecting any similar bombshells this year, we do expect to get a better sense of how the TCJA will be applied. Here to walk us through what we expect, or at least hope to hear about, we're joined by Tax Notes Today Senior Legal Reporter Andrew Velarde. Andrew, welcome to the podcast.

Andrew Velarde: Thank you, Dave. It's good to be here.

David Stewart: Andrew, what are the big issues we're looking for more clarity on?

Andrew Velarde: Well, Dave, this is actually the second ABA since the Tax Cuts and Jobs Act was enacted at the end of last year, but it's still the topic du jour. A lot of work remains to be done on guidance, and so far we've only gotten a taste of what's to come. First and foremost, we have some of the biggest and most complex changes from the Tax Cuts and Jobs Act focusing on the international tax realm. That's where some might say true reform actually was implemented rather than just tax cuts.  

So the ABA will have a number of panels focusing on this. There's widespread agreement that things just weren't working in the international world, and huge changes did come about that the tax community is still adjusting to, which would include a move to a participation exemption system, several base erosion measures, and measures against mobile income, which would include several of people's favorite acronyms, GILTI, FDII, BEAT. Then we have changes to hybrid rules — these are all just to name a few things. How these changes might affect tax planning going forward, and how the provisions work together, will both be focuses of a number of ABA panels.

IRS and Treasury officials have said they want to get some guidance out this year on these matters, so we will be looking for hints at what to expect from that. Despite that, we've actually had very little guidance out so far on the TCJA in general. We've had a few notices related to the section 965 transition tax, which up until now has sucked up most of the oxygen in the room. So hopefully we'll get some greater insights into those notices as well. Those notices provided some details on calculating gross income inclusion, the measurement dates for earnings and profits, and some anti-abuse provisions, just to name a few. But these weren't the only pieces of guidance we've had out so far.  

Recently we've also gotten a notice out on the 10 percent withholding on the sale of partnership interests by non-U.S. persons, which kind of provided the nuts and bolts on withholding and reporting. And we've had some rules related to section 958(b)(4) repeal related to the downward attribution rule. Officials have indicated that we should see a shift toward regs now that many of these notices are out there, which they've also indicated they are actively working on currently.

Now, there's a little bit uncertainty about how free-speaking these officials will be at the ABA. Up till now, they've played it fairly close to the chest about what direction they might be going with this guidance. So we can hope for a change in tune, a change in direction here, but that's hardly assured.

David Stewart: So international issues are clearly a big area of focus. What other parts of the tax bill do you expect to hear about?

Andrew Velarde: Well, section 199A. If you work in the passthrough, partnership realm, you know this provision well by now, even though it's only a few months old. That is the provision that provides a 20 percent income deduction for passthroughs, though there is a disallowance for specified industries, and when the principal assets are reputation and skill. Perhaps no provision, no single provision has engendered as much discussion as this one. And we've spilled a lot of ink over it, and we'll spill a lot more here at TA before it's all said and done.  

This provision is going to be the focal point of at least half a dozen different subcommittees, just to give you a taste of how wide-ranging its effects are. There's a lot of unknowns about how this rule will be implemented. For example, how one qualifies for the deduction, how to approach a partnership with multiple businesses.

So we're hoping for some insights into that from officials speaking at the ABA. Additionally, the provision has engendered a healthy choice of entity debate. And this would have to deal with the fact that we now have a 20 percent passthrough deduction that has to be weighed against a 21 percent corporate rate, radically reduced from the old 35 percent. This will be discussed at multiple panels as well.

Finally, one other notable provision is section 163(j), which limits business interest expense deduction to 30 percent of adjusted taxable income. New limitations implemented by the Tax Cuts and Jobs Act. Like section 199A, this has a wide-ranging ramifications. Its impact on planning and unanswered questions related to it are being discussed again in half a dozen different subcommittee panels.

We have one notice out so far from April on this provision that applied the limit on a consolidated basis, but it still left a lot of unanswered questions. We have a promise of proposed regs out there from officials. But we still need guidance on issues relating to calculating adjustable tax on income, what items are included in business interest, and how the rules apply to CFCs, just to name a few.

David Stewart: Alright, beyond the TCJA, what are you expecting to hear about at ABA this year?

Andrew Velarde: One of the most notable state tax developments has been the Wayfair case, being heard at the Supreme Court last month. It's significant in that it is a challenge to the Quill precedent for sales tax physical presence requirement. The ABA will take a deep investigation of this at multiple panels. This precedent has been challenged by some in the tax community as possibly antiquated in a time of a huge amount of e-commerce and online shopping.

Going into the Supreme Court oral arguments in April, there seemed to be an expectation that the Quill standard would be overturned. But after the oral arguments, there's now some doubts about that since the justices seemed to express concerns about burdensome regs, compliance costs, lack of useful data. So we might have to rely on congressional action if change is to be implemented.

Two notable speakers slated to talk: We have George Isaacson, who represented Wayfair. He's scheduled to speak at one of these state tax panels. As well as Daniel Huff, who urged the Supreme Court to deny the review altogether, arguing that it should be left up to Congress to find the solution.

David Stewart: Are there any other recent trending topics that will be discussed at ABA?

Andrew Velarde: Absolutely. So everyone by now has heard of cryptocurrency, probably flying under the radar up until a few years ago. But a combination of its volatility, its value, as well as its more widespread ownership and adoption has put this at the forefront of people's minds, and that includes tax practitioners.

A number of months ago we had a summons issued against the largest U.S. exchange of Bitcoin, Coinbase. Some in the government have suspected there's been underreporting of virtual currency. And this summons, while initially contested, was narrowed and brought against 13,000 customers. So there are still questions remaining on where and how to report virtual currencies. We have multiple panels prepared to examine this issue through a primer, an examination of tax issues for banks, the disclosure issue, and initial coin offerings.

There's also going to be several panels discussing the gig economy. We're living in an environment where we're seeing an increased utilization of temporary positions such as independent contractors for short-term engagements or freelance individuals. This environment is growing quickly. By some estimates, we're expecting 40 percent of the work environment will be involved in the gig economy by 2020. So we have multiple panels at the ABA discussing tax issues related to this and policy considerations, including whether withholding is appropriate.

To top all this off, we have several high ranking former and current government officials slated to talk. We have former commissioner Koskinen on Thursday, and Assistant Secretary for Tax Policy Dave Kautter on Saturday. So a very full list. We hope to get a lot of details out there from them.

David Stewart: Excellent. Andrew, thank you for being here.

Andrew Velarde: It's great to be here, Dave. Thank you.

David Stewart: Listeners can check out
taxnotes.com for our coverage of the ABA tax section meeting throughout the day on Friday, May 11th, and in the May 14th editions of Tax Notes TodayState Tax Today, and Worldwide Tax Daily, all of which will be made available to readers on Saturday.

And now, Coming Attractions. Each week we preview commentary that will be appearing in the next issue of the Tax Notes magazines. We're joined by executive editor for commentary, Jasper Smith. Jasper, what will you have for us?

Jasper Smith: In Tax Notes International, Gerbrand Hidding and Kristel Tijsterman of Atlas Tax Lawyers discuss a recent ruling from the Court of Justice of the European Union, which found that an element of the Dutch fiscal unity regime violates EU law. The authors then examine the effects of the emergency measures enacted in response to the decision. Additionally, Torsten Fensby, a former principal administrator to the OECD, contends that two recent developments in the preferential tax regime area have severe negative effects on the current OECD Inclusive Framework assessment process.

In State Tax Notes, Philip Tatarowicz of Morrison & Foerster, and Dennis Jansen, an LLM student at Georgetown Law, discuss similarities and differences in the U.S. and European approaches to taxing digital commerce. Also, Timothy Noonan and Elizabeth Pascal of Hodgson Russ consider a potential state tax issue associated with the deferral of management-fee-type income that came due in 2017.

And in Tax Notes, CPA David Koontz and Professor Jeffery Kadet of the University of Washington explain how the new income-sourcing rule put in place by the Tax Cuts and Jobs Act works to reduce the use of foreign tax credits, and argue that the tax on global intangible low-taxed income will not discourage foreign acquisitions of U.S. multinational corporations. Finally, attorney Ira Aghai discusses what prospective acquirers of U.S. partnerships should consider during their due diligence, focusing on how the new centralized partnership audit regime results in acquirers being liable for imputed tax underpayments attributable to periods before the acquisition.

David Stewart: That's it for this week. You can follow me on Twitter @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. Be sure to subscribe to us on iTunes or Google Play to make sure you get the next episode of Tax Notes talk.

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