1. What do you feel are the most important tax laws that people should
be aware of for 2011?
That's hard to answer since so many are important. But here are a few. From a general planning viewpoint, I would include the alternative minimum tax, since it catches so many people unaware. I would also include estate and gift taxes, since 2011 and 2012 may be years of real opportunity, depending on what happens in 2013!
I would also ensure that business taxpayers think about the increasing importance of enhanced expensing allowances. There are truly amazing benefits in the short term. Finally, I would worry over the compliance issues associated with foreign income and foreign accounts. Despite all the recent press, I find that many taxpayers, especially those with their feet in multiple countries, are ignorant of these rules. The stakes have gotten very high both for income tax returns and for the related financial disclosures on FBAR forms.
2. What do you think the biggest issues in tax law are going forward
that people should keep an eye on?
There will continue to be pressure to raise rates at least for some taxpayers. That may impact traditional tax planning when it comes to accelerating deductions and deferring income. If rates go up, the incentives can be reversed.
Another huge area of interest to business people relates to independent contractor v. employee issues. The IRS is making a major push in this area. Moreover, it is possible that there will be major changes in the law on this issue. President Obama has previously indicated interest in the "loophole" presented by employers inappropriately characterizing workers as independent contractors and thus avoiding payroll taxes. Expect more scrutiny in this area, and more difficulty in resolving these disputes with the IRS going forward.
3. Do you feel as if the Bush Tax Cuts are on their way to becoming more
or less permanent?
I imagine there will be quite an impetus to change them. The wild card will be with the upper income levels and with capital gain rates. I was very surprised by the year-end compromise in 2010 to extend the rates for everyone through 2012. A 15% capital gain rate is extremely low. I don't think we've ever had a lower one. It would not surprise me to have it go back to 20% or so.
4. We're hearing murmurs once again about 'reforming' the tax code. What
do you think the odds are of that actually happening this time?
In part, it depends on what you mean by "reforming." Over the last 30 years that I've been practicing tax law, there have been numerous major tax laws passed. Some of them were in the nature of quite significant tax reform. Examples include the 1981 and 1986 tax laws, both of which brought sweeping changes. Many of the reform discussions going on presently involve what seem to be more rifle shots than shotgun approaches that will fundamentally alter the tax landscape.
5. If you could choose one thing to change in the tax code, what would
it be and why?
Well, this may be a strange one to point out. A peccadillo of mine concerns the exclusion from income for damages paid on account of personal physical injuries or physical sickness. I see many lawsuits resolve, and many plaintiffs who think that all or a part of their settlements should be tax-free. In 1996 Congress changed section 104 to require that personal injuries must be "physical" to be excludable from income. There's been huge controversy about what this "physical" requirement means, but much remains unclear. The Tax Court docket is frequently clogged with cases concerning this provision, and many taxpayers are caught within these imprecise rules. Often a psychological injury may produce physical problems or illness, and in my view, recoveries for such injuries should not be taxed.