Recently Signed Tax Overhaul Bill Provides Challenges To The IRS
DAVID GREENE, HOST:
Squads of lawyers, economists and accountants are right now knee-deep in a pretty muddy job. They are turning more than 500 pages of legislation - that would be the new tax bill - into rules that taxpayers can actually follow. Greg Jenner is a tax lawyer who served several stints in government overseeing tax policy. And our co-host Rachel Martin sat down with him to talk about how the IRS is going to manage this.
RACHEL MARTIN, HOST:
Most parts of the tax bill are applying to next year, right?
GREG JENNER: Correct, that's absolutely right.
MARTIN: But there is enough that is changing though that the IRS is going to have its hands full right now. What changes are afoot immediately for the IRS?
JENNER: Well, the first thing that they're working on that most people will care about will be the withholding tables. Those tables have to be adjusted for this new tax bill.
MARTIN: Those are things you see on your paycheck - how much is being withheld for state and local taxes, social security.
JENNER: That's absolutely right. And you do a W-4 every year - or at least you should - that sets your withholding - your exemptions. And that has to be adjusted because the rates are different. The standard deduction is different. All of these changes go into effect for withholding right away.
MARTIN: Treasury Secretary Steve Mnuchin has said employees will see a change in their paychecks by February. So I mean, you say right away. Can the IRS make this happen? I mean, they're kind of underfunded.
JENNER: Yeah, surprisingly, they can. And they are incredibly good at adjusting the withholding tables. So they will make this happen quickly. Whether or not people see the full benefit though will depend on whether they sit down, analyze all the changes, adjust their W-4 and then tweak the withholding to match all the changes that will be made. Some of this is good. Some of it's bad. Some people will be losing deductions as a result of this and maybe need to increase their withholding rather than reduce it. So this is not 100-percent rosy for everybody.
MARTIN: The IRS also is in a particularly challenging moment because they have had their budgets slashed. They've had labor reductions. How's that going to play into all this?
JENNER: Well, it certainly will affect them. And that's really one of the unfortunate situations. I think every tax professional in the country bemoans the reduction in the IRS quite frankly because we need the IRS to tell us what the rules mean. So the fact that the IRS has shrunk in size is not a good thing for taxpayers.
MARTIN: Have you read the new tax bill, by chance - putting you on the spot here.
JENNER: Several times.
MARTIN: Several times?
JENNER: Several times.
MARTIN: You have too much free time.
JENNER: No, that's part of the job.
MARTIN: So is there a particular section of the bill that you think is going to be most complicated, most challenging for tax professionals?
JENNER: Yes, absolutely. There's one that stands out with neon lights. It's the pass-through provision - the provision that is intended to give small business, who are not in corporate form, a break equivalent to the reduction in the corporate tax rates.
MARTIN: This also, by the way, is what Donald Trump's - several of his businesses qualify as pass-throughs.
JENNER: Absolutely, yes - is labeled small business, but it's not small business.
MARTIN: And why is that going to be so hard?
JENNER: Well, the provision is really not well-conceived. And what they're trying to do is say, well, if this is business income, then you ought to get the break that's equivalent to the corporate reduction. But trying to draw the lines between the income that should qualify for this break and the income that shouldn't qualify for the break is just massively difficult. Tax lawyers, tax accountants, as you said, are - you said knee-deep. I would argue with that. They're neck-deep in it.
JENNER: They're going to be having a field day with this provision. It is really not well-written. It's very, very complicated. And we're going to be struggling with it for years to come - as we try and plan around it because, again, it can be manipulated.
MARTIN: And also what I'm hearing you say is even though this bill was framed as something that was going to simplify the tax code - make it so easy. Everyone can do it on a postcard. Anyone can do their own taxes. What I hear you saying is you might - if you have a tax professional in your life, you might want to call that person.
JENNER: Well, I'll tell you a true story. Recently, I was sitting in the dentist chair having a filling replaced. And the dentist said to me, you're a tax lawyer, right? And I said mmm hmm - you know, mumble, mumble, mumble, as his hands in my mouth. And he said, what do you think about this tax bill? And I said, you need to go see your accountant right away.
MARTIN: Greg, thanks so much. And happy new year.
JENNER: Same to you. Thank you.
GREENE: Greg Jenner is a tax lawyer. He comes from the firm Stoel Rives, and he was speaking to our co-host Rachel Martin. Transcript provided by NPR, Copyright NPR.