The uncertain future of major elements of the Tax Cuts and Jobs Act of 2017 (TCJA), set to lapse at the end of 2025, is fueling confusion and making advising clients an increasing conundrum for tax professionals. As the TCJA pertains, the absence of clarity about the fate of more than 20 temporary provisions complicates any assessment about whether the existing measures should be prolonged or altered.
Despite maintaining transparency through the yearly release of a list of waning tax inclusions by the Joint Committee on Taxation, the increasing number and sophistication of such provisions and the tardy pace of legislative rulings amplify the issue.
In the ongoing practice of devising temporary tax clauses – sometimes as a response to abrupt predicaments like natural disasters, or in alignment with definite-term spending programs – it is essential to consider the impact on both taxpayers and tax authorities. In situations where such provisions are designed more for political gain or revenue reasons than policy goals, the implications— both planned and accidental— demand attention.
Advising clients about the impending expiration of certain benefits, noting that such benefits may not be extended this time around, even though they may have seen repeated continuations in the past, is a frequently faced challenge for tax advisors.
Given the current system, temporary tax provisions often gain favor. If the proposed change in tax law seems too costly to be permanently incorporated in an impending bill, lawmakers resort to three potential strategies to curb the cost. Readjusting the proposal to reduce revenue costs is one such method, another entails opting for the proposal in its full glory but ensuring that only a part of the cost is apparent in the relevant revenue estimation. The final strategy involves adopting the entire provision, but only for a limited duration. This, despite historically being the least favored method, has gained traction in recent times.
The rising tolerance for such temporary tax provisions, extended, possibly retroactively or right before their expiration, for short-time frames, speaks to the norm settling in within the system. However, this approach only serves as a quick-fix and fails to address the larger underlying issues.
The ever-increasing trend of temporary tax provisions and the costs and benefits associated need to be assessed with greater diligence by both the Congress and sponsors for the said provisions. A balanced acknowledgement of both aspects may help in making more informed decisions.
The discussions and debates in Congress concerning the potential expiration or modifications of the TCJA’s current provisions will likely focus on ‘fairness’ and ‘competitiveness’. However, the federal tax code, filled with tax provisions that may or may not change or lapse by law, takes away the very essence of fairness or competitiveness for those liable.
In situations where the tax provisions and clauses are due to change or cease, like in case of individual category reductions in the TCJA, or due to become less favorable, the desire to stall or temporarily extend effective times does not solve the ultimate conundrum. Instead, it increases the burden on taxpayers. While a cure for the dilemma of temporary tax provisions is unlikely to be found soon, it is only reasonable to demand timely intervention when the need arises.
The views expressed in this article do not necessarily represent the opinions of Bloomberg Industry Group, the publisher of Bloomberg Law and Bloomberg Tax or its owners.
John Harrington who is the co-leader of Dentons’ US tax practice and advises on transactional, compliance issues, international tax matters, and domestic tax matters contributed to this story.