2020 Tax Outlook From a Former US Treasury Official
James Alex of RSM, a former US Treasury official who worked on tax reform with other Trump Administration senior officials, discusses new tax rules including the deduction of business interests, Qualified Improvement Property rules, and the reporting challenges of Opportunity Zone regulations.
PRIVCAP TRANSCRIPT “2020 Tax Outlook: How Business Leaders Can Plan for Success” James Alex, RSM: In 2020, the most impactful provision on the horizon is what we call the 163[j] provision. That’s the provision that speaks to the deduction of business interest. So, specifically, what’s included under this limitation is you can’t deduct as much as you could in the past. What’s not included will be closely watched by the private capital industry. Tax reform extended the one-year period of carried interest in order to get favorable treatment to three years. An issue came up with regard to this application to S-Corporations, and immediately, Treasury issued a notice saying that S-Corporations would be included and it’s been made clear by Treasury that what we’ll see with this new regulation coming out is the implementation of that positionnwith regard to its application S-Corporations, which is a major development. The Qualified Improvement Property is property that, by just almost a glitch, didn’t end up in the final depreciation provisions of tax reform. And I think, universally, everyone agrees they want it fixed. Treasury looked at it and, frankly, felt they did not have the authority under the statute because it was missed to actually provide regulatory relief, so the matter was going to have to be solved by Congress. The major question that remains with regard to Opportunity Zones is an issue that cannot be solved from a Treasury regulatory perspective, and that is, the issue of reporting. How successful has Opportunity Zones been? How do we measure success? That’s important for two reasons. One is, obviously, we have entities that are involved and they want be assured that they’re in something that is successful. Number two, from a policy perspective, and a long-term perspective, if we’re able to articulate that Opportunity Zones has been successful for those zones, then that has viability for the program longer term. Unfortunately, there wasn’t the ability to collect that information in the statute. The political environment in Washington seems to suggest that’s not going to get resolved, particularly in an election year. Businesses should prepare for the developments in 2020 two ways. First, I had an ability to talk to a lot of leaders in our profession. And it’s pretty clear that the focus has been up to now in terms of, to use the jargon, “compliance,” getting the numbers right on the return. There has not been the focus with regard to planning. What does tax reform mean long-term? Some things will change over time because Washington changes. The major provisions that are in place right now are likely to be here for many years ahead.