New Tax Law May Encourage Aggressive Tax Positions

In a recent Urban Institution and Brookings Institution Tax Policy Center blogpost, Howard Gleckman noted that the Tax Cuts and Jobs Act may encourage taxpayers to take aggressive and potentially less than advisable tax positions. “[B]ecause the TCJA is both complicated and far-reaching, because it was rushed through Congress without careful review of its statutory language, and because its effective date was less than two weeks after enactment, the temptation to push the envelope somehow seems greater this year than in the past.”

He cited a Wall Street Journal article, which described a number of strategies, such as the so-called “crack and pack” and “half and half.” Gleckman went onto note that, while he may not advise implementation of these strategies, some taxpayers may nevertheless take the risk, thinking that IRS audit rates are low, that the IRS may settle for less than the accrued liability, and that the discussed loopholes could be made explicitly legal through future legislation.

It should be pointed out that multiple pieces of legislation have recently been proposed in Congress to modernize the IRS. While Gleckman’s final point is a dark one, lamenting that the TCJA may decrease taxpayer respect for the tax system, it’s worth stressing that future legislation could increase audit rates and the likelihood that aggressive tax strategies could be caught and punished.