The tax reform, informally known as the "Tax Cuts and Jobs Act," was signed into law by President Trump on December 22, 2017, after Congress’ final approval. The new law is the most extensive overhaul of the US tax code in over 30 years. The tax reform includes a number of provisions that highly affect both corporations and individuals. And, in previous articles, we broke down the tax reform even further by analyzing its effects on accounting students, CPA candidates, and the CPA Exam.
However, to see how this tax reform is affecting institutions in real time, we took it a step further and asked Professor Annette Nellen, CPA, CGMA, Esq., a professor and director of San José State University's graduate tax program (MST), to weigh in on how the new tax reform has affected her curriculum and the learning curve of students in her classroom.
Roger CPA Review: Were you excited to dig into the new law when it came out?
Annette Nellen: Yes. There was talk about various reforms dating back to the mid-1990s with the flat tax and ways to improve international competitiveness of the tax system. There was a lot more discussion when (then) Congressman Camp introduced the Tax Reform Act of 2014 in early 2014 because with legislative text, you could see what all of the changes were to reach his goal of lower rates and revenue neutrality. Afterward, more possibilities for reform arose when the House Republicans released their "blueprint" in June 2016. And then of course, on November 2, 2017, when we saw the first draft of what became the Tax Cuts and Jobs Act, followed soon thereafter with the Senate Finance Committee's ideas for reform, we could see that there were many changes including unexpected ones.
It's important to look at all proposals because you never know what may end up in final legislation. So, proposals and ideas should be analyzed, and comments offered if you want to have some influence on avoiding complicated or inequitable provisions and offer suggestions for improvement. Once the legislation is enacted, then you need to get up to speed quickly to determine what might affect people now or in the near future and how.
RCPAR: How has tax reform affected your lectures and class discussions so far?
AN: In my tax research class (MST), we can talk about the legislative process with a real-life example. There are numerous changes to accounting methods which I teach each spring. This summer, I’ll be teaching our tax policy capstone course and we can discuss the Tax Cuts and Jobs Act content and process as well as the policy considerations of it such as where it has made the law more complex and areas it has made simpler. We’ll also be able to see how it stacks up against other principles of good tax policy, such as equity and neutrality.
RCPAR: Trump set out to simplify the IRC; are there any provision(s) of TCJA that you find to be particularly fitting or contrary to that goal?
AN: More people claiming the standard deduction brings simplicity to more individuals. Yet, those with itemized deductions close to their standard deduction must still keep records to determine which is higher at the year’s end. While repeal of the corporate AMT brings simplicity, we still have the individual AMT, although it will affect far fewer individuals than before.
However, most of the changes bring new complexities such as the new qualified business income deduction and its numerous definitions and limitations. Many of the international rules also bring new complexities. Yet, once we get more guidance and deal with these rules for a few years, we'll likely find that most are quite manageable.
RCPAR: How are students adapting? Is there a part of the law they are having trouble with?
AN: The changes to accounting methods brings favorable treatment to many small businesses yet, oddly, it is a bit more difficult to explain. For example, even taxpayers not subject to Section 448 on the required use of the accrual method, such as sole proprietors and S corporations, must still look at it as that is where the new definition of small business - relevant for several new rules - is located.
RCPAR: What were your biggest challenges with tax reform?
AN: Getting up to speed in a short period of time. I teach several tax update classes each year and they had to be significantly updated after the law was enacted on December 22, 2017. Also, I'm editor and author for the Cengage undergraduate tax texts and we had to update textbooks for the new law.
Lastly, in my role as chair of the AICPA Tax Executive Committee, we have been issuing comments to Congress and IRS for several years on reform proposals and ideas for reform, and the AICPA volunteers and staff have been very busy since December 22 on identifying areas where guidance is needed and in helping members deal with the changes. So, the big challenge is time, and finding enough of it!
Thank you to Professor Nellen for her valued insight and contribution to the topic in this interview.
Annette Nellen, CPA, CGMA, Esq., is a professor in and director of San José State University's graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, high tech tax matters, employment tax, ethics, and tax policy.
She also serves on the AICPA Tax Executive Committee (chair as of October 25, 2016). She is a past chair of the AICPA Individual Taxation Technical Resource Panel. Professor Nellen was the lead author of the AICPA tax policy concept statement #1, Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals (2001;2017), still in use today. Professor Nellen is the recipient of the 2013 Arthur J. Dixon Memorial Award given by the Tax Division of the AICPA, the highest award given by the accounting profession in the area of taxation. In fall 2013, Professor Nellen completed a three-year term on the Executive Committee of the Taxation Section of the California Bar. She is a former chair of the ABA Tax Section’s Sales, Exchanges & Basis Committee.
Professor Nellen is the author of Bloomberg BNA Tax Portfolio #533, Amortization of Intangibles. She is also the author of Bloomberg BNA Internet Law Resource Center’s portfolio, Overview of Internet Taxation Issues. She is an editor for three of the Southwestern Federal Taxation textbooks (Individual Income Tax; Corporations, Partnerships, Estates & Trusts; and Essentials of Taxation). She is a monthly columnist for Tax Analysts’ State Tax Notes.
Professor Nellen has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
You can read more by Professor Nellen on her blog, 21st Century Taxation, now in its 12th year of publication.