Don't Mess With Taxes

We did it! We made it through the wild ride that was 2017. It ended in a particularly chaotic fashion, with a major tax bill that was literally written on the fly even on its last day of Congressional consideration.

via Giphy.com Studios

Now it's time to hunker down for what 2018 has to throw at us on the tax front.

However, before we dive head-first into the new year, I'm taking one of the 365 days, just like I did at the start of 2017, to list my top 10 tax stories from the previous year.

These are not the most popular posts in 2017 from the ol' blog, although you'll find some of those links below. Instead, this list covers the 10 tax matters that I believe had the most tax impact last year.

More to come tomorrow: And since everyone loves a fortune teller, I'm once again pulling out my battered crystal ball for a preview of six tax topics we're likely to see in 2018.

But what I am doing differently this year is separating the 2017 review and the 2018 preview. The reason is length, or more specifically, attention span.

As I reviewed 2017 in preparation for this post, I was stunned by just how much tax material there was to re-assess. My amazement increased as I started typing.

I'm sure that even some tax geeky readers of the ol' blog will find the 2017 review alone TL;DR. Sorry. At least it's not a slide show!

So the 2018 preview is saved for tomorrow.

Now with that out of the way, let's look back at 2017's top 10 tax topics.

1. Tax cuts, if not reform (or jobs, yet), passed.
It actually happened. We got a major tax code rewrite.

It doesn't provide the largest-ever federal tax cut, despite Donald J. Trump's Tweets.

Its original moniker of Tax Cuts and Jobs Act had to be changed thanks to arcane Senate rules (and politics) … and no proof, yet, that it will bump up U.S. employment.

And it's definitely not tax reform.

But it is the first substantial change to the Internal Revenue Code since the truly historic 1986 Tax Reform Act.

The new tax laws took effect today, Jan. 1, 2018, and most of them affect 2018 tax returns. They include the end of personal exemptions, but almost doubled standard deductions. And we still have seven tax brackets, but the rates and income ranges that fall within them have been tweaked.

Whether everyone as once promised will benefit remains to be seen. And if or how much it might affect the coming midterm elections is still an open question. I'll give you my answer in tomorrow's 2018 tax preview.

But it is, for now, what it is. Sort of but not really tax reform that we'll all learn about together over the next 12 months.

2. John Koskinen served out his tax commissioner term.
John Koskinen became the Internal Revenue Service's 48th top executive on Dec. 23, 2013.

The turnaround specialist came into office at a particularly difficult time. The IRS was in the midst of a scandal revolving around how it handled applications for tax-exempt status, specifically those requests from groups with obvious political leanings.

Throughout his almost four-year tenure, Koskinen had a rocky relationship with Republican House members. They accused him of lying about IRS political bias against conservative organizations and repeatedly sought to have him removed. The closest they came was censure by the House Oversight Committee. 

But the investigation into alleged IRS improprieties in the so-called Tea Party Scandal came to naught. Last October, the Department of Justice closed the case that prompted such partisan ire without filing any charges a month before the embattled IRS chief retired.

In the end, Koskinen outlasted his chief House adversary, was not impeached and retired on schedule — and on his own terms — this past November.

3. IRS continued to scrap for money.
When Koskinen wasn't fending off questions from testy members of Congress, he was trying to convince them to give his agency more money. He was only partly successful.

Through most of Koskinen's term, Congress either slashed the IRS budget or gave it smaller increases than it sought.

That's too bad, since as the former commissioner, as well as several of those who had held that post before Koskinen argued, the IRS actually is pretty efficient. For $1 invested in the IRS budget, Koskinen said in 2014, it produces $4 in revenue.

By 2016, Koskinen's and the IRS' ratio had improved. "If you add up all the work we do for the tax system – issuing forms, helping taxpayers, sending out notices, conducting audits, and everything else – it now costs us about 35 cents to collect $100 in federal revenue. I think that's a pretty good deal for the American people," Koskinen told the National Press Club audience gathered that year to hear the commish's annual address on taxes and the agency.

Still, Congress is a tougher crowd than assorted media types. Perhaps the many changes to the tax code this year and the Congressional mandate that the IRS provide guidance on them will help convince the law's writers to give the IRS more money in coming fiscal years.

Or not.

Some member of the Senate and House last year discussed giving the IRS more funds, but not enough to bring the agency up to the 2010 level, which was its highest funding amount ever. Others, however, wanted to wait for, in their words, some proof that the IRS actually needs more funding.

After all, in recent years the IRS has been has been bringing in more tax money even with lower budgets. Stick that in the damned if you do, damned if you don't file.

4. Tax scams and hacking continued, abated a bit.
When it comes to being the target of criminals, the IRS is just like taxpayers. All of us have been in the sights of tax scammers, identity thieves and computer hackers.

Over the year, the IRS has had to shut down several of its online operations and tools that were breached or otherwise compromised by cyber crooks. It has responded by upping its game, now using Secure Access, which requires a more rigorous two-step identity-proofing process to ensure that only legit taxpayers get into databases containing their personal and tax information.

But as the IRS has made progress in fighting individual tax identity theft crimes, business refund fraud has increased.

And the persistent, and largest ever, telephone tax scam involving IRS impersonators has cost taxpayers more than $61 million since 2013 and is still ongoing, albeit at less active pace.

5. Natural disasters cost taxpayers, Uncle Sam.
Pardon my language, but in 2017 Mother Nature was a real bitch. During the Atlantic hurricane season, she unleashed a series of major and majorly destructive storms on the mainland United States and its island territories.

Folks in Texas and parts of Louisiana are still trying to recover from Harvey. Irma wreaked havoc on Florida, Georgia, Puerto Rico and other parts of the southeast U.S. Then Maria pummeled PR again, along with the U.S. Virgin Islands.

Meanwhile, California is still fighting flames in what has been a terribly historic wildfire season in the Golden State.

The IRS responded to the natural disasters by offering a variety of tax breaks to help victims recover. But that comes at a cost to the U.S. Treasury and Congress has balked at offering as much financial help as state officials and struggling residents want.

That limit on fiscal generosity after natural disasters continued in the new tax law. Now only those uninsured losses sustained in a major disaster will be deductible as an itemized claim on Schedule A. That could help rein in federal funds outflow to a degree.

But if, as many scientists warn, our planet's continued warming produces more and more serious weather incidents, that could mean more revenue losses from more major disaster claims.

6. Treasury trimmed tax regulations. Temporarily?
Donald J. Trump acted quickly on one of his campaign promises. As soon as he was in the Oval Office, a memo went out to agency heads calling for a freeze on rules that Obama Administration officials finalized before leaving office, but that have not yet taken effect. In February, came Executive Order (EO) #13777 to reduce federal regulation and control regulatory costs.

In response, Treasury and the IRS in July came up with eight regs deemed burdensome. By October, they had specifics on what they wanted to do with these regulations.

They primarily are regs dealing with rather esoteric provisions in the Internal Revenue Code. But it's a start.

Now, though, all eyes are back on the IRS as it's charged with promulgating myriad new regs in connection with the tax laws that took effect Jan. 1. In fact, this phrase is found repeatedly in the new law: " The [Treasury] Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section."

On its face, that recurrent regulatory direction problematic under the Trump Administration's two-for-one executive order. But given how invested the GOP is in the new tax law, I suspect the IRS will get some leeway here, meaning that at least in the short term the IRS regulatory tax list will grow instead of shrink.

7. State continued to challenge sales tax nexus limits.
One thing has been consistent for the last few years. States need money and they've gone after sales taxes on products sold outside their borders. That intensified in 2017.

More states got even more creative in finding ways around the nexus standard in place under the 1992 Quill Corporation v. North Dakota U.S. Supreme Court ruling. The justices back then said that a seller must have a physical presence, or nexus, before it has to collect a state's sales taxes.

Times and commerce, however, have and are continuing to change. Internet commerce's dominance means, argue state tax officials, that there are no real — or cyber — borders on sales taxes.

E-selling giant Amazon apparently agrees, deciding to start on April 1, 2017, (no fooling!) to collect sales taxes in all applicable states it ships products even if it has no physical operations.

Also last year, Colorado lawmakers created the tattle-tale tax. Starting July 1, 2017, certain remote sellers had to start notifying Colorado customers that their purchases were taxable.

Plus, the sellers now must send reports to the state tattling showing the total amount paid by the purchaser that year for online purchases so that the state can go after the buyers for the sales tax.

Then last October, South Dakota officials formally asked the U.S. Supreme Court to decide its legal battle with online retailers Wayfair, Overstock and Newegg. The Mount Rushmore State wants the nation's highest court to overrule current physical-presence requirement that prevents it (and other states) from requiring out-of-state retailers to remit taxes for sales made within state borders.

Again, not to jump ahead to the preview portion of this post, if the Supreme Court decides to hear the case, we could see in 2018 a redefinition of nexus where, in a wonderfully tax and geographically ironic way, South Dakota's new internet tax collection law supplants the longstanding one set by its neighbor to the north.

8. Gig (aka sharing) economy grew, along with tax cheating.
Thanks in part to a combination of millennials' work attitudes and corporations' desires to keep overhead low, the gig economy continued to grow in 2017. Around 4 million workers have now rejected routine 9-to-5 office work in exchange for piecing together a variety of jobs on their own terms.

Taxes, however, are still part of the equation no matter how you make your money. And the gig, or sharing, economy is producing problems for the IRS.

A major side hustle side effect is tax evasion.

Tax cheating among those in the sharing economy soon could become an even bigger problem if thanks to provisions of the new tax law.

Sole proprietors, along with other so-called pass-through entities, will be able to deduct 20 percent of their revenue from their taxable income. This could prompt more people to sever formal relationships with their current employers and become contractors.

The IRS is focusing on this possible employment trend, trying to educate potential new entrepreneurs about their tax obligations and how to meet them.

Specifically, the tax agency wants to encourage documentation that will make it easier for contractors to file and claim all their available gig economy tax breaks.

Such a paper trail also will make it easier for the IRS to make sure they are paying all their taxes.

9. Bitcoin values and IRS interest both increased.
Bitcoin proved it was the king of digital currencies in 2017, at one point late in the year surging to an all-time high of $19,843 per coin. It fell back, though, on the first day of 2018, sliding to "just" $13,440 late today.

Still, the allure of Bitcoin is strong (although Amber Ruffin and I don't get it). And more than just crypto currency fans are interested.

Since the use of and buying and selling of Bitcoin and the like triggers a taxable event, the IRS in 2017 increased its effort to get more information on the digital dollars' owners.

It was successful. In November, a federal court judge ordered San Francisco-based Coinbase to comply with an IRS summons that required it to identify 14,355 accounts of crypto currency speculators, which have accounted for nearly 9 million transactions between 2013 and 2015.

Now Uncle Sam can go about collecting back taxes from the digital currency exchange's customers who failed to report their Bitcoin transactions.

And the news got worse in 2017 for digital currency owners. The new tax law closes a Bitcoin loophole. It eliminates an exemption for many like-kind exchanges, which lets people swap an asset for a similar one without triggering a tax obligation.

Some investors used that option to exchange one digital currency for another without paying taxes. That's now no longer an option.

Like-kind exchanges and the tax deferment are now specifically limited to real estate transactions, closing the loophole that Bitcoin etc. owners had used.

10. Trump still didn't share his tax returns.
Yes, I'm going there. The 45th president has shattered a lot of conventions since taking office last year, but this one still riles up a lot of us.

He hedged his way out of releasing his prior returns by claiming they were under audit. Now as president, his returns automatically will be examined by the IRS. But that didn't stop prior presidents (and vice presidents; where are your 2016 returns Mike Pence?) from sharing their 1040s with the rest of America's taxpayers.

Plus, we should get to decide whether, as he claimed in an impromptu end-of-year interview with The New York Times, he's the world's best tax expert.

Or as reporter Michael Schmidt recounted:

Mr. Trump disputed reports that suggested he does not have a detailed understanding of legislation, saying, "I know the details of taxes better than anybody. Better than the greatest C.P.A. I know the details of health care better than most, better than most."

Later, he added that he knows more about "the big bills" debated in the Congress "than any president that's ever been in office."

Prove it, Mr. Trump, or at least prove that you've filed your returns and have taken, as you touted during the campaign, that you're smart for paying as little tax as possible.

And about that tax amount, there's widespread speculation that Trump will make out like a bandit under the new tax law.

Tax experts told The Washington Post that Trump will benefit from the plan's new lower top rate (it went from 39.6 percent last year to 37 percent now), as well as from new pass-through provisions that apply to his real estate development business

"Nearly all of the more than 500 private businesses Trump has claimed on his financial disclosure documents — including his umbrella company, the Trump Organization — are pass-throughs, so the bulk of his income will probably see an immediate tax break," according to The Washington Post story.

Tax experts told the paper that real estate, rental and leasing businesses will benefit more than any other industry.

But we don't really know for sure because — wait for it — we still haven't seen his recent tax returns.

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Do you agree with these tax matters making my list? Or did I overlook something? If so, please let me know in the comments.

And come back tomorrow for my shorter (I promise!) preview/predictions of tax topics that will engage us in 2018.