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May 4, 2017

With many important decisions in life, timing can be critical. Such is the case when it comes to planning for major tax reform. At the moment, there are several major changes that are in the wind and that may give rise to timing considerations, particularly for corporate decision makers that might time certain business actions to produce the maximum after-tax advantage (or minimum burden) under both the existing and the proposed new business tax systems. This week’s Tax Minute briefly considers some timing-related planning ideas that narrow in on three of the “core principles” recently released by President Trump. While potentially applicable to the technology industry, the planning ideas discussed below can be broadly applied across all industries, so feel free to share this article with colleagues outside your industry.

The $64,000 Question (add as many zeros as you see fit)

What will the effective date(s) be? Shortly after the election, there was a widely accepted expectation that some provisions (perhaps just the more beneficial ones) would be retroactive to January 1, 2017. However, as we witnessed recently with the withdrawal of the American Health Care Act, it turns out that passing sweeping legislation through Congress can be immensely challenging, even when both Houses are aligned in a Republican majority with the POTUS. Although the administration appeared to quickly pivot from healthcare to tax reform, making any sense out of the recent noise from Washington on the latter, particularly as it relates to timing, has been a near impossible task.

While far from a detailed plan, President Trump’s release of his outline, “2017 Tax Reform for Economic Growth and American Jobs,” sends another strong signal from Washington that tax reform remains a top priority for the Trump administration. Thus, while effective dates remain a moving target, below are some potential planning ideas that should certainly be discussed in the boardroom sooner rather than later.

"15% business tax rate”

  • Accelerating deductions to pre-effective date period;
  • Deferring income to post-effective date period(s); and
  • Accelerating foreign tax credit availability to pre-effective date period(s)

“Territorial tax system to level the playing field for American companies”

  • Accelerating foreign deductions to pre-effective date period;
  • Deferring foreign income to post-effective date period(s); and
  • Accelerating foreign tax accruals

“One-time tax on trillions of dollars held overseas”

  • Pre-effective date repatriation of high-taxed foreign earnings; and
  • Postponing repatriation of low-taxed foreign earnings until post-effective date periods

Stay tuned in the coming weeks for new Tax Minutes (and refer to the recent release of “No Certainty, No Problem”) for additional detail on these planning ideas and more.

Author: Ken Brewer

We’d love to get your thoughts: What is the latest thinking in the industry on the timing of tax reform? Has your company discussed potential planning opportunities related to the timing of tax reform? Please call or aliguori [at] alvarezandmarsal.com (email us) and let us know!

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