Rumors of Tax Change Coming

We’re moving into a time of a lot of changes in our tax laws. There is a lot of positioning going on and testing of the political waters with proposed tax changes.

There are also a lot of rumors of what could be coming. Normally I’d recommend that you don’t pay attention to rumors. In fact, you can drive yourself crazy following all the jockeying for position and news time by the pundits. Right now, though, I’m afraid we could see a lot of change coming as bills are passed quickly in an attempt to bail out the economy.

What does this mean to you? If you hear a rumor, find out where the possible change may be coming from. When it comes to the tax world, there are 3 branches of government. They just happen to be a little different than what you learned in school (executive, legislative, judicial). In the tax world, they are judicial (tax court, Supreme Court), legislative and the IRS! Sure the President has influence, but his influence is on Congress to bring up new bills and then pass or veto them.

When it comes to tax law changes, Congress could change the rules. If this happens, it rarely is done retroactively unless it is to extend an expiring tax provision. Usually there is a little bit of time to plan for a new Tax Act if Congress is doing it. Tax law changes could happen because the Court interprets the law based on circumstances of the case and their mood. That’s more troubling because we could be going along blissfully unaware and then suddenly the Court rules in a way we don’t like. That case could be used against a taxpayer even though it just happened and the taxpayer might have been acting on a different intepretation for awhile. Good news here, though, generally there is a lag of time before the IRS starts acting on court decisions. You usually have time to modify your strategy.

Finally, there are changes the IRS makes. Those are the worst because they are immediate. But, there is notice. We know what their targets for 2009 are going to be. It is a big freight truck driving straight at you in some cases, but it’s only going 5 MPH so you can get out of the way!

So, as you hear rumors of tax law changes, ask yourself if the source is reliable. Then find out where the law change might be coming. That will tell you how quickly you need to react. And, above all else, make sure you’re in close touch with your CPA.