Old Law, New Interpretation

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We are getting hit by the tax payer nightmare. There are three changes occurring at once, all of which mean you’re going to pay more tax.

First, there is more aggressive state and federal tax legislation. Look for more taxes in general. You probably have heard about some of the federal changes, but might not be as aware of the state ones. That’s especially true if you think you don’t have nexus in a state. But look out! You may be subject to more tax changes than you think.

Second, the number of auditors at the federal level has already doubled for this year. Look for it to quadruple within 4 years. Most states are similarly ramping up too.

And finally, the state and feds are reinterpreting old rules. For example, we’ve been dealing with IRS late filing notices right and left. Some are justified, but normally not as high as now. The IRS is assessing every penny they can.

And in another nexus case, a 13 year old rule is coming back to bite some business owners. Here’s a link on warranty repair creating nexus in other states. http://www.accountingweb.com/blogs/brianstrahle/state-and-local-tax-360/third-party-warranty-repair-services-creating-nexus

The issue I see is bigger than just nexus, though. It’s the fact that across the board, the auditors and tax agencies are reinterpreting existing law. Or changing the procedures you need to do to follow them.

That’s the hardest one for me, as a CPA advisor. How do I explain to a client that what was true a year ago isn’t true anymore when the law is still the same? (Obviously, it’s by looking at case law, but that involves much more detailed explanations that only researchers seem to care about)

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