Blue Book for Tax Cuts and Jobs Act of 2017

By Jason Watson, CPA

Posted July 16, 2018

We have new tax law. Yay! But what does it all mean? Who knows! Oftentimes the strict interpretation of tax law is simple, elegant and understandable. Stop laughing! Really… it can be. At times, the strict interpretation leaves you scratching your head wondering if they all used Sharpies during drafting without proper ventilation. From there, strict becomes “here is what we tried to say but failed miserably.”

The Joint Committee on Taxation is, as the name implies, a committee which culminates the interests and points of view of the House Committee of Ways and Means and the Senate Committee on Finance. So, the word joint does not mean bipartisan per se… it refers to the “joining” of both sides of Congress, House and Senate.

The Joint Committee on Taxation then produces a Blue Book which follows significant enacted legislation and attempts to clarify vague tax codification and offers explanations. The Blue Book is also published every two years so the Joint Committee remains active and relevant as old tax law is being applied to current issues, not just when crazy tax reform hits the streets.

We recently had a retired tax attorney provide a good explanation of the jurisdiction of the Joint Committee on Taxation, “In fact , the JCT is part of the legislative branch and has absolutely no jurisdiction over  regulations — the tax regulation process is entirely the responsibility of the executive branch, that is, the Internal Revenue Service and the Treasury Department. The JCT does issue a post enactment kind of commentary, e.g. the ‘General Explanation of Public Law 115-97,’ the so-called ‘JCT Bluebook’- but this is entirely separate and independent from the tax regulation process.” Thank you Tom!

Why can’t the law simply speak for itself? It can… in many ways, but how often have you said something you considered straightforward and simple, but find out that no one has a clue what you meant. The brain works at a speed that cannot be word for word, thought for thought put into paper without time, care and consideration. Try listing out the steps to make a peanut butter sandwich… it quickly becomes two pages.

Also consider that members of Congress in the late hours are battling over the big chunks… how much should our tax rates be? Do we permanently lock down Section 179 depreciation? Who wants to eliminate moving expense deduction; all in favor? From there, the finer details need to get hashed out with particular focus on those items that a) have the most impact and b) bring upon the most confusion among the IRS, tax professionals and tax courts.

Here is a blurb from the Blue Book referring to the last major tax reform (the one prior to TCJA 2017). On page 99 of 1,404 it describes the reason for some changes to ACRS (accelerated cost recovery system)-

ACRS provides a small number of depreciation classes and relatively short recovery periods. The Congress chose to maintain this structure, while adopting improvements. For example, the Congress believed ACRS could be made more neutral by increasing the recovery period for certain long-lived equipment, and by extending the recovery period of real property. Another modification approved by the Congress provides equal recovery periods for the long-lived assets of regulated and nonregulated utilities. Under prior law, nonregulated utilities received more favorable depreciation treatment, which may have resulted in an unfair competitive advantage where they provided essentially the same services as regulated utilities.

There ya go! If you wondered why the tax law changed the recovery periods for ACRS eligible property you have your explanation. Good, bad or indifferent.

The courts, especially the U.S. Supreme Court and the Court of Appeals have looked less favorably on the value of the Blue Book. For example, the Supreme Court has stated that the “document provides a compelling contemporary indication” of a statute’s meaning, but does not rise to the level of legislative history. FPC v. Memphis Light, Gas & Water Div., 411 US 458, 472 (1973).

The 7th Circuit Court of Appeals stated that the Blue Book “does not rise to the level of legislative history, because it was authored by Congressional staff and not by Congress. Nevertheless, such explanations are highly indicative of what Congress did, in fact, intend.” Estate of Hutchinson v. Commissioner, 765 F.2d 665, 669-670 (7th Cir. 1985).

Picking on staff who probably have law degrees and accounting degrees? It’s not like the mail room attendant is getting together with the janitorial peeps to write the Blue Book! Aside from the wild condescension it sounds like the Courts just wanted some wiggle room between the Blue Book and how they adjudicated cases involving tax law. “Yeah, we sorta use when it makes sense to our intermittent logic but if it doesn’t we don’t have to tether ourselves to the nonsense.” Nice! We want that cake and eat it too way of professional life.

The Joint Committee on Taxation’s hope was to have the Blue Book for the Tax Cuts and Jobs Act of 2017 available by the end of summer. That simply won’t happen, and most people are saying by October or November. The committee is certainly under some time pressures since year-end tax planning and of course 2018 tax preparation is coming up fast.

Jason Watson, CPA is the Managing Partner of WCG (formerly Watson CPA Group), a business consultation and tax preparation firm, and is the author of Taxpayer’s Comprehensive Guide on LLC’s and S Corps which is available online.