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Baker Botts’ Post Election Analysis on Federal Income Tax, Estate & Gift Tax and State & Local Tax

Media Alert
HOUSTON, November 17, 2016 - Baker Botts Federal Income Tax, Estate & Gift Tax and State & Local Tax partners provide an “impact of the election” commentary regarding what President-elect Trump’s administration will likely push for change in relation to the next four years. 

Federal Income Tax

James Chenoweth, Houston based Partner 

“Donald Trump’s Tax Plan would allow U.S.-based manufacturers to elect full expensing of plant and equipment by sacrificing the ability to deduct interest expense.” 

“Domestic manufacturers electing this treatment are likely to finance projects with alternative investment strategies (like existing oil and gas tax partnerships which elect to deduct intangible drilling costs).” 

“If oil and gas upstream and downstream refinery and petrochemical activities are included among the manufacturers eligible for the Trump Tax Plan expensing, the effect on U.S. oil and gas, fuel and petrochemical production could be game-changing.” 

Don Lonczak, Washington D.C. based Partner 

“The renewables industry scored a major victory at the end of 2015 when Congress granted significant extensions to both the investment tax credit and production tax credit.” 

“Based on recent GOP proposals denouncing special interest subsidies, both such credits conceivably could see their demise under a Trump administration, greatly impacting the ability to induce capital investment in renewable energy facilities. Moreover, even assuming the survival of the credits, their value and corresponding attractiveness to investors, inevitably would be negatively affected by the promised tax rate reductions.” 

Joshua Mandell, Dallas based Partner 

“In his tax plan, President-elect Trump has proposed eliminating most corporate tax expenditures and reducing the maximum corporate tax rate from thirty-five percent to fifteen percent.” 

“It is not clear to what extent the special tax treatment afforded to real estate investment trusts would be at risk. Even if the special tax treatment afforded to real estate investment trusts is not directly changed, a significant reduction in corporate tax rates would reduce the value of that special tax treatment and make real estate investment trust treatment relatively less appealing.” 

Michael Bresson, Houston based Partner 

“Republicans have a strong interest in tax reform, but there are several plans to choose from. House Republicans have released a blueprint for tax reform, Senator Hatch is working on tax reform centered around corporate integration and President-elect Trump released his own plan in connection with the election. The party will need to come together around a single plan.” 

“Today the tax code treats corporations differently than other business entities. That makes pass-through vehicles like MLPs and S corporations popular. The Trump tax plan does not appear to change that. But the details of the plan remain to be worked out, and the devil can be in the details.” 

Jeff Munk, Washington D.C. based Partner 

“Tax reform led by Republicans may resolve the conflict between targeted tax incentives for specific industries, such as credits for investment in renewable energy with a broad tax base and lower rates.” 

Tamar Stanley, Washington D.C. based Partner 

“We will likely see pro-business tax reform with the new Trump administration and Republican-controlled Congress with a significant reduction in the corporate tax rate, at the expense of the elimination of many corporate deductions and credits.” 

“Among other simplification measures, President-elect Trump has proposed to eliminate the corporate alternative minimum tax.” 

Tax Audits and Controversy: 

Richard Husseini, Firmwide Tax Department Chair and Houston based Partner 

“The new IRS “campaign” based audit strategy seems likely to continue under a Trump administration. What may change is what the IRS selects for a campaign because the priorities of the Treasury seem likely to change with the new administration.” 

“The impact of tax reform on IRS audit and enforcement activity is a big unknown. As particular tax reform proposals gain traction one should expect to see corresponding shifts in IRS enforcement priorities.” 

Jon Nelsen, Austin based Partner 

“It is by no means clear that a Trump administration would increase the IRS budget or otherwise relieve the current resource constraints that the IRS is facing. It is quite conceivable that the IRS examining and appeals divisions will face additional budget cuts. This would have a substantial effect on what issues and taxpayers are audited, how audits are conducted, and how quickly they are resolved.” 

“One of the most intriguing dichotomies to be resolved is how the administration approaches eliminating tax loopholes with cutting taxes and how this might be brought to bear in the conduct and resolution of examinations.” 

State and Local Tax: 

Matt Hunsaker, Dallas based Partner 

“For years, proposed federal legislation requiring remote online retailers to collect sales and use tax from their customers has been before Congress.” 

“Although President-Elect Trump has not indicated that this legislation would be a priority for his administration, he has made strong statements in favor of requiring online retailers to collect sales and use tax; it remains to be seen whether his support will translate into movement on this legislation.” 

Matt Larsen, Dallas based Partner 

“Should President-elect Trump’s federal income tax changes include eliminating deductions in connection with rate reductions, the state income tax burden in some states may increase unless such states also make law changes.” 

“The state income tax laws of many states apply a state tax rate to federal taxable income, so increases in federal taxable income caused by deduction elimination will increase state income tax in these states unless state rates are reduced.” 

Estate and Gift Tax: 

Stephen T. Dyer, Houston based Partner 

“President-elect Trump proposed replacing the estate tax with a capital gains tax at death, subject to a $10 million exemption, while not allowing taxpayers to avoid the tax by giving appreciated assets to certain private foundations at death.” 

“It is hard to anticipate Congressional reaction, in part given that the last repeal of the estate tax (in the year 2010) was eliminated before the end of its first year by an unanticipated, bipartisan law that created the $5 million exemption indexed to inflation. That was a fairly permanent approach that may not be much different than the Trump plan for many large estates, except as to the tax rate.” 


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