Federal Tax Changes a Boon to Attorneys

Jan. 5, 2018, 6:00 PM

Reed Smith LLP didn’t know if the new federal tax law would be passed when it began the process of hiring five new attorneys for its state tax group, but practice group leader Lee Zoeller said the timing couldn’t have been better.

“The new law will certainly ensure that our lawyers are busier than expected,” he told Big Law Business.

For Zoeller and his colleagues, the biggest looming question is how states will respond to the legislative changes, such as those capping the amount of local taxes taxpayers can write off on their annual returns and expanding bonus depreciation to 100% for property acquired after Sept. 27, 2017.

“Some states are automatically following what the Federal Government has done, and some states will decouple,” said Zoeller. “For those that follow the Federal Government, the question is, what is the impact to our state? Can we afford that?”

In the weeks leading up to and since the tax overhaul was signed into law Dec. 22, corporate lawyers around the country have kept busy advising their clients on how their taxes and overseas investments will be affected by changes at the state and federal level.

Pennsylvania, where Zoeller practices, has said taxpayers claiming 100% bonus depreciation on property under the federal statute will not be able to depreciate that property for state purposes.

Zoeller said he’s already starting to think about more hires over the coming year, for “when the controversies start to roost.” For example, New York Governor Andrew Cuomo kicked off the new year by vowing to sue the federal government over the tax law change, which he believes will unfairly hurt New Yorkers.

“There’s a lot of watching to see what states are going to do from the departments of revenue,” said Zoeller. “Are they going to send out bulletins or notices without any statutory change? When the legislative sessions are back, there’s going to be a lot of scrambling.”

Meanwhile, over at Sullivan & Worcester LLP, tax partner Douglas Stransky is already scrambling to help his clients respond to changes that require American corporations to repatriate money they have earned through overseas subsidiaries, at a preferential rate.

“The changes are dramatic,” he said. “For lawyers who practice in the international area, it’s like starting from zero because it’s a complete new law.”

Stransky said the changes mean his clients will see an effect on their 2017 tax bills, meaning the work needs to be done as soon as possible. “There’s not even any planning opportunity,” he said.

“You can imagine that clients only call you when they have tax questions,” Stransky said. “Since I work in the international area, all of my clients have investments outside the United States. This impacts everyone.” He estimates that his billing has doubled in the past few weeks.

Miller & Chevalier Chartered member Layla Asali also said she’s been hit with technical questions from clients trying to calculate their new taxes.

She said the changes have “caused U.S. tax lawyers to have to reconsider our way of thinking about global business and revisit assumptions about tax planning.”

“The inherent complexity of tax legislation means that there are always errors, gaps, and unforeseen issues to address in the wake of any major tax act,” said McDermott Will & Emery partner David Noren. “But the scope and speed of this one have really compounded this phenomenon.”

The new legislation has not made the U.S. tax system any less complex than it was before, meaning “there is every reason to expect demand for tax advisory services to remain strong well into the future,” Noren added.

To contact the reporter on this story: Stephanie Russell-Kraft in New York at srussellkraft@gmail.com.

To contact the editors on this story: Casey Sullivan at csullivan@bloomberglaw.com and Nicholas Datlowe at ndatlowe@bloomberglaw.com.

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