by Dave McGuireJuly 17, 2019

Specialty Tax Firms Must Stay Diligent As Regulations Evolve


According to the second law of thermodynamics, a natural process always progresses to entropy or chaos. For the sake of argument, let’s look at the increasingly complex U.S. tax code.

Even with laws aimed to simplify the system, such as the Tax Cuts and Jobs Act (TCJA), simplification in one area — such as the standard deduction — often causes complications in other areas. This is something I’ve noticed working in a specialty tax and consulting firm. Since passage of the TCJA, the IRS has issued multiple regulations and clarifications on everything from opportunity zones to bonus depreciation to new restrictions on business interest deductibility.

Complexity in the tax code is nothing new. The tax code has evolved over the years, not only increasing in size, but also further complicating certain areas. Taxpayers and certified public accountant (CPA) firms are increasingly challenged to keep up with the changes, especially since some of the most valuable areas in the tax code have also been temporary.

For example, the 179D tax deduction, which offers a deduction of up to $1.80 per square foot for the installation of energy-efficient improvements to buildings, was a temporary measure of the tax code from 2006 until it expired in 2017. The temporary nature of the deduction compounded its complexity, as it required taxpayers to submit detailed engineering analysis and certification.

The 179D and other tax code areas now require specialists who spend their time diving into the complexities of these provisions. In the past few years alone, regulations and laws related to cost segregation have included the tangible property regulations, the Protecting Americans from Tax Hikes Act of 2015 and the TCJA. On top of these changes, court cases such as AmeriSouth XXXII, Ltd. v. Commissioner and chief counsel advice notifications such as CCA 201805001 all deal with how cost segregation studies are prepared.

Such complexities have resulted in the creation of specialty tax and advisory firms. These firms specialize in one or more of the most complicated areas of the U.S. tax code, such as cost segregation, research tax credits, transfer pricing and others. Sometimes, as in the case of transfer pricing, the extensive knowledge of international tax law is beyond the expertise that a regional firm might hold in house. In other cases, such as with opportunity zones, these are new areas of tax law that require significant time studying regulations. In both cases, outside expertise can prove useful for traditional CPA firms.