Tax lawmakers need curiosity

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If you’ve ever watched “The Big Bang Theory”, you’ve heard the fictional Sheldon talk about the real Richard Feynman.

Feynman was a professor of theoretical physics at Cal Tech, a resident of Los Alamos during the Manhattan Project, and winner of the 1965 Nobel Prize in Physics.

Feynman was, according to his own description, a “curious man”. While preparing for his doctorate at Princeton, Feynman attended Graduate College seminars hosted by the Dean. In one session, the Dean noted an upcoming presentation by a hypnotist.

Prior warning was given because the hypnotist wanted a few volunteers to be hypnotized during his presentation.

When the request for volunteers was made, Feynman, sitting at the back of the room, shouted “Meeeeee”. No one else said anything. Only one person was curious enough to find out what this hypnotism was all about. I too am curious. I’m a stupid version of Feynman. My ability to understand is quite limited, so I stick to topics within my expertise.

One of these topics is the distribution of taxes on partnerships. Partnerships do not pay tax. They accumulate elements of income and deduction and then pass them on to their partners.

How it is done can be simple or complicated. Tax allowances must correspond to the economic arrangement of the partners. Complex (or simple) economic arrangements lead to complex (or simple) allocations.

The tax law has detailed rules that attempt to align taxation and the economy. Feynman said, “If you thought the science was certain, well, that’s just a mistake on your part.”

Making the tax allowances of partnerships “work” is not scientific, let alone certain. We need to recognize it and do our best to deal with it.

Senate Finance Committee Chairman Ron Wyden of Oregon has proposed sweeping changes to the rules for attributing taxes to partnerships. Its goals – fairness and simplicity.

There is a lot of fairness in Wyden’s proposals. This equity comes at a cost of great complexity. I think Wyden is a good man with good intentions. I don’t think he understands what happens when a partnership income tax return is prepared.

When I read his proposals for the first time, I wanted to take the plunge and be the first to respond. Given my interest in partnership tax matters, I figured if anyone was to answer, it should be “Meeeeee”.

Unlike Feynman, others jumped before me. There have been several excellent articles in tax journals highlighting the problems with the Wyden proposals.

I doubt you have read these articles. I will summarize. Wyden’s proposals are simply not feasible. They come from a desire to better align taxation and economy. They will not be understandable to those who prepare most of the 28 million Partner Information Statements (K-1).

Wyden also sits on the Joint Committee on Taxation, which works with Congress and professional staff to develop tax policy.

I have written many times about the sorry state of our tax laws. By that, I don’t mean that such a person pays too much (or too little) in taxes. I would like to see a logical tax system. I don’t care whose beef is gored by this system.

We have a complete collapse of the legislative process. The tax legislative process no longer consults with political experts. He consults with lobbyists, who are all about who the beef is gored.

Wyden tries to move the ball around the field. I just think he’s doing it wrong. I believe he will listen to those who prepare tax returns, many of whom are not experts in partnership tax law.

Feynman said, “I’d rather have questions that can’t be answered than answers that can’t be questioned.” Members of Congress no longer accept questions about their “answers.”

Feynman knew nothing about tax law. He knew how to solve problems with integrity. One final quote could guide our tax decision-makers.

“You can know the name of a bird… (but) know nothing about the bird. Look at the bird and see what it does – that’s what matters. I learned early on the difference between knowing the name of something and knowing something.

We need a curious chairman of a legislative committee who wants to make things better, as long as he is willing to learn how the bird actually works.

Jim Hamill is the Director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at [email protected]


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