Tax advisers report a mini-boom in cattle-feeding tax shelters by investors seeking write-offs this year. Brokers report increased calls from investors asking whether to sell stocks now to avoid higher capital gains taxes.
Bankers are preparing new types of home equity loans to help consumers circumvent proposed new restrictions on loan-interest deductions. And accountants and other tax experts are seeking strategies to help clients exploit new loopholes in provisions cracking down on income shifting and other tax breaks.
Indeed, even as final details of the sweeping tax overhaul bill are being written, taxpayers and their advisers are beginning to scramble for ways to use current tax breaks before they expire, or new opportunities the bill creates.
Interest Is Phenomenal
"It's just phenomenal the interest we're getting," said Carolyn J. Cole, a marketing official at the brokerage firm of Paine Webber. An advertising campaign offering a toll-free number for investors to call to receive a booklet about tax-revision strategies has generated more response than any other advertisement in the firm's history, she said.
Such activity is likely to accelerate, experts say, after congressional staffers finish writing the specific language of the tax bill and after it is approved by the full Congress and President Reagan sometime next month as expected.
However, ordinary taxpayers seeking common, easy-to-exploit loopholes are likely to be disappointed, experts say. While the new bill allows some specialized loopholes--such as exempting Aleutian Indians from reporting income from reindeer hunting--it eliminates many loopholes used by a wide number of people, as a trade-off for lowering rates.
"Most of the goodies seem to be gone," said Leon M. Nad, associate vice chairman for tax consulting at the accounting firm of Price Waterhouse.
For example, tax overhaul ends most of the schemes used by parents to shift income or assets to children. Parents typically have done this to have the income taxed at the children's lower rates. The new bill requires that such income be taxed at the parents' rate.
But the bill allows income from gifts from grandparents, relatives, friends or others to be taxed at the child's rate. This could result in friends' agreeing to give assets to each other's children, or grandparents' giving to children and being reimbursed by gifts from parents, accountants say.
"If it's hidden, it'll work," said one accountant, adding that he does not advise people to do this because it might be considered illegal tax evasion.
Another loophole involves using home equity loans to get around provisions that kill deductions for interest on auto, credit-card and other non-mortgage consumer loans. While the bill limits deductions on interest on home equity loans, bankers nonetheless say many homeowners can still tap this type of borrowing and use it to finance purchases of cars and other big-ticket items.
"We are anticipating it (demand for home equity loans) and are moving forward in product development," said Jack Levine, head of product management for Security Pacific National Bank. However, like other bankers, he would not disclose specifics about new products.
Experts caution, however, that they will not be sure about the effectiveness of these strategies until specific language is written into the bill. At that point, other loopholes may emerge.
"They (tax writers) may not think of everything," said Sidney Kess, director of tax policy and planning for the accounting firm of KMG Main Hurdman. "They are extremely able but they are working under tough time constraints where it can be easy for something to slip through."
One group of strategies under debate involves whether spouses should file separately to lower their combined tax. If one spouse is earning a high income and the other is not, it might be advantageous for the couple to shift real estate and other assets to the lower-wage spouse, said James Godbout, a partner with the accounting firm of Ernst & Whinney.
Taxpayers expecting lower personal tax rates next year are investing in schemes to shift income from this year to next year. One such tactic is cattle-feeding tax shelters--which may be making the last big stand for all kinds of shelters before the tax bill eliminates many of their tax benefits.
Cattle-feeding shelters are appealing because they essentially offer write-offs this year, when tax rates are high, and shift income into next year, when tax rates will be lower, said Fuhrman Nettles, a vice president of Robert A. Stanger & Co., a Shrewsbury, N.J., tax-shelter advisory firm.
Sales of publicly offered cattle-feeding limited partnerships are up 207% through the first seven months of this year and up 1,256% in July over the year-earlier month, Nettles said. That comes as sales of shelters in equipment leasing and oil and gas drilling have declined amid concern that tax reform will hurt their tax benefits, he said.