WASHINGTON — Late last year, in the basement of a Senate office building, the chief counsel of the Finance Committee's Democratic staff sat surrounded by empty boxes waiting to be filled for a move upstairs to their newly won offices of the majority.
"A lot of the lobbyists are expecting us to go back to business as usual, fiddling with the tax code for the benefit of one industry or another," said Bill Wilkins, as he surveyed the dingy offices that the Democrats had occupied during the six years the Republicans controlled the Senate.
But Wilkins, who is now the top aide to Finance Committee Chairman Lloyd Bentsen (D-Tex.), warned against expecting Congress to make any substantive changes in the massive 1986 tax bill, primarily because the federal government's huge budget deficits continue to stand in the way of any costly new tax preferences. "Those guys are simply living in a dream world," he said. "We just don't have the money."
Congress, after approving a substantive tax bill nearly every year since 1981, is about to take a breather. No wide-ranging tax changes are actively under consideration, and most analysts do not expect any substantive changes to the fresh new tax code until after President Reagan leaves office.
The only pressing tax matter on the agenda is a "technical corrections" bill aimed at cleaning up the mistakes that crept into the language of last year's bill during the rush to win final approval. But it won't even be considered by lawmakers until summer, and those actively involved in preparing the legislation say they are under strict orders not to tackle any major new subjects.
"There's enough purely technical stuff that nobody is really looking at going beyond that," said a House staff member on the Ways and Means Committee. "We want to take care of the screw-ups that should never have happened, not try to undo the aspects of tax reform that some people might not like."
Staff members have identified as many as 300 different errors in the 1986 tax law, but almost none of them affect large numbers of people and less than a handful involve substantial sums of money.
Typical of the kinds of mistakes that the technical corrections bill should correct are a wrong address for New York's Carnegie Hall, which is supposed to be the beneficiary of a special transition rule for its renovation, and the failure to eliminate another special tax break for a small group of investors in Colorado's Cimarron Coal Co. that lawmakers intended to drop.
But some errors involve more complex and subtle problems.
The new law, for instance, apparently makes a mistake in the way it affects writeoffs for business assets that are transferred between taxpayers with personal or business ties. Congress intended, tax experts say, to prevent a taxpayer from qualifying for more generous depreciation treatment on certain assets under the new system simply by receiving the property from a related party. But as written, the law--instead of insisting that taxpayers continue under the 1981 accelerated depreciation rules--requires any such transaction to revert to the Draconian business writeoff system in effect before 1981.
"That was clearly not the intent, because it was a provision that wasn't aimed at penalizing taxpayers for a normal transaction," said Steven Corrick, a senior tax practitioner in the Washington office of Arthur Andersen & Co. "I think they will fix that in the technical corrections language."
Nearly all such provisions affect only a relatively narrow class of taxpayers, and most of them are focused on complex business transactions.
Some ambiguous issues, however, have wider implications for a much larger group of individual taxpayers. While they do not strictly fall under the rubric of technical corrections, several lawmakers are pressing to include some relatively obscure changes in any tax bill that is approved later this year.
Homeowners, in particular, need to be wary of one crucial issue with a potential impact on millions of taxpayers, while owners of boats and recreational vehicles seeking to take advantage of the tax deductions for second homes should be aware that Congress might change the rules.
Homeowners who refinanced their homes on or before Aug. 16, 1986, for instance, may be under the impression that they do not need to worry about the new restrictions on mortgage interest deductions. By refinancing before that date, when tax writers approved a conference report on the bill, they apparently were allowed to deduct their full, current mortgage interest payments for as long as they owned their house with no worries about the new law.
If that applies to you, watch out.
In the future, homeowners may deduct interest on mortgages only as large as the original purchase price of a home, plus the cost of improvements. The limits could be exceeded only if the proceeds were spent on qualified educational and medical expenses.