The Tax Attic with Jerry Coon – September 24, 2009

Jerry Coon, Enrolled Agent

Jerry Coon, Enrolled Agent

How are tax bills formed?

As I said last week, I’m not really a superstitious person. However, when it comes to sporting venues, I do have one or two rituals that I do observe. For example, I have played either fast-pitch softball or slow-pitch softball most of my adult life. I have a set manner of getting ready to bat that has served me quite well for almost 40 years now.

When it’s my turn to bat, I make sure time is called and acknowledge and engage the umpire and the catcher with some small talk. The pitcher patiently waits while I go through my routine because he sees I’m talking to the umpire and his catcher. I then smooth out the batter’s box so I’m able to efficiently get out of the box when I hit the ball. Next, I survey the fielders to see where they are playing me. As the old saying goes, “Hitting is the science of hitting it where the fielders ain’t,” but in order to do that you have to know where they are. I have already watched the pitcher as he warmed up or pitched to the batter in front of me, so I have a good feeling of how and where he is trying to put the ball. Now I’m ready to bat.

If I don’t go through that sequence, I don’t feel like I’m ready to bat and the odds of me hitting the ball hard and hitting it where I want it to go are slim. I have given the pitcher an advantage over me. If something interrupts me, I try to start over. Did you ever see Tiger Woods set up and then stop as he was ready to swing and then start his sequence over? It’s no different than me. Except, of course, he is playing for millions and I’m playing for fun.

Congress also observes rituals when it comes to making tax law. They have an exact sequence they follow when creating a law. Unfortunately, they know that sequence all too well.

Just exactly how does a law like the American Recovery and Reinvestment Act of 2009 come into existence? Initially, the Senate or the House survey the field or political landscape and determine a tax bill is needed to correct a tax issue, or create a tax credit or deduction, or raise tax, or decrease tax.

Judging by the number of tax bills flowing from Congress these last few years, it doesn’t take much of an excuse to start a bill. Once the provisions of the bill are set down on paper, the bill is given an official name and number. That’s when the floor discussion happens and all provisions are up for grabs. A House version and a Senate version are eventually agreed upon that will be submitted to a joint committee made up of both House and Senate members. Both the House and the Senate agree on a final version of the actual bill. This final version sometimes doesn’t look all that much like the initial House or Senate bills, but this final version is the one that will be sent to the President for his signature. If the President agrees this bill is worthy, then he signs the bill and it becomes law usually as of the date of his signing. If he thinks this is the craziest bill he has ever seen, he vetoes the bill and sends it back for Congress to reconsider.

I can’t remember the last tax bill that was sent back by the President. He routinely signs the bill—even though we might think it’s the craziest thing we have ever seen—and it becomes law. It is very important to note that most of the provisions of the bill will take effect on or after the date of the President’s signature.

However, there are actually some provisions that will take effect before the date of signing. These retroactive provisions usually date back to the date the bill was originally discussed or was brought up in committee. This stops enterprising people from jumping the gun, perhaps taking an unfair advantage of a situation and making a profit. If you think this doesn’t and hasn’t happened, just remember what the Oklahoma Sooners really were. They might be revered in Oklahoma lore and they even have a football team named after them, but they really were just people jumping the gun and trying to get title to the choicest lands before it was legal to do so. It wasn’t any more legal then that it is now.

There are a large number of tax bills working their way through the system even as I write this article. It’s just a matter of time before they see the light of day. I can hardly wait. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
His telephone number is (616) 866-4704.
His e-mail address is jcoon@actiontaxservice.com.

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