Tax Reform, Part 3: Bouma's list of Problems to be Addressed

Herman Bouma of Buchanan Ingersoll & Rooney has a short article in today's Daily Tax Report entitled "Twelve Major Deficiencies of the Internal Revenue Code That Should Be Rectified as Part of Tax Reform."  It's behind a firewall so I'm not going to post a link, but I will list the deficiencies he lists in the article:

1.  Confusing use of the terms "corporation" and "partnership"
2.  Two different taxation regimes for business
3.  Elective, rather than mandatory, "disregarded entity" treatment
4.  Distinction between U.S. and foreign corporations
5.  Use of the arm's-length standard
6.  Failure to piggyback onto financial accounting rules
7.  Double taxation of dividends
8.  Application of capital gains rates to income from sources other than the sale of corporate shares
9.  Taxation of nonresident individuals
10.  FATCA
11.  Override of the Tax Code by bilateral income tax treaties
12.  No clear vision of reality

I agree generally that virtually everything he lists here is problematic, although some of his proposed solutions to the problems are not ideas I agree with.  There are also a number of areas that he leaves out of this list.  Most prominent in my mind is the realization requirement.  And a lot of these concepts are related and beg for a comprehensive view.  For example, items 1, 2, 3. 6 and 7 all relate to the issue of how we tax income generated in business entities - legal fictions like corporations that are viewed legally and from a tax perspective as separate from their owners.

Much of what is listed here is not familiar to most people who don't do this stuff for a living.  My goal in this series of posts is to try to explain these concepts to the average citizen, so that he or she knows what's at stake in the tax reform fight.  This post about Bouma's deficiencies, and my previous post about Tax Expenditures, will serve as a starting off point for some of these discussions.

Up Next:  Taxation of Business Income