Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:
- quote -

Look at U.S. v. Carlton, 94-1 USTC 60,169. Retroactive
changes are allowed. Just ask the Supremes. From the case:

This Court repeatedly has upheld retroactive tax legislation
against a due process challenge. See, e.g., United States v.
Hemme, 476 U.S. 558 (1986); United States v. Darusmont, 449
U.S. 292 (1981); Welch v. Henry, 305 U.S. 134 (1938); United
States v. Hudson, 299 U.S. 498 (1937); Milliken v. United
States, 283 U.S. 15 (1931); Cooper v. United States, 280
U.S. 409 (1930). Some of its decisions have stated that the
validity of a retroactive tax provision under the Due
Process Clause depends upon whether "retroactive application
is so harsh and oppressive as to transgress the
constitutional limitation." Welch v. Henry, 305 U.S., at
147, quoted in United States v. Hemme, 476 U.S., at 568-569.
The "harsh and oppressive" formulation, however, "does not
differ from the prohibition against arbitrary and irrational
legislation" that applies generally to enactments in the
sphere of economic policy. Pension Benefit Guaranty Corp. v.
R.A. Gray & Co., 467 U.S. 717, 733 (1984). The due process
standard to be applied to tax statutes with retroactive
effect, therefore, is the same as that generally applicable
to retroactive economic legislation:

"Provided that the retroactive application of a statute is
supported by a legitimate legislative purpose furthered by
rational means, judgments about the wisdom of such
legislation remain within the exclusive province of the
legislative and executive branches. . . .

"To be sure, . . . retroactive legislation does have to meet
a burden not faced by legislation that has only future
effects. . . . 'The retroactive aspects of legislation, as
well as the prospective aspects, must meet the test of due
process, and the justifications for the latter may not
suffice for the former'. . . . But that burden is met simply
by showing that the retroactive application of the
legislation is itself justified by a rational legislative
purpose." Id., at 729-730, quoting Usery v. Turner Elkhorn
Mining Co., 428 U.S. 1, 16-17 (1976).

--- end quoted text

I believe the estate case others have mentioned is
NationsBank v. The United States 99-2 USTC 60,345. The
decedent was Ellen Clayton Garwood.

I can post these cases if anyone is interested.

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Rich Carreiro <rlcarr[at]animato.arlington.ma.us> wrote:
- quote -

In the other thread, we mentioned U.S. v. Carlton, 512 U.S.
26 (1994) to support the idea that tax laws can be
retroactive.

See Manhattan General Equipment Co. v. CIR, 294 U.S. 129,
135 (1936) for an explanation of the concept of retroactive
application of regulations:

"The statue defines the rights of the taxpayer and fixes a
standard by which such rights are measured. The regulation
constitutes only a step in the administrative process. It
does not and could not alter the statute. It is no more
retroactive in its operation than is a judicial
determination construing and applying a statute to the case
at hand."

Or consider this passage from Dickman v. CIR, 465 US 330,
343 (1984):

"Even accepting the notion that the Commissioner's present
position represents a departure from prior administrative
practice,...it is well established that the Commissioner may
change an earlier interpretation of the law, even if such a
change is made retroactive in effect."

/brian

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TaxSrv wrote:
- quote -

No.

--
Frederick E. Jorden http://Tax-Accounting-Payroll.com
7825 Midlothian Tpk - 207 Richmond, VA 23235-5247
EMAIL knowtax[at]bigfoot.com
(804) 320-6210 FAX (804) 320-6211

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"TaxSrv" <n3_eu[at]comcast.net> wrote:

- quote -

Congress can make retroactive tax laws, so long as the
retroactivity is reasonable under the circumstances. U.S.
v. Carlton, 512 U.S. 26 (1994). Both court decisions
interpreting tax statutes and interpretive regulations can
be retroactive, i.e. retroactive to the effective date of
the statute.

/brian

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- quote -

Thanks for taking the trouble to look it up. I guessed
right on "due process," but was clueless about the "harsh
and oppressive" standard. Congress doesn't do those things,
except internally in the view of the Minority Party.

Fred F.

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TaxSrv wrote:
- quote -

Just wish I had time to research this, but there was indeed
one tax increase provision sometime in the past that was
retroactive. Sorry I don't remember exactly what right now.
Maybe others can rack their brain and come up with it,
but......
on April 13th,.....
with two days to go......

You understand.

ChEAr$$$$,
Harlan Lunsford, EA n LA]
13 Apr 2005
ONLY two days more!

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Tax law changes cannot be retroactive, and very few changes
occur with an effective date during a calendar year. <i
In 2003 the tax laws changed on May 15 to retroactively
create Qualified Dividends and change the tax rates on them.
Albeit in the TP's favor, they were retroactive changes.
As a tax software publisher I will tell you it was
panicsivlle to get those changes and the current changes to
long term capital gains into Schedule D and form 6251 before
the June 15 Estimated Tax Installments were due. They made
a tremendous impact (favorable) for installment payers. The
regular tax programs had the luxury of waiting for IRS forms
to be released in December.

ed

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"TaxSrv" <n3_eu[at]comcast.net> writes:

- quote -

I suppose that's what I'm asking. I know that (under
Clinton) some aspect of the estate tax was changed
retroactively in such a way that it increased the estate tax
due for some estates. The change was either not challeneged
or was challenged and upheld. Of course, that involved dead
people, and the rules about due process with respect to the
deceased may well be very different.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"Rich Carreiro" wrote:
- quote -

Tax benefits can be retroactive without usual harm, unless
effective before 1/1 of a current year and will frustrate
IRS with like 20 million claims for refund. But for things
which will increase tax, doesn't Constitutional due process
come into this? In any case, there's always the political
impact where t/p's structure their affairs and transactions
under law in effect on the day they do it, only to have that
date later pushed back. Maybe that's also the due process
problem?

Fred F.

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"TaxSrv" <n3_eu[at]comcast.net> wrote:

snip
- quote -

I suggest you read U.S. v. Carlton, 94-1 USTC 60,169. The
Supreme Court almost (perhaps always) allows retroactive tax
law changes. I found no Supreme Court cases denying
retroactive enactment but I didn't look that hard.

According to CCH Carlton is cited in at least 32 other
cases. Now how many of them dealt with retroactive changes
in the law I don't know but the few I looked at all upheld
retroactive changes.

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- quote -

Yes. It was signed by the president on January 7, and
applied to contributions made from January 1 through 31.

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"Bob Sandler" <bob_usenet[at]yahoo.com> wrote:

- quote -

You mean their insurance company could be....

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA

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"TaxSrv" <n3_eu[at]comcast.net> wrote:

- quote -

Wasn't the special deduction for contributions to
tsunami-related charities retroactive?

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA

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"TaxSrv" <n3_eu[at]comcast.net> writes:
- quote -

Is that really so? The Constitution only bans ex post facto
criminal laws, not ex post facto laws in general. So it
wouldn't surprise me if:
(a) tax laws could be changed retroactively,
(b) but the IRS couldn't go after you for not
having paid the additional tax back on the
date the retroactive law goes back to,
(c) but the retroactive law having resulted in
additional taxes owed, the IRS could go after
you if you didn't pay it going forward
from *now*.

So what is the rule on retroactive changes?

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"AES" wrote:

- quote -

There's no question this type of software has to work, but
if you sell just 5 million copies annually at say $20 a pop
wholesale, do the math. The cost of extra development time
and a staff of tax experts seem trivial, although if you
look at Intuit's 10-K SEC filings, the high R&D driven by
TurboTax is indeed mentioned. As to "massive," can't argue
there -- the workhorse "DLL" in TurboTax exports over 13,000
functions! And it's not the largest executable file.

- quote -

I hope they don't feel the need to spend t/p dollars to
supply C++ code or whatever to the private sector, who
grosses big bucks on these products. Would they really want
it anyway for a time-critical, highly competitive product?
Seems they'd be gambling the S/H's money on the ability of
gov't to timely deliver, bug free.

- quote -

Tax law changes cannot be retroactive, and very few changes
occur with an effective date during a calendar year.

- quote -

Sounds reasonable to me, but according to a recent Intuit
10-K, their only litigation concerned QuickBooks and
Quicken!

Fred F.

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This is the very reason that our professional software costs
so much. Mine pushes toward $1500.

Missy Doyle

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It's not like a software company is starting from scratch
each year. In an ambitious year, ten percent may change.
However, the time between when IRS forms and rules are
finalized, typically in early October and getting out the
preliminary end-of-year tax planning versions by Dec 1 is
not very long for writing, testing, and shipping software.

In modern software engineering you have a huge suite of
automated tests. These are run in-full every night when the
programmers have checked in their latest code and gone home.
And the test may be run partially during the day itself
when a block of code is finished.

Tests are both incremental and holistic. You might have
"tiny tests" that only test the computation line 7 on a tax
form. You test for extreme cases such as people typing in a
zero, one cent, a trillion dollars, a negative number etc.
Incremental tests catch "unintended side-effects", that is
you might change something for line 12 in schedule D, not
realizing it might have affect another line in another form
you had forgetton about. The test will catch that.

Plus you have whole tax test with known scenarios. These
would be calibrated by hand comparison on a periodic basis.

The computer is very good at run tens of thousands of
mind-numbing tests. Many software protocols require the
tests be designed first, definately no later than the first
iteration code.

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AES wrote:

- quote -

Having worked in the tax software field about a decade ago,
I'd say that your observations are right on the mark. Tax
software is somewhat unique in the respect that it MUST be
updated annually, and it MUST be released on time. An error
free program released on April 16th is worthless. These are
details that some software developers simply can't master.
For example, Microsoft has stuck their nose into the tax
software field a couple of times, but has always bid a hasty
retreat.

Tax software programmers typically don't spend a lot of time
worrying about "the law." That is the job of professional
users. What the programmers focus on is simply the forms and
instructions. That is, they simply write the program to
perform as the forms and instructions intend. What provides
complication are all of the issues related to how early, or
late, or screwed-up the forms are when released.

The annual product development cycle can be roughly divided
into three "seasons." The "development" season begins on
April 16th and continues through the end of summer. During
this time any major improvements, enhancements, new
features, etc. will be added to the program. Note that this
work will actually be done on the PRIOR year program (during
the summer of 2005, they will be enhancing the tax year 2004
product) to assure a stable "platform" on which to test the
new features.

Labor day (or a bit sooner or later depending on the release
of IRS form drafts) marks the beginning of the "update"
season. During this time the "feature set" of the program
will become fixed, and all efforts will be devoted to
updating the tax rates, calculations, adding new forms, etc.
Not to mention testing, testing, and even more testing.

Once the product is released, you enter the "support"
season. During this time work on STATE programs will be
completed, as it necessarily lags behind the feds. Also,
planning will begin for the upcoming "development" season
(what features to add, etc.). But, most of the staff will
probably be assigned to support functions during the actual
tax season. As we all know, some products are supported
better than others. <grin
And, speaking of the "release date," this is set based on
MARKETING considerations, rather than when the program is,
in fact, "ready." (Hence, all tax software is always
released on time. <grin> ) We've all see situations where
that initial release is very incomplete, with several forms
not yet finalized or approved for filing.

Tax software developers have active "liaison" functions.
That is, people who keep in touch with the IRS and the
various state revenue departments to gauge the release date
of new forms or drafts, or other new requirements. I believe
the IRS will occasionally hold meetings or teleconferences
with software developers to help get the word out early.

The IRS allows computer-generated forms to deviate slightly
from the "official" versions. However, developers generally
have to submit new versions for approval (although I believe
the IRS now allows the "major" developers to "self-approve"
their own forms). Also, I believe that a certain number of
standardized "efiles" must be successfully transmitted to
and approved by the IRS. But, other than that, each
developer must write and test its own code.

And so it goes...

MTW

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AES <siegman[at]stanford.edu> writes:

- quote -

No, the IRS does no such thing. It's up to the programmers
to figure out how to code up what the laws say.

Keep in mind that much of the complexity is outside what the
programmers have to deal with. For example, the programmers
only have to provide a way for you to enter medical
deductions and then do the right thing with that number on
Sched A. The programmers don't have to write some AI system
to figure out if some arbitrary expense qualifies as a
medical deduction. The programmers have to and do rely on
proper judgement being exercised by whoever enters the data.

- quote -

No, Congress can (and does) change the tax laws whenever it
wants, including retroactively.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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- quote -

The major packages, like TurboTax, have a guarantee that
they will pay any interest and penalties incurred because of
errors in their calculations. So if an error affected a
large number of returns, they could be facing a big payout
even without a lawsuit.

- quote -

Yes, they have a large staff of tax experts analyzing the
laws and regulations.

- quote -

You've got to be kidding.

- quote -

No. In fact, the IRS is known for making last-minute
changes, being late with final forms and regulations, and so
on. Congress doesn't help, either. A relatively minor
example this year was the law passed in January allowing
contributions made in January 2005 for tsunami relief to be
deducted on 2004 tax returns. The software makers are pretty
much forced to put out an incomplete product and distribute
updates later. There are usually several updates during the
filing season. The "golden CD" isn't available until after
April 15.

- quote -

And then people complain about having to pay $30 each year
for the software.

-- Bob Sandler

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