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OUR EXCELLENT ADVENTURE AT THE ADMINISTRATIVE RULES COMMITTEE

October 12, 2004

Your correspondent visited the hearing held by the Legislature's Administrative Rules Committee this afternoon. We were trying to get the Department of Revenue to back off of its position that it must require amended 2003 returns for taxpayers wishing to take 50% bonus Iowa depreciation and Iowa Section 179 deductions over $25,000. For what it's worth, the Department is going to think about it for another week. Unfortunately, they didn't seem eager to change their minds.

We think the Department has the authority to allow taxpayers to treat the retroactive change in Iowa law for 2003 as an "accounting method change." This would allow taxpayers to choose between filing amended returns to claim the extra deductions, or just claiming the extra amount as a 2004 deduction. This option would save taxpayers the time and expense of amending returns - an expense we estimate to exceed $30 million.

The Department representative at the hearing said he didn't think the Department is allowed to treat it as an accounting method change. We noted that the Iowa State Bar Association Tax Council says the Department does have such authority. We also said that allowing accounting method change treatment would help many taxpayers, while hurting none, and said that any uncertainty about the rules should be resolved in favor of taxpayers.

Did we accomplish anything? All we know for sure is that the Department will consider our submission and that of the Iowa State Bar Association Tax Council and report to the Administrative Rules Committee next week; we like to believe we helped make that happen. Unfortunately, the Department seems to have the the final say, at least for now. One legislator said that it would be "awkward" to make the Department do something if the Department said it lacks the authority to do it. We take that as saying that if the Department doesn't change its mind, the Administrative Rules Committee isn't going to try to force it to.

The legislators said that they might try to fix this issue when they open their session in January. We pointed out that filing season will be in full swing by then, and it would be much less disruptive to fix the problem now. We are left to hope that the Department attorneys are persuaded by the brilliance of the Tax Council's submission and the crushing -- well, we hope persuasive, anyway -- logic of our argument.

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