Q&A: Perspectives on Tax Reform
Chip Wry, adjunct professor in the BU Law Graduate Tax Program, discusses how the Tax Cuts and Jobs Act has affected the practice and teaching of tax law.
Boston University School of Law’s Graduate Tax Program has offered comprehensive curricula for advanced tax studies since its inception in 1959. Students graduate equipped with the practical skills required for immediate success in the field of taxation. In December 2017, the passage of the Tax Cuts and Jobs Act introduced sweeping changes to the United States tax code. From reducing tax rates for individuals and corporations to repealing the corporate alternative minimum tax, the new law had an immediate impact on the teaching and practice of tax law in the US. BU Law recently spoke to Chip Wry, an adjunct professor in the Graduate Tax Program and member of Morse, Barnes-Brown & Pendleton PC, about its consequences in and out of the classroom.
Q: Can you speak to your experience in the tax law field?
A: I have been practicing tax law for about 30 years now. After I got my LLM, I first worked for a firm in Boston where I was doing the tax parts of M&A transactions and also doing private investment funds, particularly leveraged buyout funds.
I was downtown for about seven years. I then joined a fairly new firm, which had only five lawyers. We were a business boutique for a long time, but we’ve added intellectual property, litigation, and employment. Now, we’re about 40 lawyers and sort of a medium-sized regional firm in the Boston area.
I do tax but I also do regular business work, where I represent investors and businesses in their general operations and transactions.
What do you teach in the Graduate Tax Program at BU Law?
I’ve been teaching for 19 years. I’ve been teaching one of the two courses I teach from the beginning. That’s Federal Income Tax II, which is a required course in the LLM in Taxation program. It’s about the basics of taxable transactions—acquiring, holding, and disposing of property, both real and personal, tangible and intangible.
The other course is an elective that I’ve been teaching for a few years now called Life Cycle of a Business Venture. It’s about representing, from a tax standpoint, a company from the time it’s formed through the stages of its life cycle. A company is typically formed as a C corp, an S corp, or an LLC. First, we compare how the tax rules apply to the income and distributions of C corps, S corps, and LLCs, generally. Then, we talk about forming the company, bringing on employees and other service providers and making equity awards to them, taking on investors, buying out owners, and finally selling the company.
How has the new tax legislation affected your practice?
A lot of what I do is forming new companies and advising the founders on what their companies should be for tax purposes. The companies are involved in all different kinds of activities, from tech startups to entities that are going to invest in securities or real estate.
The Act has significantly affected entity choice, which is a lot of what my Life Cycle course is about. What kind of company makes the most sense depends mostly on what the company will do and how the founders expect to profit from the company.
Before the Act, the retained income of a C corp was taxed at a slightly lower maximum rate than the maximum rate that usually applied to the retained income of an S corp or LLC. Because distributed income of a C corp is taxed again at the stockholder level, though, the S corporation and LLC often had an advantage if there was any expectation that the company would distribute earnings. The Act reduced the rate applicable to the income of a C corporation from a maximum of 35 percent to a flat 21 percent rate. It reduced the maximum individual rate, on the other hand, only from 39.6 percent to 37 percent—nowhere near as significant a drop. Although the Act also introduced a new 20 percent deduction, with some limitations, for certain income of a pass-through business, the extent of the reduction in the rate for C corps has made it much harder to tell when an S corp or LLC makes the most sense.
Have your courses changed in the wake of the new law?
The new law didn’t affect my Tax II course very much, but it has impacted my Life Cycle course. First, it’s affected our discussion about entity choice and how the income of a C corp, an S corp or an LLC is taxed. We also talk about M&A—structuring a sale of the company at the end of the life cycle as an asset sale or a stock sale and how the structure of the sale and the company’s tax status as a C corp, an S corp or an LLC affects the after-tax results to the owners. The Act made some changes that affect M&A transactions, including by allowing for the expensing of amounts paid for certain types of tangible assets.
Why is now a good time to study tax law?
I think that, whenever there has been significant change to the tax laws, there is going to be a real need for expertise out there. Now is a great time to get an LLM in Taxation.
There’s a lot of uncertainty and confusion about what the new law says. Recent grads may know more about what the new law says than people who have been doing this for a long time, including me. That’s a significant opportunity.