Letters: EOBR Rule, Like/Kind Convoy
These Letters to the Editor appear in the Sept. 19 print edition of Transport Topics. Click here to subscribe today.
This is in reference to the editorial “Fixing the EOBR Rule” (9-5, p. 4).
What we need to fix the electronic onboard recorder rule — and many other inane decisions by activist jurists — is a little real-world common sense.
Obviously, the plaintiffs went venue shopping and selected the 7th U.S. Circuit Court of Appeals for a reason. Why would you file there instead of Washington, where the Federal Motor Carrier Safety Administration and Congress reside and the rule originated?
Who defended this suit anyway? Of all the reasons to attack it they chose “harassment,” and the defense attorneys couldn’t refute it?
How is a device that accurately records a drivers’ hours more likely to be used to harass them than the current system, which we all know is manipulated daily by drivers themselves in order to maximize driving hours, miles and pay?
How is it that a lawyer couldn’t make that case to a panel of learned jurists? Harassment? That’s the best they could come up with? Harassment?
Surely the world has gone completely mad. Inept lawyers or idiot jurists — we are doomed. Common sense has left the building.
ADS Logistics Co. LLC
I was reading the Opinion column in the Sept. 5 issue of TT (“The 1031-LKE Cash-Flow Convoy,” p. 5) and noted that the cash savings on the taxes does not work in 2011 because you can take advantage of the 100% bonus depreciation and, in doing so, the net reduction in the taxable income for a Like/Kind Exchange Program transaction is the same as it would be if you did not elect to use the LKE method.
I thought it would be a good idea to point this out to your readers, especially if they are thinking that they are going to get some extra cash by taking advantage of a 1031 exchange. It would actually cost them money to do the LKE as the 1031 exchange agents charge a fee for this transaction.
Check us out on our website, so you know I am not some nut who does not know what he is talking about.
We have had this question asked and have done some tax projections, etc., to come to this conclusion. Also, our firm has a niche in working with trucking companies.
Assume that you buy 100 trucks as you would in an LKE, and assume they are still $100,000 each — so your basis is $10 million again. Your deduction without an LKE is $10 million, and you claim the $2.5 million as gain on sale of assets. With the LKE you have to reduce your basis in the new assets by the $2.5 million so you only take the 100% bonus on the $7.5 million.
As you can see, the net reduction in taxable income in either the LKE or straight sale is the same — $7.5 million — so there are no tax savings on the transaction.
This only works in 2011. Who knows what is going to happen for 2012?
I enjoy reading your magazine. Thank you for your commitment to the trucking industry.
Jeff Lovelady, CPA
Bell and Co.
North Little Rock, Ark.
Editor’s Note: We offered the authors of the Sept. 5 Opinion column a chance to respond to the letter above. Their response follows:
The previous commenter makes some important points regarding 100% bonus depreciation and its known applicability for the year 2011. However, as a Qualified Intermediary, we have been diligent in approaching the marketplace to offer solutions for this year and beyond.
LKE strategies are typically long term, reaching out many years into the future. Currently, at the federal level, 100% bonus has proven to offset recognized gains in a way that reduces/eliminates federal tax burdens, but a high number of states have effectively “decoupled” from federal bonus treatment, making the state tax impact a significant one. Additional considerations (for 2011), beyond decoupling, include:
• State net operating loss considerations.
• Federal Alternative Minimum Tax considerations for individual owners of S-corporations and partnerships.
• Ability to utilize used property as replacement property to maximize LKE and bonus benefit.
• Bonus depreciation sunset planning opportunities.
• Utilizing LKE service providers for fixed asset tax compliance and reporting.
• Time and resources needed to “de-institutionalize” a company’s LKE processes.
As you can see, there’s no easy answer and any current research efforts require a comprehensive analysis of all the relevant issues. And, planning around a nearly 100-year-old piece of tax law requires a constant eye on the future. So, for 2012 and beyond, serious tax planning should begin immediately, and LKEs should be part of that analysis. I believe the previous commentary put it best: “Who knows what is going to happen for 2012?”
Director of National Accounts