Colorado Bar Association
Colorado Bar Association


CLE Opportunities

The CBA Tax Section
Cordially Invites You to a Brown Bag Luncheon Presentation:

Defending Federal Tax Offenders

Tax Section members and Tax Students are invited to a FREE CLE presentation on Feb. 28, from Noon to 1 p.m. at the University of Denver. Jessica Leto from the Office of the Federal Public Defender will describe the types of tax cases her office encounters and the process of resolving these cases. Among these cases are instances of tax fraud by both taxpayers and preparers and severe tax evasion. Jessica has years of experience assisting with the investigation of these offenses and will share her insight on how tax attorneys can protect themselves from potentially nefarious clients.

Brown Bag luncheon — cookies and beverages will be provided by the Taxation Law section

Wednesday, Feb. 28, 12 p.m.
At: University of Denver, Sturm College of Law
2255 E Evans Ave., Room 499
Denver, CO 80210

Section Members — Free
Call-in Participants — Free
Students — Free

Submitted for one general CLE credit
RSVP by e-mailing or online at

The CBA Tax Section
Cordially Invites You to a Luncheon Presentation:

On Friday, March 16, Professor Eric Zinn of the University of Colorado and the University of Colorado-Denver will discuss issues and changes to partnership taxation created by the Tax Cuts and Jobs Act of 2017.

Friday, March 16, 12 p.m.
At: Davis, Graham & Stubbs, LLP
1550 17th Street, Suite 500
Denver, CO

$15.00 – Tax Section Members Attendance with Lunch
$20.00 – Non-Section Members with Lunch
$10.00 – Phone-ins

Submitted for one general CLE credit
RSVP by e-mailing or online at <a href="/Calendar/Event/sessionaltcd/TAX031618" style="color: #006450;" target=" ">

Notice of Pro Bono Opportunity

Volunteer at the U.S. Tax Court Docket Call

The United States Tax Court will hold a regular case calendar session in Denver at 10 a.m. on March 5, 2018. Tax attorneys are invited to volunteer their assistance for a few hours on this date. Attorneys interested in helping Pro Se taxpayers with docketed U.S. Tax Court cases may appear at 10 a.m. in Room C502 of the Byron G. Rogers U.S. Courthouse, 1929 Stout Street, Denver, CO 80294. Program guidelines are available online at Anyone wishing to volunteer should immediately contact Olena Ruth of the Merriam Law Firm, P.C. at or (303) 592-5404, or David Sprecace of David A. Sprecace, P.C. at or (303) 454-8260, for additional information.

Tax Section Executive Council News

Looking for Assistance with a Tax Article?

Are you currently writing an article or outline regarding tax issues? Would you like some assistance with your writing or research? The Law School Outreach Committee of the Tax Section may be able to pair you with a current law student from the University of Denver Sturm College of Law or the University of Colorado School of Law to assist with your research and writing. The committee is focused on exposing current law and graduate tax students to the field of tax law through work with local practitioners. For additional information please contact Jake Millis, Esq. of Fox Rothschild LLP at

The Tax Section Listserv

The CBA Tax Section has introduced the first ever tax-focused listserv for section members. To access and subscribe to the listserv, please register at the Colorado Bar Association Tax Section website. Similar listservs have been well received and utilized by other CBA sections. The Tax Section hopes that the listserv will provide a platform for members to solicit informal advice and input from their professional peers. Should you have any questions regarding the listserv, please feel free to contact David Sprecace of David A. Sprecace, P.C. at or 303-454-8260.

Congratulations, James Walker!

Congratulations to James Walker, recipient of the 2017 James E. Bye Lifetime Achievement Award.

2017 James Bye Lifetime Achievement Award

Trevor Crow, Chairman of the CBA Tax Section, presents the James E. Bye Lifetime Achievement Award to James R. Walker of Lewis Roca Rothgerber Christie, at the December 13, 2017, Tax Section Luncheon. Joining Messrs. Crow and Walker are three prior recipients of the prestigious award, from left to right: John Maxfield, Mr. Crow, Mr. Walker, Nancy Crow and Ted Gelt.

Feature Articles


As states attempt to modernize their tax codes, a significant trend toward market-based sourcing has developed. Of the 47 states that impose corporate income taxes (or some equivalent), 26 states have transitioned from cost of performance sourcing to market-based sourcing. Of those 26 states, 12 states have made the transition since 2014. In the spirit of uniformity and predictability, Colorado’s proposed transition to market-based sourcing is based on the Multistate Tax Commission’s updated Uniform Division of Income for Tax Purposes Act.

Generally, market-based sourcing modernizes the tax code by calculating corporate income taxes based on where a service is delivered, not where the cost of performance lies.  With today’s digital economy, a tax code based on physical property and the physical location of individuals is largely outdated.  Colorado already uses market-based sourcing to apportion income from the sale of tangible personal property. HB18-1185, which was introduced on February 2nd during the Colorado General Assembly’s 2018 Regular Session provides for apportionment through market-based sourcing for all services and intangibles provided by Colorado corporate income taxpayers.

Adopting market-based sourcing will help eliminate double taxation imposed on Colorado businesses that sell services outside the state.  Moreover, adopting market-based sourcing will encourage businesses to invest in Colorado by locating facilities and employees in Colorado. Individuals with comments or questions about the proposed bill contained below are encouraged to contact Eloise Hirsch at or Mark Bolton at

Read HB18-1185 in its entirety.


Justin Mills, Esq.1

On December 21, 2017, congressional Republicans and the President delivered supporters their first significant legislative victory of the year by passing the Tax Cut and Jobs Act of 2017. Pundits have championed the Act as a great benefit to corporate tax payers and companies doing business outside of the United States. The Act slashes corporate tax rates and reworks much of our international tax framework. Not all companies, however, will look fondly upon this new legislation. Specifically, owners of service-based pass through entities may find themselves asking why they were not invited to the tax-cut party.

While the Act contains many provisions of great importance to C corporations, it leaves Subchapter S and Subchapter K largely untouched. Owners of pass through entities, however, will undoubtedly take notice of newly-enacted IRC §199A. This new section permits many pass-through owners to deduct up to twenty percent of their pass through income on their individual tax returns. Congress anticipated that the deduction would cause pass through business income to be taxed at a rate closer to the new, reduced twenty-one percent corporate rate under IRC §11(b). Taxpayers claim this deduction against their taxable income. It is not considered for purposes of computing adjusted gross income, may be claimed by taxpayers using the standard deduction and is not subject to limits on miscellaneous itemized deductions.2 As the details of the provision illustrate, not all pass through owners will reap the same benefits from this deduction.

IRC §199A allows non-corporate taxpayers to deduct up to twenty percent of their qualified business income from S corporations, partnerships and sole proprietorships.3 For taxpayers with taxable income under the statutory threshold amount,4 the deduction equals the sum of twenty percent of the qualified business income computed for each separate qualified business (the “deductible amount for each trade or business”) conducted by the taxpayer during the year. 5 If the taxpayer’s taxable income for the year exceeds the threshold amount, the deductible amount of each trade or business is limited to fifty percent of the W-2 wages paid with respect to the trade or business for the year or twenty-five percent of W-2 wages plus two and one-half percent of the unadjusted basis of the business’ qualified property.6

Qualified business income equals the net amount of qualified items of income, gain, deduction and loss with respect to the qualified business.7 Such items must either be effectively connected with a U.S. trade or business or included or allowed in determining the taxpayer’s taxable income for the year.8 The statute excludes various types of investment income and loss from the qualified business income computation.9 Qualified business income also does not include: (i) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect thereto; (ii) any guaranteed payment paid to a partner under IRC §707(c); and (iii) certain payments described in IRC §707(a).10 If losses from all qualified trades or businesses for the year exceed the aggregate income from such trades or businesses, no deduction is allowed and the loss must be carried forward to the following year.11 Thus, as a practical matter, a practitioner’s first step in computing the IRC §199A deduction should be to determine whether the taxpayer has net qualified business income for the year. Lastly, qualified trade or business income cannot exceed a taxpayer’s taxable income for the year excluding net capital gains.

As the above illustrates, an individual must conduct a qualified business to claim a deduction under IRC §199A. The definition of “qualified business” contained in IRC §199A(d) excludes a great number of service providers. It defines qualified trade or business as any trade or business other than: (a) a specified service trade or business; or (b) the trade or business of performing services as an employee. Specified service trades or businesses include all trades and businesses described in IRC §1202(e)(3)(A) other than engineering and architecture. IRC §1202(e)(3)(A) references any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees. This broad definition covers far more than the historic licensed professions.

The only exception to this harsh result applies to taxpayers with taxable income below the statutory threshold amount. If a taxpayer has taxable income of $157,500 for single filers or $315,000 for joint filers, income from a specified service business will be treated as qualified business income. This exception applies on a limited, phase-out basis for taxpayers with income in excess of the threshold amount but less than $207,500 for single filers or $415,000 for joint filers.12 All other owners of specified service businesses, however, will not be able to claim a deduction under IRC §199A with respect to their service businesses.

The exclusion of a wide tranche of service providers from the IRC §199A deduction reflects concerns of horizontal equity and a fear that owner-employees would be able to push traditional service income to a lower tax rate while their rank-and-file employees could not. While certainly a valid concern, the definition of qualified business income already excludes reasonable compensation payments from S corporations and guaranteed payments from partnerships. As such, these amounts are already protected from rate shifting. In addition, the exclusion presumes that service providers operate in a bimodal world wherein income is either earned from personal services or invested capital. In truth, a great number of traditional service businesses now require ever increasing levels of capital investment. These increased capital requirements may be readily traced to advancements in technology and the incorporation of technology into traditional service businesses. A rational, third-party investor would expect some sort of economic return in exchange for its invested capital. Why should an owner-service provider be expected to forego a return on his or her invested capital? One would expect that these lines will become further blurred as artificial intelligence replaces more of the workforce. For now, however, service providers can only hope that the next chapter of IRC §199A tells a more pleasant story. 

1 Justin Mills is a partner in the Denver law firm of Robinson Diss & Clowdus, P.C. You can tell him that you think he is crazy at
2 See IRC §62(a), 62(b) and 63(d)(3).
3 See IRC §199A(a). This deduction is generally limited, however, to 20% of the taxpayer’s taxable income for the year reduced by net capital gains. This limit requires that taxpayers have relatively large amounts of QBI but small amounts of regular taxable income. Id. IRC §199A contains many provisions that separately apply to qualified cooperative dividends and REIT dividends which are beyond the scope of this brief discussion.
4 IRC §199A(e)(2) defines “threshold amount” as $157,500 for single filers and 200% thereof for joint filers, indexed for inflation.
5 See IRC §199A(b)(1)(A),(c). This amount may be increased by any qualified REIT dividends and qualified publically traded partnership income for the taxable year.
6 IRC §199A(b)(2)(B).
7 IRC §199A(c)(1).
8 IRC §199A(c)(3)(A).
9 IRC §199A(c)(3)(B).
10 See IRC §199A(c)(4).
11 See IRC §199A(c)(2). See also H.R. Rep. No. 115-466 (2017)(Conf. Rep.).
12 See IRC §199A(d)(3).


Jake Millis13

One of the most significant and controversial changes contained in the Tax Cuts and Job Act of 2017 for individual taxpayers is the cap placed on the deductibility of state and local taxes. The new law only allows taxpayers to deduct up to $10,000 of property, state and local taxes.14 Before the enactment of the Act, the Internal Revenue Code did not limit the amount of state and local taxes that could be deducted. Certain states, including Colorado, allowed taxpayers to prepay their 2018 property taxes before December 31, 2017. Many taxpayers sought to take advantage of this circumstance, the idea being that paying 2018 property taxes in 2017 would allow them to circumvent the $10,000 cap and take a larger deduction on their 2017 returns.

Recent IRS guidance (IR-2017-210, December 27, 2017), however, expressly addresses the deductibility of 2018 property taxes under IRC §164(b)(5) that were paid in 2017. The guidance states that taxpayers may only deduct prepaid 2018 property taxes if they were paid and assessed in 2017. The guidance specifically states that “prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.”15 Because property tax bills generally reflect property taxes that are due for the preceding year, it is not always clear when the property tax assessment was complete. Under this guidance, whether taxpayers who prepaid 2018 property taxes in 2017 will be able to deduct such taxes on their 2017 return depends on whether local governments completed their assessment of 2018 property taxes in 2017.

In response to the confusion and uncertainty surrounding the IRS guidance, particularly with respect to the assessment requirement, on January 9, 2018 legislators wrote a letter to the Acting Commissioner of the Internal Revenue Service, urging the Commissioner to rescind the IRS guidance. The letter focuses on the text of the new tax bill, noting that the bill specifically prohibits 2018 state and local income taxes from being prepaid and deducted in 2017, but is silent with respect to prepaid property taxes. The letter requests the IRS to allow property tax payments that were made in 2017 to be fully deductible on a taxpayer’s 2017 return, regardless of whether the property tax assessment was complete in 2017. The IRS, however, appears to be unwilling to alter its position set forth in IR-2017-210.

The deductibility of state taxes is all but certain to create issues this filing season. Practitioners will need to stay informed of subsequent developments in this area. Relevant county assessor’s offices should be able to provide helpful information to practitioners questioning whether 2018 property taxes were properly assessed in 2017.

13 Jake Millis is an associate at Fox Rothschild, LLP. You can contact him at
14 IRC §164(b)(6), as amended by the 2017 Tax Cuts and Jobs Act §11042(a).
15 IR-2017-210, December 27, 2017.

CBA Tax Section 2017–18 Officers and Committee Members

Council Officers
Chair Trevor Crow
Vice-Chair Klaralee Charlton
Secretary Justin Mills
Treasurer Georgine Kryda
Section Committees and Chairs
Education Committee
CLE Gary Abrams
Topical Lunches Doug Becker
Pro Bono Olena Ruth and Dave Sprecace
Legislative Committee
Federal Greg Berger
State Jeremy Schupbach
LPC Liaison Michelle McCarthy
Publications Committee
Newsletter Justin Mills/Jake Millis
Tax Tips Adam Cohen
Website Trevor Crow
Agency Positions Committee
CO. Dep’t. of Revenue Klaralee Charlton
Interprofessional Committee
IRS Liaison Olena Ruth/Dave Sprecace
ABA Report Jennifer Benda
Section Liaisons
Business Trevor Crow
Trusts & Estates

Georgine Kryda

Real Estate Arthur Griffin
CBA Staff Liaison Juliann Tricarico
Colorado Bar Association
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