IRS to Recompute 2018 Inflation Adjusted Numbers Due to TCJA Requirement to Use Chained CPI
The Tax Cuts and Jobs Act modified IRC §1(f)(3) to use the chained consumer price index (C-CPI-U) rather than the standard consumer price index (CPI-U) for most inflation adjustments for tax years beginning after December 31, 2017.
Wikipedia offers the following summary explanation of the “chained CPI”:
The United States Chained Consumer Price Index (C-CPI-U), also known as chain-weighted CPI or chain-linked CPI is a time series measure of price levels of consumer goods and services created by the Bureau of Labor Statistics as an alternative Consumer Price Index. It is based on the idea that in an inflationary environment, consumers will choose less-expensive substitutes. This reduces the rate of cost of living increases through the reduction of the quality of consumed goods. The "fixed weight" CPI also takes such substitutions into account, but does so through a periodic adjustment of the "basket of goods" that it represents, rather than through a continuous estimation of the declining quality of goods consumed. [1]
The effective of this provision posed a problem that many observers recognized—the IRS had already released inflation adjusted numbers for 2018 computed under the standard CPI (CPI-U rather than C-CPI-U). The numbers for most tax related figures were released in Revenue Procedure 2017-58 on October 19, 2017, with retirement plan numbers released in Notice 2017-64.
In an article published in the January 29, 2018 edition of Tax Notes, Harlan Weller, an actuary in the Treasury Office of Benefits Tax Counsel, is cited as confirming that the IRS will be recalculating the inflation adjusted numbers for all 46 separate IRC sections that are now required to be computed using the C-CPI-U rather than CPI-U index. [2]
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