Reprint permission from the March, 1995 issue of Crain's Small Business.

When Congress passed the Uruguay Round Agreements Act in December, approving the United States' participation in the General Agreement on Tariffs and Trade -- or GATT -- businesses engaged in international trade rejoiced about plummeting tariffs.

But businesses of all stripes -- regardless of whether they import and export -- need to know that a mixed bag of tax changes, generally effective this year, was included in GATT.

All the changes will generate tax increases intended to offset tariff revenue losses that Treasury expects.

And some of the changes, subtle as they are, significantly affect the tax costs of businesses and their owners.

To begin with, there are a couple of noteworthy major changes.

• The first has to do with a partnership's distribution to its partners of marketable securities it owns.

Previously, the law provided that a partner who received a distribution of cash from his or her partnership recognized a capital gain to the extent that the cash exceeded the basis (usually, the cost) of the partner's interest in the partnership.

But a partner generally would not need to recognize any taxable gain on a partnership distribution of property other than cash.

Under the GATT changes, that is no longer the case.

Now, the fair market value of marketable securities generally will be treated -- and taxed -- as if it constituted a cash distribution.

Another major GATT tax law change presents as much concern for taxpayers by the direction it signals at it does for its immediate cost.

• Previously, corporate taxpayers were subject to a 20% "substantial understatement" penalty when they were found to have underreported taxable income by participating in a "tax shelter" - - any partnership or other entity, plan or arrangement whose principal purpose is tax avoidance.

An exception was carved out, reasonably most commentators would argue -- for taxpayers whose tax shelter positions were sanctioned by "substantial authority" and a "reasonable belief" that a tax strategy in question was most likely proper.

That "reasonable belief" had to be bolstered by an opinion of tax counsel meeting objective criteria.

• Now, under the GATT-implementing legislation, the carve-out has been dropped.

And the IRS has followed suit by announcing that a corporate taxpayer may no longer safely rely upon a well-reasoned opinion of counsel that pursuing a given tax strategy should not give rise to a penalty.

Also, there is a laundry list of minor tax increases and new taxes that affect relatively few taxpayers relatively insignificantly. Among them (there are many) are the following:

1. The Internal Revenue Service pays less interest on corporate tax overpayments exceeding $10,000.
   
   
2. The law requires faster payment of excise taxes on alcoholic beverages, tobacco, fuels, chemicals, air transportservices and automobiles.
   
   
3. Certain controlled foreign corporations and corporations doing business in U.S. possessions must include some of their income in calculating their required quarterly estimated tax payments.
   
   
4. The "rounding" rules for making cost-of-living adjustments to employee benefit plan contributions have been modified, reducing the amounts that can be contributed to such plans.
   
   
5. The IRS "user fee" program, which charges taxpayers whenever a letter ruling, determination or opinion is issued, was extended for five years; it was to have expired this Sept. 30.

The new Republican majority in Congress has promised to revisit the revenue provisions of the Uruguay Round Agreements Act. Unless and until Congress acts again, businesses are well advised to see that their tax planning takes into account GATT's tax requirements.

Marc J. Lane (mlane@marcjlane.com) is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University School of Law.