(FORTUNE Magazine) – ONE YEAR after Congress passed its sweeping tax reform, businesses across the U.S. are only beginning to grapple with the law's dizzying effects. Companies of all types and sizes have had to change their way of doing business as they try to cope with complex new regulations and, on average, much higher tax bills. The full effects of tax reform on the economy are still unknown, but one result is abundantly clear: It has enormously complicated corporate financial and investment planning. Since many of the new rules are vaguely drawn or subject to interpretation, accountants and financial officers often can only guess at the tax consequences of some major corporate maneuvers. Unsurprisingly, businessmen who opposed tax reform during its gestation say the new baby is a monster, while the relative handful of corporate proponents insist that it will be a tonic for the economy. Most executives fought reform because Congress took away the cherished tax credit of up to 10% for investment in capital equipment and at the same time stretched out depreciation on many types of plant and equipment. Congress gave back some of the extra revenues generated by those changes by cutting corporate tax rates. The top rate on corporate profits dropped from 46% to 40% this year and goes to 34% in 1988. But about half the revenues from the elimination of corporate tax breaks went to finance the reduction in personal tax rates. The net result was roughly a 22% hike in corporate taxes, an increase of $120 billion over five years. Robert E. Mercer, chief executive of Goodyear, echoes the bosses of many other capital-intensive manufacturing companies when he grouses that tax reform will stifle investment and productivity growth. ''If we were planning a bill that would increase U.S. competitiveness,'' says Mercer, ''it would be the opposite of this.'' George M. Keller, Chevron's chief executive, is even more caustic: ''I call it tax deform. It's a terrible step backwards.'' Among the business defenders of reform, none has been more enthusiastic than John H. Bryan, chief executive of Sara Lee. Like most advocates of reform, Bryan argues that the changes will promote economic growth because the investment tax credit (ITC) and other special breaks that Congress eliminated had been distorting capital allocations. Now that corporations are taxed much more equally, investment should flow to the most productive uses rather than to those most favored by the tax code. In fact, the net effect of tax reform is unknowable in advance, and it may be impossible to measure even after the law has been in place for years. Economists who specialize in tax theory generally agree that getting rid of provisions like the ITC is a big plus. If Congress had used all the revenues gained by closing those loopholes to finance a bigger cut in corporate tax rates -- and left total business taxes unchanged -- reform almost certainly would have been a boon to the economy. But saddling business with an extra $24 billion a year in taxes is a big minus. And no amount of theorizing or econometric modeling can determine for sure whether the boost from reducing tax distortions is enough to offset the drag from higher corporate taxes overall. THE IMMEDIATE EFFECTS of tax reform, on the other hand, are already apparent. By FORTUNE's estimate, pretax corporate profits will jump more than $20 billion this year, to $247-billion. But after-tax profits will drop by about $2 billion, to $122 billion. The punch to capital spending is even more dramatic: Outlays on plant and equipment dropped last year, when the repeal of the ITC took effect, and they are falling again this year. Business investment amounted to 12.6% of GNP in 1985 and will reach only 11.6% this year. Companies have been running into plenty of unpleasant surprises -- and some unintended ones -- as they adapt to the new rules. One change is a much stiffer minimum tax. Corporations now have to pay the IRS at least 20% of the pretax profits they report to shareholders, even if the separate set of books they use to compute profits for the government shows they owe much less. That rule was designed to ''catch'' thriving outfits like General Electric that exploited old provisions in the code so adroitly that they ended up paying no taxes at all. But the minimum tax also is catching some companies that should escape, even under the new ground rules. Bank of New York, for instance, is adding $135 million to its loan-loss reserves this year, mostly for possible write-offs of troubled Third World debt. The new reserves will be deducted from publicly reported profits this year. But Bank of New York will not be able to take the deduction on its tax return until next year or later, when it will actually write off the loans. Result: Profits reported to shareholders probably will be back up next year, taxable profits will be much lower, and Bank of New York probably will pay the minimum tax. The tax experts at Goodyear are still puzzling over exactly how tax reform will alter the company's long-range plans. The company's accountants did a study of one recent expenditure, the $250-million refurbishing of a plant in Tyler, Texas, and concluded that the investment probably would not have been sufficiently profitable under the new code. The accountants say ''probably'' because figuring out the true economic benefits of any big project has become far more complex. Assistant controller Ronald C. Houser says that when top management wants to know whether to build a new plant, his staff must now perform a series of calculations to account for the new minimum tax, for new rules governing the taxation of foreign income, and for regulations that require a more complete accounting of inventory costs. ''We end up doing four or five times the work,'' says Houser. ''And the economic benefit to the company may still be unclear.'' The tax crew at Chevron also is reeling over fresh complexity and ambiguities. Chairman Keller fumes that the law is so convoluted that it makes financial predictions impossible: ''There is a tremendous amount of unsureness in planning now. I ask my accounting people about some ruling, and I get a 'worst scenario' answer.'' They aren't kidding. It will be years before the IRS and Treasury decide on the final rules to implement what Congress mandated in the 1986 act. Emil M. Sunley, director of tax analysis at the accounting firm of Deloitte Haskins & Sells and former deputy assistant secretary of the Treasury for tax policy, notes that it takes the IRS about three years to issue regulations on major provisions of tax bills. It never writes all the rules needed to enforce the changes Congress dictates. Keller was particularly riled recently when his accountants couldn't tell him how the IRS will now treat the interest payments on the company's $7-billion debt. UNDER THE OLD LAW, interest on that debt was almost fully deductible. But companies now have to allocate some of their interest expenses to foreign income. They deduct the ''foreign'' interest from foreign profits to calculate how much they can claim in credits for taxes they pay abroad. Since the interest charges reduce foreign profits, they also reduce allowable foreign tax credits and thus boost U.S. taxes. But by how much? Chevron's financial officers, no slouches at their job, cannot figure out how much of the company's debt will qualify for a deduction in the U.S. and how much they will have to allocate abroad. Congress may fix this and other glitches in a ''technical corrections'' bill. That bill has been in the works for a year and probably is still six months or more from completion. The grumbling is equally loud at Du Pont, even though the company may actually pay less taxes this year than it would have under the old code. Earnings are up so sharply that the drop in corporate tax rates may more than offset the loss of other breaks. But company officials are still annoyed. William Resnick, director of Du Pont's tax division, says Congress erred grievously by leaving much of the rulemaking to the Treasury and the IRS. He says they are prone to overlook fairness and resolve all questions so as to produce more revenue. Even if a company operates under that pessimistic premise, Resnick says, it still cannot predict the ultimate outcome of any major dispute with the government tax collectors because of the new law's complexity. He specifically cites the increased accounting load brought on by the minimum tax, almost indecipherable foreign tax provisions that break up corporate income into various ''baskets'' that are taxed at different rates, and ''uniform capitalization'' rules that require new inventory valuations. Says Resnick: ''I maintain that this bill is unauditable.'' Financial service companies are finding lots to complain about as well. Prudential and other life insurers do not benefit greatly from the lower corporate tax rate because Congress had already cut their rate to 36.8% in 1984. Instead the Pru will get smacked by the increase in the corporate capital gains rate from 28% to as much as 34%. And the repeal of the ITC will cost Prudential about $35 million this year. Says Chief Executive Robert C. Winters: ''If your objective is capital formation, then heavy taxes on life insurance companies isn't a very good idea. If your objective is to pluck geese, then you pounce on the first gander that comes along.'' New complexity in the treatment of employee benefits such as pensions, health insurance, and life insurance also troubles Prudential. The company has three divisions that administer benefits for other employers, and it will have to pass along its increased costs to customers. Jeremy Judge, Prudential's assistant controller, says that new rules governing benefits require so much extra documentation that Prudential has been forced to design entirely new programs for some customers. Says Judge: ''The complexity is such that we don't know exactly what's going to happen -- what to plan for ourselves and what to sell to other companies.'' THE WINNERS under tax reform have a decidedly different fix on the new regime. Bryan of Sara Lee says the new law will have only good effects for his company and its customers. Sara Lee will pay lower taxes this year than last, and Bryan says it will pass the savings along to pastry lovers in the form of lower prices. Brushing aside the complaints about complications and confusion, Bryan argues that reform has rechanneled the energies of many American businesses from seeking shelters to more productive enterprises. He quickly dismisses arguments that the new code is essentially unfair in some respects. ''What's grossly unfair is the concept of various industries paying taxes according to their ability to lobby Congress,'' he says. ''Some statesmanship has finally come out of Washington.'' Though less fervid than Bryan, Hewlett-Packard's chief executive, John A. Young, is another backer of tax reform. Like many high-tech companies, Hewlett-Packard has relied far less than big capital-goods producers on investment credits and accelerated depreciation. So the drop in basic rates more than makes up for those changes. ''On balance the situation is much more favorable,'' says Young. ''It's had a considerable benefit on our cash flow.'' Young sees little merit in complaints from basic industries about lost benefits. ''If we have capital-goods problems, they ought to be taken care of in some other way,'' he says. But when it comes to an issue much closer to home, tax credits for spending on research and development, he takes an entirely different view. Says Young: ''It's one of those things I separate from a tax loophole because it really is good industrial policy.'' Since R&D credits remain largely intact under the new code, Young has been able to boost his research spending from about 10% of sales to about 12%. But he, too, has a gripe about the new computation of foreign profits. Like interest, some R&D expenses must be allocated to foreign operations, depriving the company of some of its R&D credits. Young wants that reform re-reformed. NONFINANCIAL service companies made out the best under tax reform, and few better than Ryder System, the Miami-based company that leases and maintains trucks and aircraft. Ryder lost the ITC on new purchases for its armada -- but so did its customers, who are now recalculating their lease-or-buy decisions. Many are finding that some aspects of reform, including the minimum tax, make leasing look better than ever. Ryder's leasing business will be up more than 20% this year. To meet soaring demand, the company is adding 15,000 trucks to its lease fleet of 53,000. Ryder has exploited its advantage to the fullest, sending salesmen into the field with computer programs that show customers exactly how much they can save by leasing. Many small businesses have been startled by tax reform's impact on their operations. Some companies that financed their operations with tax-exempt industrial revenue bonds have had a particularly rude surprise. Beginning in 1982, some banks began putting clauses in industrial revenue bonds that called for higher interest rates in the event Congress cut corporate tax rates. That's because a lower tax rate reduces the equivalent after-tax yield on the bonds. About $15 billion of industrial revenue bonds issued between 1982 and 1985 have such clauses, and the interest on them is going up by as much as three percentage points. In other words, tax reform has saddled the companies that borrowed via the bonds with an extra $300 million a year or so in interest costs. Owners of small companies also have to rethink how they want to organize their business. By cutting the top personal tax rate below the corporate rate, Congress made the double taxation of profits more punishing. In the past the lower corporate rate acted as a sort of tax shelter for owners of profitable, growing companies. They could pay tax at the corporate rate instead of the higher personal rate and then reinvest the after-tax profits in the business. Now it pays them to escape the corporate tax altogether if they can, and pay at the lower personal rate. Some companies do that by organizing themselves as so-called subchapter S corporations, which are taxed like partnerships. In the past year, many others have escaped corporate taxes by converting to what are known as master limited partnerships. But Congress wants to shut off that escape route. A tax plan that has been approved by Democrats on the House Ways and Means Committee would eliminate the master limited partnership option for active businesses (as opposed to ''passive'' businesses like real estate partnerships). The tax package, designed to raise $12 billion of new revenues, almost certainly faces a Reagan veto if it passes in the House and Senate. But master limited partnerships might also get hit in the technical-corrections bill. THE NEW TAX CODE clearly is fairer than the old one, both for corporations and individuals. Once it is fully phased in, the taxes paid by individuals or corporations with similar incomes will be much more equal than before. But that fairness has come at the cost of a numbing increase in complexity, especially for corporations, but also for individuals unlucky enough to have large amounts tied up in tax shelters. Many experts, including Peggy Duxbury, director of taxation at the National Association of Manufacturers, believe that Congress must radically simplify the tax code, and soon. Says Duxbury: ''Businesses are spending huge sums of money to hire new accountants and work up new computer systems, just to have the auditors reverse everything two years down the line.'' The added costs of complying with the rules are just as much a tax on business as the checks companies send to the IRS. Yet the most sensible approach may be to do nothing at all right now. After wrestling with four major tax bills in six years, even some of the staunchest opponents of reform are calling for a period of benign neglect. Says Winters of Prudential: ''For God's sake, leave the tax code alone. It's not fair. It's not equitable. But leave it alone anyway so we can get on with financial planning.'' That doesn't seem likely. Says Emil Sunley of Deloitte Haskins & Sells: ''There's a tremendous industry that has built up in Washington simply monitoring the changes in the tax law and proposing new ones.'' So for a while at least, it seems that death will be the only certainty. !

CHART: NOT AVAILABLE CREDIT:NO CREDIT CAPTION:TAX REFORM HITS CORPORATE PROFITS . . . AND CAPITAL SPENDING The heavy burden that Congress shifted to corporations last year is showing up in lower after-tax profits, despite higher pretax earnings. Capital spending is down largely due to repeal of investment tax credits. DESCRIPTION: Pretax and aftertax corporate profits, 1985-1986, with 1987 estimate; total capital spending and capital spending as percentage of GNP, 1985-1986, with 1987 estimate.