What does the Individual Mandate Mean to the IRS?

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The Supreme Court’s recent decision to characterize the ObamaCare individual mandate as a tax will have significant repurcussions on efforts to simplify the tax code and the tax collection “business.”  In other words, it’s just going to complicate things.  That’s what happens when domestic policy initiatives are enacted through this nation’s tax laws.  And just as the tax code tends to be the “catch all” for implementing new policy, the IRS has consequently become that agency we constantly turn to for help with enforcing it.  It must be like achieving a new position at work with new responsibilities, but no pay raise!

Under Obama’s health care reform initiative, if you do not purchase health insurance, you will be charged a “tax” that will be enforced by none other than the Internal Revenue Service.  Besides adding complexity to the tax code, this new tax will be adding work to an already overburdened federal agency.  The IRS has been asked to take on new responsibilities before, so there should be no question as to whether or not it will be up for the task.  However, the costs will be staggering.  The IRS will have to implement new procedures, hire new staff, train old staff, and otherwise do what is necessary to enforce the new health care tax.

With more and more people piling up tax debts that they can’t afford to pay, the private tax relief firms may be the only ones that stand to benefit from all this.

Supreme Court Expands Congressional Tax Power

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Tax relief for people who buy certain things? — sure (like real property).  A tax imposed on people who buy certain items? — sure (like cigarettes).  But a tax imposed on people who do not buying something?  That’s definitely new!  Apparently penalizing citizens for not purchasing health insurance now passes constitutional muster as a “tax,” or so says the Supreme Court.

Roberts recast the [health care] mandate as a tax, a rationale that was not in the law or the government’s case. He rewrote the administration’s position, baptized it, and then blessed it. Roberts’ defenders argue that he did so to avoid a constitutional crisis, but he may have created another by judicially re-legislating policy, a policy paid for and enforced by what could be essentially the largest tax increase in American history.

~William J. Bennett, CNN Contributor

 I guess it’s true what they say about the government’s taxing power.  It’s sort of a “catch-all” for federal programs that seem unconstitutional in all other respects.

Your 2012 and 2013 Federal Tax Returns Are At Risk!

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Today, National Taxpayer Advocate Nina E. Olson reported to Congress the issues that the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year. Olson, expressed particular concern, among other issues, about the taxpayer impact of expired and expiring tax provisions.

“The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was … Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk. The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.” Wrote Olson.

You may be asking, “How does this affect me?” Well, if Congress doesn’t act soon you may need to hire an experienced tax attorney to fight for tax relief. As my Federal Income Tax professor repeatedly ordered in law school: “Read on, read on, read on…”.

The following provisions are among the tax provisions that expired at the end of 2011:

  • The so-called “Alternative Minimum Tax patch.” As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
  • The deduction for state and local sales taxes.  About 11 million taxpayers claimed this deduction last year.
  • The deduction for mortgage insurance premiums.  About four million taxpayers recently claimed this deduction.
  • A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.

According to the IRS website, Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for sure what will happen and taxpayers, therefore, cannot make educated tax planning decisions now.

In addition to the provisions that expired at the end of tax year 2011, an even larger number of provisions are set to expire at the end of 2012. Such rules include the Bush-era cuts in marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the earned income tax credit, and the adoption credit, and the moratoria on the phase-outs of itemized deductions and personal exemptions.

AMA Supports Soda Tax, On One Condition

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While there is no silver bullet that will alone reverse the meteoric rise of obesity, there are many things we can do to fight this epidemic and improve the health of our nation.  Improved consumer education on the adverse health effects of excessive consumption of beverages containing added sweeteners should be a key part of any multifaceted campaign to combat obesity.

Where taxes are implemented on sugar-sweetened beverages, using revenue for anti-obesity programs and educational campaigns explaining the adverse effects of excessive consumption of these beverages will help to reduce the consumption of these caloric beverages and improve public health.

~ Dr. Alexander Ding, AMA board member

Its clear from this statement that the AMA is not fully embracing a soda tax.  The emphasis should be on educating the public about the health risks of chugging sugary soda day after day, and the benefits of replacing soda with water.

The AMA is saying that a soda tax may be effective as part of a comprehensive plan to reduce obesity in our nation, and it would not go very far on its own.  Also, if Dr. Ding’s statement is representative of the AMA’s position, the focus is not on whether or not a soda tax should be implemented, but what to do with the funds should that be the case.  Nobody believes that a soda tax would curb consumption to the point that we no longer have a problem with sugar and obesity.  The real value in a soda tax would be the projects and programs that could be funded if the money is spent responsibly.

 

The Soda Tax

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It doesn’t rank all that high on our list of tax problems.  Maybe you don’t even know you’re paying it.  But at least 35 states already impose taxes on sugar-sweetened sodas.  Soda is believed to be one of the reasons we’re so fat here in the United States.

Tu can eat todos los donuts you quiero, pero tu better not wash it dowño con un 16oz beveragado!

~ Miguel Bloombito (via Twitter)

Until now, the American Medical Association (AMA) hasn’t taken any official position in the soda tax debate.  However, they are expected to put it to a vote this week at their annual meeting in Chicago.  Is there even any question which side they will take on the issue?  My mom never let me eat dessert before dinner, and I don’t think the AMA would pass up an opportunity to take a stand against soda.

If a soda tax is effective, it won’t be in its direct deterrence of soda drinkers.  At a rate of one or two cents per ounce, it would hardly make a difference to most soda addicts.  The effectiveness of a soda tax depends on how soda tax revenue is spent.  If the revenue is spent on programs aimed at curbing obesity, then it could make a significant difference.

One particular obesity program that I think makes sense involves improving access to good cold drinking water at schools and in public places.  Sometimes people are just thirsty and need something cold to drink.  If you put soda in front of them, they’ll drink it.  But if there’s water, they’ll drink that too.  Why is it that public water fountains (the kind typically found in schools and parks) usually produce either warm water or none at all.  And when they do work, the water pressure is normally so weak that you can get little more than a sip.  We should have the technology to build high-quality water fountains these days; ones that actually work.  And maybe a soda tax could help fund this sort of thing.

Will North Dakota be the First to Eliminate Property Tax?

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Voters in North Dakota will decide tomorrow whether or not to abolish property taxes in their state.  If the ballot measure is approved, North Dakota would be the only state in the nation to extend full and complete tax relief to property owners.

Many of those who support the ballot measure view property tax as a type of encumbrance on their property that limits ownership rights.  They believe if you’ve paid in full, then you own the property, and there should be nothing in the present or the future that would threaten that ownership — not even failure to pay a tax associated with that property.  Furthermore, North Dakota is one of the few states not feeling the effects of the recession, and proponents feel confident that the state will not miss the $812 million in property tax revenue.

But the opposition has been well-funded and the measure is not expected to pass.  The arguments against the ban on the state’s property tax really come down to fear of change.  How would the state make up for the lost revenue?  What effect would this have on myriad other state laws and regulations that reference the hunred-year-old property tax law?  It is irresponsible; somewhat akin to quitting your well-paying job as soon as you get ahead a little.  But maybe voter trepidation will save North Dakota from falling into debt like so many other states.

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Ivy League Audits

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In this down economy the IRS is doing all it can to improve collection results, which is why it is targeting wealthy individuals, banks, corporations, . . . even universities.

Top Ivy League colleges are in the IRS crosshairs because they raise a lot of money, and not just in tuition & donations.  If you attend Harvard or if you dine there as a visitor, you probably expect more than tacos and fries, and brain food is expensive.  Harvard University Dining Services consists of 13 undergrad dining halls, a kosher kitchen, and 14 retail locations which offer an “unparalleled dining experience.”  And Harvard sports are very popular.  Wealthy Harvard alumni are often happy to pay for season tickets, whatever the price.

Even though nonprofit universities are tax-exempt, they must still pay taxes on any collateral income that is generated — any income that is unrelated to their academic objectives.  According to a recent Bloomberg article, both Cornell and Harvard Universities have been audited by the IRS to make sure they are paying taxes on revenue generated by university bookstores, restaurants, and sports arenas.  Cornell has “passed” its audit, but for Harvard, the jury is still out.

 

 

On the Eve of the Facebook IPO

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The state of California anticipates generating billions in tax revenues from the Facebook IPO which is supposed to take place this Friday morning.

The Legislative Analyst’s Office predicts the state will receive some $2.1 billion over the next year from the public offering as employees cash in their stock options. This would result in revenue approximating one-fifth of California’s total economic growth during that same time frame.

Of course, these predictions are based on a number of assumptions:

  • The Facebook IPO will go down this Friday as expected
  • Shares will be priced at $38 and then trade at $45 six months from now
  • Voters will pass Governor Brown’s tax increase affecting the IPO transactions

California expects to rake $195 million on day one when Facebook CEO, Mark Zuckerberg, exercises options to buy 60 million shares at 6 cents each.  The difference between Zuckerberg’s price and the market price is considered income, and the one thing we know about income is that it’s taxable.

Football, Concussions, & Taxes

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Maybe you have seen this popular statistic:

By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.

True or not, it is difficult to dispute the fact that many NFL players have a hard time after their football career is over.  One thing is certain — they are routinely getting into trouble with the IRS.  The most recent example is former Atlanta Falcon, Jamaal Anderson.  News sources say he has tax debt from 2007 and 2008 in the neighborhood of $1.1 million.  The IRS has filed a lien to protect the government’s interest in his property until he can pay back what he owes.

Football takes a huge toll on the body and these guys typically retire very young.  I don’t know if there are any formal studies on this type of thing, but I would guess many pro football players retire with tons of ambition, but insufficient business acumen and, who knows, maybe one too many concussions to be able to maintain the type of lifestyle they were used to while in their prime.

Any thoughts on this topic?