Internal Revenue Code (IRS)

The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. [1986]) and are implemented by the Internal Revenue Service through its Treasury Regulations and Revenue Rulings.
Congress made major statutory changes to title 26 in 1939, 1954, and 1986. Because of the extensive revisions made in the tax reform act of 1986, title 26 is now known as the Internal Revenue Code of 1986 (Pub. L. No. 99-514, § 2, 100 Stat. 2095 [Oct. 22, 1986]).
Subtitle A of the Code contains five chapters on income taxes. The chapters cover normal income taxes and surtaxes, taxes on self-employment income, withholding of taxes on nonresident Aliens and foreign corporations, taxes on transfers to avoid Income Tax, and consolidated returns.
Subtitle B deals with Estate and Gift Taxes. The rules and regulations concerning the taxation of probate estates and gifts are very complicated. This subtitle contains chapters on taxing generation-skipping transfers and rules on special valuation of property.
Subtitle C contains the law of employment taxes. It consists of chapters on general provisions relating to employment taxes and other sections dealing with federal insurance contributions, railroad retirement taxes, and federal unemployment taxes.
Subtitle D covers miscellaneous excise taxes. Its fifteen chapters cover a variety of issues, including retail excise taxes, manufacturers' excise taxes, taxes on wagering, environmental taxes, public charities, private foundations, Pension plans, and certain group health plans.
Subtitle E covers alcohol, tobacco, and other excise taxes. Chapter 53 deals with machine guns, destructive devices, and certain other firearms.
Subtitle F contains provisions on procedure and administration. Under this subtitle are twenty chapters that deal with every step of the taxation process, from the setting of filing dates and the collection of penalties for late filing, to criminal offenses and judicial proceedings. The rules for administrative proceedings under the Code are addressed in the appendix to title 26.
Subtitle G addresses the organization of the Congressional Joint Committee on Taxation. Subtitle H contains the rules for the financing of presidential election campaigns. Subtitle I contains the Trust Fund Code.
The Internal Revenue Code has grown steadily since the 1930s. The complexity of its provisions, most of which are written in technical language, has required law and accounting firms to develop specialists in the various areas of taxation.

Health care system so flawed it could bankrupt insurance companies

Administration fears part of health care system so flawed it could bankrupt insurance companies

While the administration publicly expresses full confidence in its health care law, privately it fears one part of the system is so flawed it could bankrupt insurance companies and cripple ObamaCare itself.
"Week after week, month after month," says John Goodman of the National Center for Policy Analysis, "the Obama administration kept telling us everything's working fine, there's no problem and then they turn on a dime and fire their contractor."
To justify a no-bid contract with Accenture after firing CGI as the lead contractor, the administration released documents from the Department of Health and Human Services and the Center for Medicare and Medicaid Services that offered a rare glimpse of its worst fears, saying the problems with the website puts "the entire health insurance industry at risk" ... "potentially leading to their default and disrupting continued services and coverage to consumers."
Then it went even further, saying if the problems were not fixed by mid-March, "they will result in financial harm to the government."
It even added that without the fixes "the entire health care reform program is jeopardized."
In spite of the "urgent" need officials cited to keep the system from collapsing, the White House spokesman said he knew nothing about it.
“I didn't see the article I'm not aware of those statements,” Jay Carney said.
The dangers were known in early December, but later, shortly before CGI was fired, Health and Human Services Secretary Kathleen Sebelius gave Fox News an upbeat account.
“I’m thrilled that we’re going to have millions of people for the first time that have health security,” she said.
Shortly after the website went live,one official told Congress a critical part of the system – what is known as the “back end” -- had not even been built yet.
Doug Holtz-Eakin, former head of the Congressional Budget Office, says "the back end -- that information is supposed to be transmitted to an insurance company, the insurance company knows who you are, they know what policy you've picked."
But the back end still hasn't been built, so insurers are dealing with massive confusion, missing information on who's signed up and what subsidies they get.
Sebelius insisted once again Wednesday it would all come together and insurance companies will get their money.
"I mean we will get them paid,” she said. “There is no question about that, so we are on track."
For now, though, officials concede they're relying on estimates from the insurers.
"Here's who we think we have, and here's the subsidy we think they're owed," explains Jim Capretta of the Ethics and Public Policy Center. "Please send us a check from the treasury," he says chuckling. "The honor system again."
"There's no way to effectively match policies and people," says Holtz-Eakin.
"And on top of that, you can't match policies, people, to the federal subsidies and that's a big problem in terms of just the mechanics of making payments."
The administration emphasizes that fixing the site by mid-March is urgent. Otherwise the system could descend into chaos and threaten the future of ObamaCare.
Meanwhile, a new Quinnipiac poll gives the president poor grades for his management of health care, with 59 percent disapproving while 36 percent approve.

IRS again?

Higher-income Americans hit hardest by tax changes

Higher-income Americans and some legally married same-sex couples are likely to feel the biggest hits from tax law changes when they file their returns in the next month or two. Taxpayers also will have a harder time taking medical deductions this year.
In other changes, the tax rate tables and the standard deduction have been adjusted for inflation, as has the maximum contribution to retirement accounts, including 401(k) plans and Individual Retirement Accounts.
The Alternative Minimum Tax has been patched -- permanently -- to prevent more middle-income taxpayers from being drawn in. And starting with the 2013 tax year, there's a simpler way to compute the home office deduction.
Tax provisions for the 2013 tax year were set by Congress last January as part of legislation to avert the fiscal cliff of tax increases and spending cuts. "We finally got some certainty for this year," said Greg Rosica, a contributing author to Ernst & Young's "EY Tax Guide 2014."
Nevertheless, the tax filing season is being delayed because of the two-week-long government shutdown. The Internal Revenue Service says it needed the extra time to ensure that systems are in place and working. People will be able to start filing tax returns Jan. 31. Before the shutdown, the original start date was Jan. 21.
"People who are used to filing early in order to get a quick refund are just going to have to wait," said Barbara Weltman, a contributing editor to "J.K. Lasser's Your Income Tax 2014."
Don't think the delay will mean a change to the tax deadline, however. "The April 15 tax deadline is set by statute and will remain in place," the IRS says.
The tax legislation passed at the start of 2013 permanently extended the Bush-era tax cuts, but also added a top marginal tax rate of 39.6 percent for those at higher incomes -- $400,000 for single filers, $450,000 for married couples filing jointly and $425,000 for heads of household.
On top of that, higher-income taxpayers could see their itemized deductions and personal exemptions phased out and pay higher capital gains taxes -- 20 percent for some taxpayers.
And, there are new taxes for those taxpayers to help pay for health care reform.
However, there are different income thresholds for each of these new taxes.
The additional 0.9 percent Medicare tax, for example, kicks in on earnings over $250,000 for married couples filing jointly and $200,000 for singles and heads of household. Same for the 3.8 percent tax on investment income.
But the phaseout of personal exemptions and deductions doesn't begin until $300,000 for married couples filing jointly and $250,000 for singles.
That means that taxpayers who didn't plan could find themselves with big tax bills come April 15 -- and perhaps penalties for under-withholding.
"It's a snowball effect," said Dave Du Val, TaxAudit.com's vice president of customer advocacy.
Confused yet?
"The complexities of the tax code are only affecting those of us trying to read it," National Taxpayer Advocate Nina Olson said in an interview. Tax software makes a lot of those complexities invisible to the average taxpayer.
As a result, taxpayers might not realize they're being helped by a wide array of deductions and credits. "They have no idea of the benefits they are getting through the tax code," she said.
The IRS processed more than 147 million tax returns in 2013, down slightly from the previous year. More than 109 million taxpayers received refunds that averaged $2,744, also slightly less than in 2012.
The upward trend of electronic filing continued, with more than 83 percent of returns being filed online. The biggest jump, 4.6 percent, was among people who used a software program to do their own taxes.
The IRS is continuing to offer its Free File option, which is available to taxpayers with adjusted gross incomes of $58,000 or less. Through the program, these taxpayers can use brand-name software to file their taxes at no cost. Some states also participate. The agency also has an option for taxpayers of all incomes -- Free File Fillable Forms -- which does basic calculations but does not offer the guidance that a software package would.
For the 2013 tax year, the personal exemption is $3,900. The standard deduction is $12,200 for married taxpayers filing jointly, $6,100 for singles, and $8,950 for heads of household.
Many credits and deductions were extended for 2013, including several for education. Among them: the American Opportunity Credit of up to $2,500 per student for tuition and fees and deductions for student loan interest and tuition-related expenses. Many of these are phased out at higher income levels.
Schoolteachers will still be able to deduct up to $250 in out-of-pocket expenses for books or other supplies.
Taxpayers will still be able to deduct their medical expenses, but it will be more difficult for many to qualify. The threshold for deducting medical expenses now stands at 10 percent of adjusted gross income, up from 7.5 percent. There's an exception, though, for those older than 65. For them, the old rate is grandfathered in until 2017.
Among the other changes for 2013, taxpayers who work at home will now have a simplified option for taking a home office deduction.
"You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively," the IRS says.
But, if you sit at your kitchen table and check work email, it doesn't qualify. "The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job," according to the agency.
The IRS said that for tax year 2011, the most recent year for which the numbers are available, more than 3.3 million people claimed nearly $10 billion in home office deductions using Schedule C. The number does not include the home office deduction taken by farmers, which is claimed on a different form.
Most taxpayers claiming the deduction are self-employed, according to the IRS.
Until this year, you had to figure actual expenses for a home office, according to Weltman. "Starting with 2013 returns, if you're eligible for the deduction, you can take a standard deduction of $5 per square foot, up to 300 square feet," she said. The maximum deduction using this method is $1,500.
The IRS says people who take the simplified option will have to fill out one line on Schedule C, as opposed to a 43-line form.
Weltman likened the simplified home office deduction to the IRS deduction for business use of your car. "You can do your actual costs or the IRS mileage rates."
The standard mileage rate for business use of a car in 2013 is 56.5 cents a mile.
Many investors also will find it easier to report stock sales if the 1099-B forms they receive contain key details of the sale and the correct basis for computing gains and losses.
Beginning this year, same-sex couples who are legally married will for the most part have to choose married filing jointly or married filing separately when doing their tax returns. This is true even if the couple lives in a state that does not recognize gay marriage. "For federal tax purposes, the IRS looks to state or foreign law to determine whether individuals are married," the agency said.
The change is a result of the Supreme Court's ruling last June invalidating provisions of the Defense of Marriage Act.
"It's not a choice. That's the way it is," Rosica said.
Many of these couples will now find themselves hit by the marriage penalty, especially if both spouses work.
For example, with their incomes combined, they might hit the threshold for the extra Medicare taxes, or the beginning of the phaseout of deductions and the standard exemptions.
However, when it comes to things like estate taxes, the federal recognition of same-sex marriage will help legally married gay and lesbian couples. That was the issue in the Supreme Court decision in the case of Edith Windsor, who had to pay estate taxes after her lesbian spouse died.
In addition, health insurance purchased from an employer for a same-sex spouse can be paid for pre-tax and excluded from income.
"Like opposite-sex couples, gay and lesbian married couples can qualify to use the head of household status, when kids are involved, where the spouses are living apart," the IRS says.
Same-sex married couples also have the option of filing amended returns going back to 2010, using the married filing jointly status. Rosica said each couple will have to look at their individual circumstances to see if that's beneficial from a tax perspective.
When it comes to filing state returns, same-sex married couples living in states that don't recognize gay marriage most likely will have to file as singles. Since federal returns often are used as a starting point for state returns, that could force them to calculate their federal taxes twice, once for filing the federal return and once for figuring out their state taxes.
If you made energy efficiency improvements to your home, such as installing new windows or a qualifying furnace or heat pump, you might be able to take an energy credit of 10 percent of the cost up to a lifetime maximum of $500.
However, of that total, the IRS says, "only $200 can be for windows; $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property."
There are additional credits for solar. However, the credit for plug-in electric vehicles has expired.
Once again, the IRS is reminding taxpayers to make sure their Social Security number is entered correctly and their return is signed. Those who feel they need more time can apply for an extension, until Oct. 15. But if you do file for an extension, remember to estimate and make sure you pay any taxes due -- or face a possible penalty.

Mr. President

Former Va. Gov. Bob McDonnell, wife indicted

RICHMOND, Va. –  Former Virginia Gov. Bob McDonnell and his wife have been indicted on federal corruption charges.
Peter Carr, a spokesman for the U.S. Justice Department, says McDonnell and his wife, Maureen, were indicted Tuesday. The 14-count indictment includes conspiracy, wire fraud and other charges.
McDonnell left office earlier this month after four years in the governor's office. Virginia law limits governors to a single term.
A federal investigation overshadowed the final months in office for this once-rising star of the Republican Party, with authorities looking into gifts he and his family received from a political donor.
In July, McDonnell apologized and said he had returned more than $120,000 in loans and other gifts from Johnnie Williams, the CEO of pharmaceutical company Star Scientific.

As Obama hammers ‘income inequality,’ gap grows under his presidency

Income inequality -- the gap between the rich and poor -- is an issue U.S. presidents of both parties have spoken of for years. 

President Clinton touted, toward the end of his term, that wages were rising "at all income levels" for the first time in decades. President George W. Bush, toward the end of his, pondered the best way to respond to income inequality, noting some policies "lift people up" and some "tear others down."
But perhaps no president has hammered the issue as emphatically as President Obama.
In his 2012 State of the Union address, Obama said: "The defining issue of our time is how to keep that promise alive. No challenge is more urgent. No debate is more important. We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules."
But a look back shows that income inequality has grown, not shrunk, under the current president. 
"All told, income inequality has tended to get worse under President Obama," American Enterprise Institute President Arthur Brooks said.
The gap between rich and poor has fluctuated greatly over time, but there are signals that the country is going back to a divide not seen in a long time.
Back in 1928, the top 1 percent of earners received about a quarter of all pre-tax income. The bottom 90 percent received just over half of it.
Fast forward to the Great Depression and World War II. America experienced a time of economic change and development that dramatically reshaped U.S. income distribution. In 1944, under Franklin D. Roosevelt, the wealthy weren't quite as wealthy. The top 1 percent saw their income share sink to 11 percent. Meanwhile, the bottom 90 percent saw their income share rise to 67 percent.
Through the '50s and '60s and early '70s, decades of economic growth brought prosperity for all. Each economic group's income share remained fairly constant. Then came the late 1970s, where under President Carter, the top 1 percent saw their share begin to rise and the bottom 90 percent saw theirs begin to fall.
Between then and now, the share of income gains captured by top earners grew. The top 1 percent saw a 45 percent increase under Clinton and a 65 percent increase under Bush.
That number has dramatically increased since Obama's inauguration in 2009. By 2012, the top 1 percent was back to where it was decades ago -- taking in about a quarter of all pre-tax income. Yet the bottom 90 percent saw their share fall below 50 percent for the first time in history.
Some analysts say this is because Obama was more focused on health care than alleviating unemployment and poverty.
"Our system is predicated on presidential leadership, and the president has not been focused on either you know poverty or unemployment," said AEI's Michael Strain. "Early in his term he was focused on health care as we all know, and you know we have the election, and this just hasn't been at the front-burner."
But Heather Boushey, with the Washington Center for Equitable Growth, said, "I don't think you can lay the blame for that at the feet of Obama."
She continued: "I think that that blame lies also with the U.S. Congress who's made decisions about what they want to fund and how they want to focus on dealing with the deficits rather than focusing on getting us back to something close to full employment."
A look at what's called "real income," or income adjusted for inflation, underscores the trend in recent decades.
In 2012, the bottom 90 percent was earning an average "real income" of about $30,000 a year. That's similar to what they were earning back in 1980.
But the top 10 percent of earners typically made over a quarter of a million dollars in 2012. And the top 1 percent averaged over $1.2 million in earnings that year. That is where the most dramatic fluctuation can be seen over time, as the gap between lower and top earners has widened.
According to the work of Emmanuel Saez, a professor at the University of California, Berkeley, during the post-recession years of 2009-2012, top earners snagged a greater share of total income growth than during the boom years of 2002-2007.
In other words, income inequality has become more pronounced since the Bush administration, not less.
"Rich people have pulled away, largely because the top 1 percent has been doing quite well -- and disproportionately doing quite well under President Obama," Brooks said. "Remember that the stock market has doubled in value since President Obama took office, and at least 80 percent of those gains have gone to the top 10 percent of the income distribution."

Democrat Punching Bag?

NJ Gov. Christie's office denies claims of withholding Sandy aid funds

A New Jersey mayor who says that she was blocked from receiving millions of dollars in Superstorm Sandy recovery grants because of her refusal to sign off on a politically connected commercial development claimed Sunday that she was told that an ultimatum relating to the project came directly from Christie himself.
In an interview with CNN's "State of the Union" Sunday, Hoboken Mayor Dawn Zimmer said that she was approached about the commercial development project by Kim Guadagno, Christie's lieutenant governor, at an event this past May.
"The lieutenant governor pulled me aside and said, essentially, 'You've got to move forward with the Rockefeller project. This project is really important to the governor.' And she said that she had been with him on Friday night and that this was a direct message from the governor," Zimmer recalled Guadagno saying.
Christie's office denied the claim later Sunday, with spokesman Colin Reed saying "Mayor Zimmer's categorization about her conversation in Hoboken is categorically false."
Zimmer told the Star-Ledger that she had met with federal prosecutors Sunday and given them a copy of her daily journal and other documents related to the case. Zimmer also said that she would be willing to testify under oath regarding the allegations. Christie's administration is already under investigation over traffic jams on the George Washington Bridge last September that were apparently manufactured as political retaliation.
Zimmer had alleged Saturday that Guadagno and a top community development official told her recovery funds would flow to her city if she allowed the project to move forward. The Democratic mayor said the Republican administration officials wanted Rockefeller's plans for the property approved, while Zimmer said she preferred to go through normal channels and hear from all stakeholders, including the public and owners of adjacent property.
"I was directly told by the lieutenant governor — she made it very clear — that the Rockefeller project needed to move forward or they wouldn't be able to help me," Zimmer told The Associated Press.
"There is no way I could ethically do what the governor, through the lieutenant governor, is asking me to do," she said.
Christie's office called Zimmer’s statements politically motivated, with Reed Colin Reed saying the administration has been helping Hoboken secure assistance since Sandy struck.
"It's very clear partisan politics are at play here, as Democratic mayors with a political ax to grind come out of the woodwork and try to get their faces on television,” Reed said.
Reed also bashed MSNBC, which first reported Zimmer’s comments.
“MSNBC is a partisan network that has been openly hostile to Gov. Christie and almost gleeful in their efforts attacking him, even taking the unprecedented step of producing and airing a nearly three-minute attack ad against him this week,” he added.
A state website that tracks the distribution of Sandy aid shows that Hoboken received a $200,000 post-storm planning grant in October out of a $1.8 billion pot of money controlled by the state. Hoboken also received a $142,000 state energy resilience grant.
Besides state money, Hoboken has received $70 million in recovery funds distributed by the federal government, according to the Christie administration. Zimmer said she has applied for $100 million to implement a comprehensive plan to help insulate her city from future floods.