Last night’s State of the Union address goes back to the roots of this blog (estate planning).  In his speech, President Obama proposed a plan  to get more lower-income workers into the traditional system of retirement planning and saving by way of a less traditional route.  He said: “Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing …

Matthew Yglesias of Slate magazine yesterday posted an article raising an obvious – but overlooked – question: how are Bitcoins taxed? Both he and The Verge referred to an article in National Journal, setting out that the IRS, despite pleas from tax professionals and even the Taxpayer Advocate, has yet to issue guidance concerning the taxation of Bitcoins.  The central question seems to be: is Bitcoin a currency, a commodity or some other asset? In December, The Wall Street Journal addressed the issue, touching a few key points: if taxed as a capital asset, it is subject to capital gains rates of up to 24%; if taxed as a currency, it is subject to ordinary income rates of up to 43.4%; Another issue stems from the decentralization of Bitcoin.  Simply, there isn’t a reliable authority to provide the records for cost basis.  Without basis, it’s impossible to calculate gain (or loss) and, therefore, tax. What to do?  According to The Wall Street Journal article, the Winklevoss brothers (of Facebook fame) have opted to treat Bitcoin …

News of the tasty.  The other day, The New York Times reported that Cistercian monks in Massachusetts have finally followed in the footsteps of their European brethren and have begun brewing Trappist beer. According to the article, to this point, the brothers of St. Joseph’s Abbey in Spencer, Massachusetts – outside Boston – had produced and sold jams and jellies.  Now, they are producing beer.  And they intend to sell it. So, apart from the fact that I now – suddenly, inexplicably – really, really want to visit Spencer, Massachusetts, why is this story interesting to me or relevant to this blog? Good question.  Well, let’s explain it this way.  The monks are part of a religious order.  It’s pretty likely that they are organized as a nonprofit, and not just a nonprofit, but a Section 501(c)(3) religious organization.  As such, there are rules about them making money.  They can do it.  But there are rules. WHAT IS UBIT? You and I can make money and the IRS is just going to tax us. Period. …

I thought this was a tax law blog.  It is.  But yesterday (or really late last night), we posted a few sentences on yesterday’s net neutrality decision coming down from the federal appeals court in Washington, D.C. (not the U.S. Supreme Court – the other one).  In our article we cited to a Houston Chronicle piece from a couple of years back explaining the policy and lifestyle implications of net neutrality. As it happened, the author wrote us back, guiding us to a deeper, trenchant analysis by another author concerning net neutrality and yesterday’s decisions. As you read – and, not to belabor the obvious – you’ll see that it all comes down to the wrong words.

A quick post and then to sleep. The federal appeals court in the District of Columbia today struck down rules promulgated by the Federal Communications Commission (FCC) establishing net neutrality.  What does this mean?  It means that your internet service provider can speed up or slow down download speeds on websites it chooses.  Download speeds for websites are now no longer created equal. Notably, reports are saying that the D.C. Circuit court did not disagree with the principal of net neutrality – only that the FCC overstepped its bounds in making the rules it did. You can read the full story here, and the Houston Chronicle published a solid argument for net neutrality a couple of years ago, a copy of which may be read here.

A few days ago, we posted an entry on payroll taxes.  As we explained, payroll taxes are used to fund federal unemployment benefits, Social Security, and Medicare, among other things.  Because of the programs they fund, the IRS – and, by extension, the federal government – prioritizes their collection.  But what if you don’t collect?  Enter the Trust Fund Recovery Penalty or TFRP. Q: Oh, it’s a penalty.  I’ve heard about penalties for not paying taxes.  How big is the penalty? A: One hundred percent.  I’ll repeat that.  100%.  Yep.  It’s big. Q: But if I have a corporation, the IRS can only go after what’s in the corporation, right? A: Wrong.  The IRS can pursue the assets of any person in the offending corporation who had decision-making authority with regard to collecting and depositing payroll taxes into the trust fund. For all intents and purposes, the TFRP is governed by Sections 6671 and 6672(a) of the Internal Revenue Code (the “Code”). Section 6671 defines who is responsible for collection and payment of payroll taxes (and thereby …

Nobody expects payroll taxes. Sort of. In policy debates – well, the ones taking place on the evening news or during presidential campaigns – the discussions heat up over the top income tax rates.  Which are the top marginal income tax rates.  Which are often misunderstood.  But can be explained. But payroll taxes are ignored.  First, they’re regressive – they hit lower income taxpayers harder as a proportion of income than they do higher earners which would seem to lobby for their removal or repeal.  But, they’re not going away.   They account for too much federal revenue. Regressive effect aside, they are used to fund progressive policy vehicles.  Payroll taxes are used to fund things like Medicare, Social Security, and federal unemployment benefits.  As an aside, Social Security and Medicare taxes that are taken out of your paycheck are called FICA taxes because their withholding is mandated by the Federal Insurance Contributions Act. Income taxes are withheld at the applicable rate.  Social Security taxes are withheld at a rate of 6.2%, with Medicare tax withheld …

America has a funny relationship with money in politics.  We decry it, but at the same time we raise as much of it as possible to make sure “our side” wins.  As with countless other areas in our lives, we use tax laws to drive behavior and achieve results.  And within the last few weeks, that relationship just got funnier. As you may recall, last year conservative congressmen accused the IRS of delaying (and targeting for delay) the applications of ostensibly Tea Party-related groups for approval of 501(c)(4) status.  The veracity of the accusations aside, it appears that the IRS – rarely popular, even in good times – has buckled to public pressure, and, as such, has proposed these new rules. Why is 501(c)(4) status so important?  Section 501(c)(4) of the Internal Revenue Code (IRC), like its more famous sibling – Section 501(c)(3), allows certain qualifying organizations to be exempt from paying tax on their income because they are not organized to make a profit.  Rather, Section 501(c)(4) organizations are organized and operated “exclusively for …

The Atlantic’s Jordan Weissmann this week posted an article that should change everyone’s view on what we’re entitled to as citizens. From the start, he doesn’t pull any punches.  The article’s headline and subhead read: “Here’s Exactly How Much the Government Would Have to Spend to Make Public College Tuition-Free And the grand total is…” Followed by: “A mere $62.6 billion dollars!” Actually, as Weissmann notes in an update at the end of the post, the figure actually approaches $40 billion.  Anyway, Weissmann bases his figure on Department of Education data on “how much tuition public colleges collected from undergraduates in 2012 across the entire United States.” Weissmann’s article questions the utility of private sector involvement in education and favors a shift to public sector dollars funding public sector education, thereby providing a “free” education for all who want it.  On its face, however, his article seems to miss a key externality: if public sector dollars come from – among other sources – tax dollars derived from revenues generated in the private sector, how much will …

This week, The Atlantic reported, to the surprise of no one, that charitable donations increase as the year draws to a close and spike on the last day.  Why is this?  Last minute tax planning.  People want to make sure that they lower their tax bill for the year by making a charitable contribution, which is then deductible.  The last day to make such a gift for the tax year 2013 is, naturally, December 31, 2013. Two questions arise. First, to whom do you make such gifts, and second, is it worth it? Who Gets the Gifts? In order to receive the charitable donation deduction, the organization receiving the donation must be a qualified organization.  Generally, a qualified organization will be classified as a 501(c)(3) not-for-profit organization.  Such an organization generally be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.  It may also include veterans’ groups (e.g.: the VFW), fraternal societies, or government subdivisions that perform government functions (think: police department). …