2013 marked
the 100th birthday of the federal income tax. February 3, 1913 was the 100th anniversary of
the ratification of the 16th Amendment — the one saying "The Congress shall have power to lay and
collect taxes on incomes, from whatever source derived, without apportionment
among the several states, and without regard to any census or enumeration." And Congress passed the Revenue Act of 1913
on October 3, 1913, which created the first permanent federal income tax.
The IRS was
plagued with several scandals in 2013.
It started with a seemingly endless string of IRS training and
motivational videos based on TV shows (Star Trek, Gilligan’s Island, The Apprentice,
Mad Men) that were clearly a waste of government funds.
It was also
discovered that the IRS had targeted political groups applying for tax-exempt
status for closer scrutiny based on their names or political themes. The FBI began
investigating the IRS's actions as part of a criminal probe ordered by the US
Attorney General, which led to both political and public condemnation of the
agency and triggered further investigations.
Initial
reports had described the targeting as almost exclusively aimed at conservative
groups with terms such as "Tea Party" in their names, but further
investigation revealed that certain terms and themes in the applications of
liberal-leaning groups and the Occupy movement had also triggered additional
scrutiny.
As a result
of the scandals Steven T. Miller, Acting IRS Commissioner resigned and Joseph
H. Grant, commissioner of the Tax Exempt and Government Entities Division, and
Lois Lerner, the Internal Revenue Service official at the center of the
scandal, elected early retirement.
In August
BO nominated John Koskinen, former chairman and CEO of Freddie Mac, as the next
Commissioner of the Internal Revenue Service and he was just recently approved
by the Senate. My only concern is that
he is “a 74-year-old multimillionaire”. I would have liked a younger, and less
wealthy, person in the job.
Democrat Max
Baucus and Republican Dave Camp, chairmen of the Senate and House tax writing
committees, called for serious and substantial tax reform legislation in 2013 and
spent the summer touring the country to promote the need for tax reform. However nothing was accomplished. The US Tax Code remains a mucking fess. Camp did tell reporters earlier this month that
work on reform legislation would continue in 2014, but I am, to say the least,
skeptical that anything of substance will be accomplished next year.
FYI, Baucus
has announced he's not running for re-election in 2014, and was just nominated by BO as Ambassador to China so he may be leaving Congress sooner. While Camp has no
plans of leaving Congress any time soon, his chairmanship of the House Ways and
Means Committee has a term limit, and he'll only hold the position through
2014.
As
mentioned earlier, perhaps the top tax story of 2013 was the death of DOMA (the
1996 Defense of Marriage Act). On June
26th the US Supreme Court declared that the Defense of Marriage Act was
unconstitutional and that the federal government has no right to deny benefits
to same-sex individuals who have married in a state that has legalized same-sex
marriage.
Fellow tax
blogger Kelly Phillips Erb (aka TaxGirl) explained in her initial post on the
decision that “it wasn’t so much about
the individual rights of folks to marry but the rights of states to write their
own laws defining marriage”. The decision
did not say that same-sex marriages should be legal, or that same-sex couples
have a legal right to marry. It merely
said a same-sex couple that a state has legally joined together in matrimony
will be recognized as being married by the federal government.
In
response, the IRS ruled that a same-sex couple legally married in a state that
recognizes same-sex marriages will be treated as married for federal tax
purposes. The ruling applies regardless
of whether the couple lives in a state that recognizes same-sex marriage or one
that does not. The "state of
celebration" determines the federal tax treatment and not the state of
residence. Legally married same-sex
couples can move freely throughout the US, from state to state, and their
federal filing status will not change.
From a tax
standpoint, same-sex couples who were legally married in a state that
recognizes and permits same-sex marriages must file their federal income tax
return(s) as either Married Filing Jointly or Married Filing Separately from
now on. This is true regardless of their
state of residence. How the couple will
file their state income tax return(s) depends on the laws of their state of
residence. Legally married same-sex couples were given
the option to amend previously filed prior-year open federal returns (2010,
2011, and 2012) to file as married.
The theme
of American politics continues to be “clowns to the left of me, jokers to the
right”. Nothing of consequence was
accomplished during 2013. Congress passed
the fewest number of new laws in 66 years, only about 60. They did, however, manage to pass a bill “To specify the size of the precious-metal
blanks that will be used in the production of the National Baseball Hall of
Fame commemorative coins."
Thank God the Democrats and Republicans could come together to
accomplish that!
During 2013
the members of Congress from both parties did time and again prove themselves
to be self-absorbed idiots incapable of independent thought. However it was the Republican Party
leadership’s pandering to the fanatical Tea Party and religious right that literally
shut down the government for over two weeks in October.
As a result
of the shutdown the IRS announced that, once again, it will not be able to
begin processing 2013 tax returns until January 31, 2014, because it needs “time to get things right with our
programming, testing and systems validation”. Once again this delay will not affect me at
all.
The year
ended without an extension of the usual “extenders” that expired on December
31, 2013. These include –
·
the $250
above-the-line deduction for qualified expenses of K-12 educators,
·
the
above-the-line deduction for up to $2,000 or $4,000 of qualified tuition and
fees,
·
the
itemized deduction for mortgage insurance premiums,
·
the
option to claim an itemized deduction for state and local general sales taxes
instead of state and local income taxes,
·
the $500
lifetime maximum credit for
qualified energy efficient improvements to a taxpayer's principal residence,
·
the
ability to make a direct tax-free transfer from an IRA to a charity and apply
this as a Required Minimum Distribution, and
·
the
exclusion from income of the discharge of qualified principal residence debt.
Whether
or not these items will be on the 2014 Form 1040 will not be decided until 2014
(let’s hope early in the year and not December).
So there
you have it – the year 2013 in taxes.
What will
happen in 2014? Not much, I am
sure. We continue to elect idiots to
Congress, and until this changes we can look forward to more of the same
inaction and incompetence in Washington.
TTFN
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