IRS Releases Proposed Regs and FAQs on 3.8% Net Investment Income Tax

With tax provisions set to expire on payroll taxes, capital gains rates, income tax rates, AMT exemptions, estate taxes, and nearly everything else, the tax picture for 2013 is anything but clear.

One thing that we can expect with certainty on January 1, 2013, is the introduction of the 3.8% investment tax under new Internal Revenue Code Section 1411. The new provision adds a 3.8% tax on the “net investment income” of individuals, estates, and trusts with modified adjusted gross income in excess of the threshold amounts of:

  1. $250,000 for joint returns and surviving spouses;
  2. $125,000 for married taxpayers filing separately; and
  3. $200,000 for everyone else.

Until now, there was little guidance on the details of this provision from the Patient Protection and Affordable Care Act (Obamacare). The Internal Revenue Service has now provided guidance in the form of proposed regulations and Frequently Asked Questions (FAQs).

Ambitious practitioners have until March 5, 2013, to submit comments on the proposed rulemaking.

U.S. Supreme Court Upholds the Healthcare Individual Mandate under the Taxing Clause

The United States Supreme Court has just ruled that the individual mandate in the Patient Protection and Affordable Care Act (Obamacare) may be upheld as within Congress’s power under the Taxing Clause. The opinion of the court was delivered by Chief Justice John Roberts.

Read the full text of the slip opinion here:
NFIB v. Sebelius, Docket No 11-393 (U.S. Sup. Ct. June 28, 2012)

Is Tax Litigation Irrational?

According to Supreme Court barrister Robert A. Long it may well be.

Our beloved world of tax litigation had its 15 minutes of fame this morning as the first argument challenging President Obama’s health care law involved the applicability of the Anti-Injunction Act. Probably best known among tax procedure wonks as the statute that prevents Federal district courts from hearing state tax disputes, the Anti-Injunction Act basically denies jurisdiction to challenge the merits of a tax until it has been paid. The argument facing the Court was whether the penalty provision for not participating in the Obama health care plan, which is enforced through the Internal Revenue Code, had to be imposed against an individual before the Court had jurisdiction to determine the Constitutionality of the law. Alas, early reports indicate that the assembled Justices were not impressed by the argument.

All of that aside, what really caught our attention was this exchange, reported by Politico, between Justice Scalia and counselor Robert A. Long:
Justice Scalia: …If it’s not jurisdictional what’s going to happen is you are going to have an intelligent federal court deciding whether you are going to make an exception. And there will be no parade of horribles because all federal courts are intelligent…
Mr. Long: Well, and, Justice Scalia, I can’t predict what would happen, but I would say that not all people who litigate about federal taxes are necessarily rational.

Gee, Mr. Long, we’re not gonna take that to heart.

District Court: Obamacare Ruled Unconstitutional

Judge Henry E. Hudson of the Eastern District of Virginia rules that the Patient Protection and Affordable Care Act, specifically Section 1501, the Minimum Essential Coverage Provision, is unconstitutional. Under the law as passed, the Provision would be enforced through the Internal Revenue Code. The judge ruled that the provision is unconstitutional under the Commerce Clause and General Welfare Clause.

Read the opinion here:

Commonwealth of Virginia v. Sebelius, Civil Action No. 3:10CV188-HEH (E.D.Va 2010)