Brief Summary of Recent Income Tax Changes

The tax laws enacted in the last couple of years contain important income tax and information reporting provisions that are effective for the first time in 2011. Here's a summary of the key tax changes for 2011, broken down into three categories: Personal Income Taxes, Retirement Plan Changes, and Tax Changes for Businesses and Investors.

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IRS Successfully Recharacterizes S Corporation Dividends as Salary

Many tax advisors have recommended that their clients use the S election to reduce their social security and medicare tax liability. This type of planning has been on the IRS’ radar screen for a while. Now we have a case where the S corporation did pay some wages to its owner, and a District court found that the portion of the dividend distributions that the IRS claimed to be salary substitutes were in fact salary, making them subject to social security and medicare taxes. The moral of the story: you better have good factual support for what a service corporation is paying the professionals working for the service business.

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Rebuttal of Op-Ed Article on Tax Policy

I don’t know if any of you read the Amarillo Globe-News. This last Sunday, the following appeared in the paper on the opinion page: Tax policy falls short of Founders' goal. I found it to contain inaccuracies of fact and of reasoning. Since taxes and tax policy are of interest to me as a tax attorney, I felt it appropriate to comment on those errors.

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Joint Committee on Taxation Publishes Analysis of Tax Expenditure Estimates

The Joint Committee on Taxation (JCT) periodically publishes an analysis of tax expenditures. The JCT has recently published another of its periodic tax expenditure analyses. The analyses are designed to aid policymakers and the public in understanding “the actual size of government, the uses to which government resources are put, and the tax and economic policy consequences that follow from the implicit or explicit choices made in fashioning legislation.” Tax expenditures are defined as “revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” As described by the JCT, tax expenditures include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers. The estimates in the report are based on the provisions in federal tax law as enacted through Dec. 15, 2010. The report discusses the concept and measurement and tax expenditures, and also provides estimates of tax expenditures for the tax period covered as well as tables showing the distributions of tax returns and selected individual tax expenditures by income class. The document “Estimates of Federal Tax Expenditures for Fiscal Years 2010-2014” can be downloaded at

What I don’t understand is why the progressive rate structure (which is probably the single largest tax expenditure in the entire Internal Revenue Code) is not included in the list of tax expenditures. Actually, I do understand. But that is just another example of how the government mischaracterizes its actions and the information it provides us. The progressive rate structure meets the definition of a tax expenditure; yet it is not included. You can draw your own conclusion from that fact.