You get a loophole! You get a loophole!

Why tax regulations are so complicated.

No such thing as a free car, Oprah!

Every now and again, politicians like to talk about how long and obtuse IRS regulations are. But at the same time, politicians are the reason that the regulations are like they are. I don’t say this to be critical. Much of the tax code is given over to regulations that affect a very small amount of people, courtesy of their Congressional representatives. Many people would agree that these narrow rules are good and important rules, too.

Because I write a lot about investing, I know how much of the tax code is given over to the treatment of Alaska Permanent Fund dividends. This is an annual check sent to every resident of Alaska, about 650,000 people in total, as a share of the state’ oil revenue. The Permanent Fund’s web site sets out the rules. For the IRS, the Permanent Fund shows up under investment taxes (for example, to clarify how it is not investment income, how it does not not fall under the Net Investment Income Tax, how it affects tax on children’s investments, and how it affects the Earned Income Tax Credit.) This is one type of payment that affects a tiny number of taxpayers, but its treatment has to be considered when those people are filing their taxes. And sure, it could be treated as 1099 investment income, but Alaska has three people in Congress who make sure that it is not.

Some items affect even smaller numbers of people than the Permanent Fund Dividend. Can you take a deduction for a child who has been kidnapped? (Only if the child lived with you for more than half the year before the kidnapping, by a non-family member.) Do you have to pay taxes if you’re being held hostage overseas? (Right now, yes, and you will receive a fine if your captors don’t let you file, but Congress is trying to pass a law to change that.)

If you are really patient, you’ll find some wild exclusions that affect only a handful of companies in the depreciation regulations. That’s where most business tax preferences hide. If you wait until the hurricane and wild fire seasons end, you’ll find new IRS publications reflecting new laws that offer different benefits for people who had losses, received relief funds, or who need extra time to file their taxes.

And this brings us to Oprah. In 2004, she and the folks at General Motors gave a new car to each of the 267 people in the audience. The $28,500 value of the car was taxable income, so most people owed $7000. It is widely believed that Oprah paid the tax, but that payment was also taxable income. No member of Congress introduced a bill to help those people, either.

So it’s no wonder people get confused about taxes. They are confusing!

Do you have a favorite part of the tax code? Or am I the only weirdo here?

In completely unrelated news, the New York Times published a recipe for a caramelized zucchini pasta sauce that is easy, sumptuous, and uses up a lot of zucchini. The Times is letting people give gift links to recipes this month, so enjoy!