The IRS needs to fix its Net Investment Tax proposed regulations
By Robert A. Green, CPA with assistance on tax research from Mark Feldman, JD
Petition: Please sign our Petition To Fix the Investment Tax on RallyCongress.com, and ask others to sign it, too.
Forbes Blog Version (May 6): IRS Should Fix Net Investment Tax Proposed Regulations
Traders, you may have to pay thousands of dollars in new Medicare taxes on phantom unearned income in 2013. The IRS doesn’t care if you lost money on trading and investments; its new proposed regulations (REG–130507–11) will tax you anyway.
The proposed regulations are wrong in our view, and we need to work together to ask Treasury to fix them before they become final.
Affordable Care Act taxes
The Affordable Care Act created new taxes, including a Medicare 3.8% surtax on unearned income (including investments), starting in 2013, which applies to upper income taxpayers making over $250,000 (married) and $200,000 (single). Plus a 0.9% Medicare surtax on earned income is assessed over the same AGI thresholds. The 0.9% surtax brings the Medicare rate on earned income to the same 3.8% as on unearned income.
Other taxes include a Medical Device Tax, Individual Mandate Non-Compliance Tax, High Medical Bills Tax, and Flexible Spending Account Tax.
Proposed regulations for the Medicare tax on unearned income
In December 2012, Treasury released its proposed regulations, including detailed tax rules for the 3.8% Medicare surtax on unearned income. It’s also referred to as the net investment tax (NIT) on net investment income (NII).
When we first read the fairly short section covering the Medicare surtax on unearned income (see bottom of blog), we found it to be pretty straightforward. We assumed all unearned income, loss and expense would be summarized and taxed just like the self-employment tax on earned income is summarized and taxed, now. There are no separate buckets or loss limitations in SE taxation on earned income.
But that’s not what the tax attorneys from Treasury did with the Affordable Care Act’s NIT. They took the short code and turned it into a monster of proposed regulations. In my view, they made some unintentional errors.
Our biggest problem is the proposed tax regulations could cause serious damage to traders and other taxpayers by limiting various types of losses and expenses from their NII calculations. For something that significant and material, the code should specifically state that losses will be limited in this fashion, but it doesn’t.
An example of the havoc these proposed regulations can cause
Suppose a securities trader is married to an executive with a W-2 in the amount of $450,000. The trader has a trading business loss of $100,000, comprised of a Section 475 MTM ordinary trading loss of $75,000 (reported on Form 4797) and trading business expenses of $25,000 (reported on Schedule C). It doesn’t matter if the trading business is a sole proprietorship or a pass-through entity.
The couple also has an investment long-term capital gain of $90,000, and interest and dividend income of $10,000. They have no investment expenses or investment interest expenses. Their married/filing joint AGI is $450,000, which represents the wife’s W-2 income, since all unearned income activity was at breakeven.
Based on our interpretation of the code, in this example all unearned income, loss and expense is zero, and NII matches unearned income or loss calculated in gross income. Even though the couple is over the $250,000 AGI limitation by $200,000, there is no NIT since there is no NII.
The proposed regulations create three different income-type buckets, and they limit each bucket to zero, not allowing buckets with net losses to be counted in NII. Here's what those categories would look like for our example couple:
• Regulation bucket 1 for portfolio income is $10,000.
• Regulation bucket 2 is “other gross income from a trading business." A strict interpretation of the proposed regulation shows the bucket 2 total is in the hundreds of thousands of income, because individual trading losses are carved out and placed into bucket 3. This happens whether the business trader uses Section 475 MTM or the cash method.
• Regulation bucket 3 is an investment capital gain of $90,000. But, after trading losses are moved from bucket 2, the loss is in the hundreds of thousands.
Do the math with the current proposed regulations. Bucket 1 would be $10,000. Bucket 2 would be $475,000, assuming there are $500,000 of trading gains on individual trades, less $25,000 of trading business expenses. Bucket 3 would be limited to zero since the $90,000 investment capital gain is offset with the business trading losses $575,000. Total NII would be $485,000.
If Treasury fixes the proposed regulations, bucket 1 would be $10,000, bucket 2 would be a revised loss of $100,000 and bucket 3 would be a revised gain of $90,000 from the investment capital gain. Revised NII would be $100,000 since only bucket 1 and 3 are positive and can be counted in NII.
Because NII is $485,000, we would use the lower amount of AGI over the AGI threshold: $200,000 times the 3.8% rate equals a NIT of $7,600. But if Treasury makes the bucket 2 loss-carve-out fix, revised NII will be $100,000 and it’s less than the excess of AGI over the threshold. NII of $100,000 times 3.8% equals $3,800 of NIT.
The spouse already paid Medicare tax on her earned income of $450,000. The proposed regulations would cause them to pay Medicare tax on phantom unearned income.
Do away with all loss limitations and buckets
While Treasury seems to have unofficially conceded the fix to stop carving out bucket 2 losing business trades and placing them into bucket 3 investments, we don’t think that goes far enough for traders. We want to do away with all buckets, and we don’t want buckets or items limited to zero. Losses should be allowed in full.
The Managed Futures Association (MFA) sent a letter to Treasury with its suggested fixes to these proposed regulations. It pointed out some of the same problems we have, and asked for the fix of losses carved out of bucket 2, along with other fixes, too. The goal is to combine all trading and capital gains and losses between buckets 2 and 3, so you don’t have a trader business loss isolated and lost in case you have investment capital gains - which happens in the above example. The MFA made a good point about this with hedge funds. It also asked for bucket losses not included in NII to be carried over to the subsequent year’s NII calculations.
We go a big step further. We want all items summed up as we read the code. We agree all losses not used in the current year’s NII calculations should be carried over to the subsequent year’s NII calculation, on par with capital losses. Capital loss limitations exist to pay for lower long-term capital gains rates. How can anyone justify loss limitations with NII and NIT?
Special concerns for business traders using Section 475 MTM
We’re concerned Treasury will only make the bucket 2 loss carve out fix, which means we will still be left with disenfranchisement from using many unearned losses. In the big picture, that causes the most damage. That potential outcome is unacceptable for business traders using Section 475 MTM ordinary gain or loss treatment, because they likely won’t get a chance to deduct their potentially very large net trading losses from NII.
An investor or business trader using the cash method may not be as concerned over capital losses because the capital loss limitation already limits current year losses to $3,000 against ordinary income. All a taxpayer loses in NII is deducting a net $3,000 capital loss limitation, as no net losses are allowed in buckets 2 and 3. Capital loss carryovers move to the subsequent years for both regular tax and NII purposes. While there are many confusing inconsistencies between regular tax and NIT, there isn’t much for capital losses.
But, there are significant and hurtful inconsistencies between regular tax and NII in the case of Section 475 MTM losses. The proposed regulations won’t count Form 4797 ordinary losses in NII, unless you find other passive-activity income items to soak them up.
Plus, one of the best tax features of Section 475 MTM losses is they are counted in net operating losses (NOLs), which generate huge refunds for business traders by deducting the losses for regular tax purposes in the prior two and/or subsequent 20 years. The problem is that NOLs are not counted in NII calculations, and NOL carryforwards don’t reduce NII.
Nevertheless, NOLs reduce AGI and that can prevent NIT in the first place!
Should business traders continue to use Section 475 MTM?
The clear answer is yes. The income tax savings from using Section 475 MTM ordinary business loss treatment far exceeds potential NIT cost, plus NIT is only triggered if you are over the AGI threshold of $250,000 (married) and $200,000 (single).
It’s important to remember the power of Section 475 MTM losses. They will probably lower your AGI to well under the AGI threshold, so you won’t owe NIT. Section 475 MTM trading gains will provide income that your trading business expenses can be offset against in bucket 2.
Continue to use trader tax status and Section 475 MTM. GreenTraderTax strategies will stand up to these new taxes and we will make tweaks as needed.
Affordable Care Act advocates have good intentions, and the code may be true to those intentions. But these proposed regulations don’t match the goals. We're respectfully asking Treasury to fix all inadvertent errors. We think its interpretations stray too far from the code.
We're assuming that Treasury won’t provide all this necessary relief, so we plan to publish a Petition on RallyCongress.com for traders to send to their congressmen and women and President Obama. Hopefully these groups can also speak with Treasury about these important problems.
Excerpt of the Affordable Care Act tax code
(1) In general.
The term “net investment income” means the excess (if any) of—
(A) the sum of—
(i) gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),
(ii) other gross income derived from a trade or business described in paragraph (2), and
(iii) net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over
(B) the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.
When you read this excerpt of the tax code, what do you conclude? Do you see a provision for buckets and loss limitations? September 5, 2012
High-income traders are hit with ObamaCare’s 3.8% Medicare tax on investment income
Important Postscript: See our new blog "The IRS needs to fix their proposed regulations for the Net Investment Tax", dated May 1, 2013. The IRS proposed regulations throw a significant monkey wrench into this tax treatment.
Important Postscript: See our new blog "Post fiscal cliff tax planning for traders", dated Jan. 5, 2013. Excerpt: In an earlier blog (“High-income traders are hit with ObamaCare’s 3.8% Medicare tax on investment income”), I argued that an S-corporation trading company doesn’t reduce the ObamaCare 3.8% Medicare tax on unearned income, because unearned income passes through on the K-1. While that statement is still true, our new idea is different, carving out fee income into an earned-income related S-corporation. The ObamaCare 3.8% Medicare tax applies to “net” unearned income and this administration fee reduces the net trading income in the trading business partnership or S-corporation tax return.
This primer for traders and investment managers offers planning tips surrounding the new Medicare taxes.
By Robert A. Green, CPA
The Patient Protection and Affordable Care Act (ObamaCare) makes a big political point of raising taxes on the rich — defined as individuals with adjusted gross income (AGI) exceeding $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately) — and on the investor class, too. On Jan. 1, the first revenue raisers — the Medicare tax hikes on earned and unearned income — kick in. (The more contentious health-insurance mandate or tax penalties don’t start until 2014.)
The current Medicare tax rate of 2.9 percent applies to all earned income. But if you’re in one of the previously stated income groups, a new 0.9 percent Medicare hospital insurance tax raises this rate to 3.8 percent.
The more significant ObamaCare tax issue is this: Starting in 2013, the 3.8-percent Medicare tax will be applied to unearned income, too, for individuals exceeding these income thresholds. (Technically, it’s modified AGI, which means U.S. residents abroad must add back any foreign earned income exclusion reported on Form 2555.)
Unearned income includes investment or portfolio income (interest, dividends, most capital gains, and annuity distributions), royalties (net of oil and gas depletion expenses), rents (net of depreciation), and passive activity income, as well as gains from the sale of property not used in an active business.
The 3.8-percent Medicare tax on unearned income doesn’t apply to wages and self-employment income, tax-free municipal bond interest income, IRA and qualified plan distributions (retirement plans), or income from the disposition of, or pass-through from, active (earned-income related) LLCs, partnerships, and S-corps, among other revenue sources. If you sell your company for a capital gain and you have been active in the company, that capital gain is exempt from this Medicare tax. But if you have been passive in the company, it is subject to the Medicare tax on unearned income. The Medicare tax also applies to taxable income in trusts (and estates) with undistributed net income in excess of the dollar amount at which the highest tax bracket for trusts begins (this amount is $11,650 in 2012). You can reduce that trust-level Medicare tax by making DNI distributions, but that moves the potential tax trigger to the beneficiary level.
If you are active in rental real estate, that income is free of the self-employment (SE) tax and the Medicare tax on unearned income. It’s not 100 percent clear yet if the exclusion on the sale of a primary residence is exempt from this Medicare tax. Certainly, the taxable portion of the capital gain on the sale of a primary residence is subject to the Medicare tax.
While the Medicare tax on earned income is 50 percent tax deductible, it is not deductible on unearned income. Employers pay half the 2012 Medicare tax and withhold the other half from employees’ paychecks. Investors have to pay the tax on unearned income through estimated taxes and with their tax balance due.
Planning tips: Selling profitable investment positions before year-end 2012 and accelerating other unearned income could be a wise tax move if you know you are going to be over the $200,000/$250,000 income threshold in 2013, triggering the Medicare tax. Plus, if Bush-era tax cuts expire, ordinary, qualifying dividend, and capital gains tax rates will rise in 2013, too.
As is the case with self-employment tax calculations, the Medicare tax on unearned income is assessed on net investment income. That’s defined as net trading gains — proceeds minus cost basis on securities — less “properly allocable” expenses. For traders and investors, these allowable expenses include trading expenses. For business traders, all trading expenses are deducted on Schedule C or on a pass-through entity tax return. For investors lacking trader tax status, Section 212 investment expenses don’t include education, home office, and some other expenses.
Social security taxes are limited to a base amount; Medicare taxes are not
Historically, social security and Medicare taxes were limited to a social security base amount on earned income only. The 2012 social-security-base amount is $110,100. Congress raises the base every few years by around $3,000 or more. The base was $76,200 in 2000, $51,300 in 1990 and $25,900 in 1980. That’s a serious tax hike on the middle class. Benefits have risen too with the inflation index.
In 1994, Congress untethered Medicare taxes from the social security base, applying them to unlimited earned income. While Congress failed in passing universal health care reform during the first Clinton administration, it did pass this Medicare tax hike which was intended to pay for that health care reform. Go figure.
Medicare costs are spiraling upwards and Congress seems bent on raising Medicare taxes to pay for these runaway costs. There seems to be credence to the popular saying that “spending equal tax hikes.”
An important proposal in Obama’s 2008 presidential campaign was his social security tax plan. To use the regular social security tax base and have the base return again on earnings over $250,000 in an unlimited manner. This proposal seems to be a precursor to ObamaCare’s Medicare tax hike on incomes over $250,000.
Traders can’t avoid the tax with an S-corp
Even though the Senate’s recent attempt to repeal the S-Corp self-employment (SE) tax loophole on earned income failed, taxpayers won’t be able to avoid the Medicare tax by operating their trading activities in an S-Corp. Initial suggestions in the media and tax webinars have indicated otherwise: In the Wall Street Journal tax report “About That Investment Tax,” a CPA suggested the loophole might work to avoid Medicare taxes on investment income. However, our tax research clearly shows these advisers are wrong.
Our tax attorney Mark Feldman, JD, says recent articles covering the loophole are referring to S-corps that engage in active businesses, such as cleaning carpets, not businesses trading financial instruments. Feldman says that even though active income normally is not subject to the unearned income Medicare contribution tax but is subject to SE tax, in the case of these active S-Corp businesses, the active income is subject to neither.
According to Feldman’s research, Temp. Regs. Sec. 1.469-1T(e)(6) states, “An activity of trading personal property for the account of owners of interests in the activity is not a passive activity.” Some taxpayers may argue that their investment is an active trade or business based on this regulation and thereby Medicare tax doesn’t apply to them. Feldman says Congress expected tax advisers to try this loophole and specifically ruled it out in the new law. ObamaCare specifically lists businesses to which this tax applies, including “a trade or business of trading in financial instruments or commodities.”
Here’s how the S-corp SE tax loophole works: Underlying earned-income businesses conduct their activities within an S-corp. S-corps do not pass through SE taxable income from earned income activities as LLC partnership returns do. The IRS requires S-corps to pay “reasonable compensation” to officers/owners. This area of the law is under challenge and the IRS is becoming more aggressive. In the past, 25 percent of income could be attributable to officers’ compensation, but the factors are much more complex and beyond the scope of this article. Check with a tax adviser before you proceed.
The marriage penalty is back
If the Bush-era tax cuts expire as scheduled at the end of December 2012, for either everyone, or as President Obama proposes, for taxpayers making more than $200,000 (single) and $250,000 (married), the significant marriage tax penalty will return. Plus, it will be even greater with ObamaCare’s Medicare tax on unearned income.
Many taxpayers don’t remember the significant marriage tax penalties from before the Bush-era tax cuts 2001 in 2003. Read about the history of the marriage tax penalty.
Consider this scenario. One unmarried partner could report the couple’s unearned income on a tax return filing single, and the other partner could report a high wage job on a second tax return filing single. That would save significant income and Medicare taxes versus filing as a married couple.
I just took an important tax update CPE class with RIA and the instructor suggested that divorce would be good tax planning. Isn’t that a little extreme, and have we come to that? Certainly, some taxpayers may think twice about getting married sooner, rather than later.
Although business traders work hard, they generate unearned income
Many of our clients are full-time business retail traders, combining hard work, skill and capital within the investment arena. Most put in more sweat equity than capital, and they use leverage and volume to make up for insufficient trading capital. They are certainly not coupon-clippers in the rich investor class.
Many aspiring business traders changed careers involuntarily through downsizing, while others pursue their dreams in trading. Some want a business from their home location to fit their lifestyle or family needs. Few online traders make over the $200,000/$250,000 from trading and many traders appreciate ObamaCare.
Even though many traders work full time, their trading gains are still considered unearned income — business-related “portfolio income.” Under the “trading rule” in Section 469, trading gains and losses are exempt from passive income or loss treatment. That’s good news. Trading losses are deductible in Section 212 (investment up to $3,000 per year against ordinary income) or Section 162 (trade or business) if other tax-treatment elections for ordinary loss treatment are in place, like Section 475 MTM for securities or Section 988 for forex. Congress didn’t want taxpayers with suspended passive losses to invest in hedge funds to easily generate passive income.
Ordinary trading losses (Section 475 and 988) are much more powerful than capital loss limitations of $3,000. The ordinary loss reduces both MAGI and net investment income (NII), and both of them can affect the Medicare tax on unearned income calculation. You pay the tax on the lower of the NII or the excess over MAGI, so always try to lower your MAGI, too. Roth IRA distributions don't generate MAGI, but RMD from traditional retirement plans do.
A few types of business traders have earned income subject to SE taxes:
-Futures traders who are full members of futures or options exchanges generate earned income — otherwise called SE income — on their trades executed through their exchange membership (Section 1402i in the SE rules).
-Investment management advisory fees — including management fees and incentive fees — are considered SE and earned income. Carried interest or profit allocation which is a share of portfolio income is not SE income, and that's one reason it's considered a tax loophole when it replaces incentive fees.
-Proprietary traders who trade the firm’s capital rather than their own as retail traders are sometimes paid as independent contractors and issued a Form 1099-Misc. for non-employee compensation, which is considered SE and earned income.
These traders with SE income have the tax benefit opportunity of AGI deductions for retirement plans and health insurance premiums, both of which require earned income. These income tax savings can outweigh SE tax costs.
Business traders who do not generate SE income start with the earned income glass empty, generally a nice thing. If these traders want AGI deductions for retirement plans and health-insurance premiums to put net tax savings in their pockets, they need to form an entity to financially engineer earned income. They use an administration fee in an LLC/partnership and a salary in an S-Corp. These business traders can also save more in income taxes than they pay in SE taxes.
Planning tips: Business traders affected by the Medicare tax in 2013 have more incentive to form an entity to convert trading gains to earned income with a fee or salary to increase retirement plan tax deductions. If they are going to pay Medicare tax on unearned income, they may as well have AGI deductions to offset that tax cost. Consider a defined benefit plan with a maximum contribution allowed up to $200,000 for 2012. That’s far higher than a defined contribution plan deduction of $50,000.
Trading within a retirement plan is already a good idea for saving income taxes — retirement plan earnings and distributions are exempt from the Medicare tax on unearned income — and now it can help save the additional Medicare tax on unearned income, too. When trading in a Roth IRA or Roth qualified plan, the income and Medicare tax savings are permanent. Conversely, in traditional retirement plans, income taxes are only deferred until retirement, when Required Minimum Distributions must start (no later than age 70½).
With the advent of online trading accounts for retirement plans and brokers making commissions competitive, more traders are self-directing their retirement funds into active trading. Some traders simply trade within their retirement plans, avoiding “early withdrawals,” which trigger ordinary tax rates and 10-percent excise taxes before age 59½ in IRAs and age 55 in qualified plans. We recommend business traders set up a qualified plan and then use a qualified plan loan to fund their business trading accounts. Factoring the Medicare tax on unearned income into the mix, some traders may prefer trading more inside of their retirement plans rather than taking distributions or plan loans.
We understand well that many of our trader clients count on trading gains to pay their bills and support their families. Trading is their job and living. Switching to trading retirement plan funds is simply not feasible for them. Others just haven’t accumulated much retirement capital. Plus, it’s risky to put retirement plan assets at risk and those funds are meant to provide income in retirement and to be a safety net.
We think Roth conversions are better than ever because they will help save this Medicare tax on unearned income. Remember, if the conversion is a mistake with subsequent losses, you can always recharacterize the conversion after year-end. We also recommend making non-deductible IRA contributions each year.
Whether you trade taxable accounts individually, in a pass-through entity like a general partnership, LLC or S-Corp, or through estates and trust accounts, keep in mind the unearned income passes through to your individual return and it’s subject to this new Medicare tax if you exceed the income thresholds.
C-Corps are bad for trading activities, but maybe they can help
The 2013 tax rates on individuals are scheduled to move higher when the Bush-era tax cuts expire. At the same time, Congress is talking about reducing the corporate tax rates. In 2012, the top rates are both 35 percent, but in 2013, individual rates could approach 44 percent (39.6 percent plus phase outs and the 3.8-percent Medicare tax) and corporate rates could drop below 30 percent. Tax advisers then suggest using corporations to report income. But, don’t forget to factor in double-taxing including on the state level: The entity pays taxes on income, and the individual pays taxes on dividend payments from the entity.
Generally, trading in a C-corp is a bad idea. Trading losses are trapped in corporations and it’s better for individuals to use pass-through entities, utilizing the losses on their individual tax returns. Especially when they’re fully deductible as ordinary losses, like with Section 475 MTM on securities and Section 988 on forex. C-corps also can’t get lower Section 1256 60/40 tax rates on futures and other Section 1256 contracts.
Planning tip: One strategy is to house your earned income activities in a C-corp and grow accumulated earnings before double taxation on the individual level. Conduct your trading activities in pass-through entities and try to keep your AGI under the higher tax rate thresholds. Caution: The preferential qualifying dividends tax rate (15 percent) expires with the Bush-era tax cuts, and all dividends return to the ordinary income tax rate.
While tax planning is uncertain based on expiration of Bush-era tax cuts and promised tax reform, the ObamaCare Medicare tax changes are on the books and traders should adjust their tax planning accordingly. Even if a new Congress reverses some of ObamaCare, will they reverse these new Medicare taxes? Not if you look to 1994 as a precedent.
A version of this article appears in Active Trader’s November issue, on newsstands in October. June 28, 2012
Supreme Court upholds health care mandate as a tax
By Robert A. Green, CPA
I guessed it.
The Supreme Court reclassified the health care mandate as a tax, which is what many people said it was from the start. It was always going to be charged and collected on income tax returns. Had Chief Justice Roberts said it was unconstitutional, the whole bill would have collapsed and there would have been great disarray and wasted cost. President Obama didn’t sell it as a tax to avoid tax hike dissent and politics.
As tax preparers, we will have to deal with this health care tax on annual income tax returns. We deal with all sorts of taxes, and the list is growing, unfortunately. Income, FICA, Medicare and now health care taxes.
In addition to this health care tax, 2013 will bring the health care act's other tax — the Medicare Surtax, otherwise labeled the Medicare Hospital Insurance ("HI") tax. The Supreme Court left all the Act's tax provisions in place. This Medicare surcharge applies to wages and self-employment income in excess of $200,000/$250,000 (married couples). The surtax rate is 0.9 percent on top of the existing Medicare tax rate of 2.9 percent — a combined rate of 3.8 percent. Remember, unlike with FICA, Medicare taxes apply on unlimited earned income; there is no social security tax base of $110,100. (Click here for more information.)
There's a bombshell for our trader clients, too. For the first time in many decades, as part of the Affordable Care Act, Congress was able to break through the Chinese Wall to subject investment and passive income to this otherwise earned-income-related Medicare tax. That's bad news for our profitable trader and investor clients.
Like other tax hikes President Obama supports, this tax hike applies to higher-income folks. First, calculate adjusted gross income in excess of $200,000 (single) or $250,000 (married filing joint). Next, determine your total income from interest, dividends, capital gains, rents and passive income. The Medicare Surtax will apply to the lessor of these two calculations.
2013 is shaping up to be a year of great tax change and related uncertainty and disarray. In addition to these health-care taxes, the other big bombshell — the Bush-era tax cuts — is scheduled to expire at year end 2012. The estate tax is scheduled to come back with a vengeance, too.
All of these tax changes — AND TAX HIKES — will throw tax planning upside down. It's wise to consult with us about it before year-end.
To see the math on how tax rates will explode higher after expiration of the Bush-era tax cuts, see Green's 2012 Trader Tax Guide, Chapter 9 Tax Planning & Tax Law Changes.
Watch my latest video on why Congress should immediately extend the Bush-era tax cuts for everyone now. With tax reform promised in 2013, it's crazy to crash the tax code with sweeping changes from Bush-era tax cut expiration, only to change it again with major reform shortly thereafter.
What's the lesson? You can't keep making major changes last minute and causing great uncertainty. We all spend way too much time, effort and money dealing with change and it's counterproductive. That's probably why Judge Roberts took the easy way out — just call it a tax.