A cottage industry has sprung up around the bracket created for the NCAA Division I men's basketball tournament. Consider the bracket software, bracket T-shirts, bracket Internet contests, and spinoff brackets for beer, swimsuit models, rock bands, and, of course, the Coolest Accounting Firm.
Syracuse University professor Robert Nassau decided to create his own "April Madness" bracket, as a teaching tool for his tax students and a fun way to illustrate a few points about the tax code. His bracket consisted of 64 sections of the IRS code, and his idea was to pit them against each other to eventually crown a champion representing the rule that is most useful to taxpayers.
In "sports reports" published in Tax Notes by the nonprofit Tax Analysts and reprinted in the TaxProf blog, Nassau counted down to the Sweet Sixteen, the Final Four, and finally, the winner. Was the run-up to the championship game as surprising for the tax bracket as it was in crazy world of college basketball? Well, no, Nassau says. The winner? The good old Standard Deduction, which defeated Capital Gains in the final.
The competition did have a few surprises. Nassau grouped the 64 sections into four Regionals: the Exclusions Regional, the Deductions Regional, the Character/Timing Regional, and the Credits Regional. He seeded the sections from 1 to 16. The four No. 1 seeds were: health insurance in the Exclusions Regional; home mortgage interest in the Deductions Regional; 401(k) plans in the Character/Timing Regional; and the unified estate and gift tax credit in the Credits Regional. An upset put Breastfeeding Costs into the Sweet Sixteen after beating Dependency Deductions and State Income Tax.
Nassau wrote",When reached for comment after that game, the coach of Breastfeeding Costs had this to say: 'This is huge for us. It completely vindicates Commissioner Shulman's decision to make us deductible. We could never have done it without Congressman Levin and our other supporters in Congress. We know 2 percent of America is against us, but I assure you that we are here to stay! America loves an underdog.'"
Alas, it was not to be. Home Mortgage Interest, with all those dollars on its side, defeated Breastfeeding Costs. The Final Four were Health Insurance versus Standard Deduction, followed by Capital Gains versus Earned Income Credit.
Nassau was the sole arbiter of Standard Deduction as the 2011 National Champion of Internal Revenue Code Bracketology. "In the end, I figured more people were claiming the Standard Deduction than Capital Gains", he said. The Standard Deduction, the dollar amount that reduces the amount of income on which you are taxed, is claimed by most taxpayers. The 2010 Standard Deduction for married couples filing a joint return is $11,400; for single individuals it is $5,700. "It's just a very popular, very useful section that saves a lot of people a lot of money."
Nassau has a soft spot for the parts of the tax code that help those with little income. Nassau is director of the Syracuse University College of Law Low-Income Taxpayer Clinic, funded by IRS grants, for people who are involved in controversies with the tax agency. Students represent clients in administrative proceedings before the IRS and in judicial proceedings. Nassau says the clinic represents taxpayers who owe back taxes, are fighting an earned income credit audit, are enmeshed in child benefit tax issues, and the like.
When Nassau was asked whether he would consider a bracket in the future with the least taxpayer-friendly sections, he thought about it, but added that he's not one who believes the tax code is absurdly complicated. As he put it",Life is complicated." For the vast majority of people who don't need to depreciate, taxes aren't overly complex. The accounting is difficult, however. For example, if you're running a pizza shop and you're trying to keep track of income and expenses, it's burdensome, but as a business owner, you'd want to track those numbers anyway, regardless of the tax code.
Nassau is pretty sure he'll bracket the IRS code again next spring, but for now let us remember the words from the "normally reticent" coach of Standard Deduction who said after her team's emotional win: "'Itemized Deductions are all well and good, but we finally won one for the little guy!' Choking back tears, she went on, 'Basic Standard Deduction is the bedrock of our Section. We'd be nowhere without it. It could have gone pro after last season, but it came back to help us win this Championship. I'm sorry. I'm all broken up. I can't go on.'"