"[I favor] a progressive tax... to put it out of the power of the owner of one of these enormous fortunes to hand on more than a certain amount to any one individual."

-- Theodore Roosevelt

The U. S. Senate voted 93-3 this week to allow a ban on Internet taxes. Senator John McCain (R-AZ) was delighted and stated, "This bill will insure that consumers will never have to pay a toll when they access the information highway. Plainly and simply, this is a pro-consumer, pro-innovation and pro-technology bill."

The House and Senate will meet to discuss the final bill, but it is expected to move to the President's desk in prompt order.

The encouragement of broadband Internet use has support from both political parties. Democratic senators, including Senate Minority Leader Tom Daschle (D-SD), sent a letter to President Bush urging strong support of broadband usage. Senator Daschle has been particularly interested in the government loan program for Rural Utilities Service. $2 billion has been set aside to facilitate the development of broadband in rural America.

President Bush spoke on April 26th to the American Association of Community Colleges. He also indicated strong support for both broadband and wireless Internet access. He indicated that a portion of the federal research and development budget will assist broadband technologies. The National Information Technology Research and Development program will spend over $2 billion directly on broadband technology.

Editor's Note: While both political parties support broadband, Nielsen/Netratings surveys indicate that the private sector is also moving forward rapidly. Approximately 75% of all Americans now have Internet access. During the past year, broadband use grew by over 30%. It now appears that by the end of 2004, about half of all Internet users will be using DSL, cable or wireless broadband services. Broadband systems allow more rapid access, easier downloading, and streaming audio and video. By 2005, most Americans will be enjoying the broadband "rich media" experience on the Internet.

By a 323-95 vote, the House passed the permanent repeal of the "marriage penalty tax." With this permanent repeal, the expanded 15% bracket for married couples is retained. It also doubles the standard deduction for married couples.

Speaker of the House Dennis Hastert (R-IL) was pleased with the passage. He noted, "Today, the House took another step to protect married taxpayers. Marriage should be celebrated - not taxed." Treasury Secretary John Snow also responded, "Our tax code should not penalize marriage. Hard-working married couples should be able to keep more of their own money to help pay for their children's education, invest for retirement and spend as they see fit."

Representative Charles Rangel (D-NY) had proposed an amendment to the bill. This amendment was not included in the final bill. Representative Rangel had stated that, "The Republican bill gives no marriage penalty tax relief to 10 million middle-income families who fall under the alternative minimum tax." He suggested that marriage penalty relief be extended to the alternative minimum tax. Representative Rangel would pay for the additional marriage tax relief with an increase in the top rate from 35% to 38.6% for couples with incomes over $1 million.

The IRS released an announcement on April 28, 2004 (IR-2004-59) that cautioned charities to be careful not to become involved in political campaigns.

Charities exempt under Section 501(c)(3) are prohibited from campaigning on behalf of any candidate. They may not endorse a candidate, donate to a campaign or even encourage their members and friends to vote for a specific candidate.

The announcement notes that the test is dependent upon the "facts and circumstances" in any case. For example, it's perfectly fine for a charity to host a debate or forum. However, the charity may not show specific preference for one candidate.

If a charity violates this rule, it is possible that the charity could lose its tax-exempt status and face an excise tax on political expenditures. The announcement specifically notes that these rules apply to churches and refers churches to Publication 1828, Tax Guide for Churches and Religious Organizations. The guide is available at www.irs.gov/eo.

Editor's Note: It is significant that the announcement specifically refers to churches. During presidential elections, it is now customary for candidates to appear on Sunday at churches. In some cases, candidates are permitted to speak at the church. There have been allegations in the past that candidates from both major parties have been improperly supported by church pastors and members at the services. The IRS is giving warning to churches that they should be particularly careful when a candidate appears in person at a church.

The IRS has announced the Applicable Federal Rate for May of 2004. The AFR under Section 7520 for the month of May will be 3.8%. The rates for April of 3.8% or March of 4.0% may also be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments, the lowest AFR is preferable. During 2004, pooled income funds in existence less than three tax years must use a 4.8% deemed rate of return. Federal rates are available at www.irs.gov/businesses/small/article/0,,id=112482,00.html.

Internal Revenue Bulletins are available at http://www.irs.gov/businesses/lists/0,,id=98230,00.html.