TaxProf Blog

Hickman: Don’t Overlook City of Arlington, Texas v. FCC

Kristin Hickman (Minnesota), Don’t Overlook City of Arlington, Texas v. FCC:

While many tax practitioners are understandably focused right now on the outcome of PPL Corp. v. Commissioner, in the wake of Mayo and Home Concrete, the tax community would be remiss if it did not also register the Supreme Court’s decision Monday in City of Arlington, Texas v. FCC, No. 11-1545. City of Arlington was not a tax case, but the decision represents a significant statement regarding the scope of Chevron deference with potential implications for future tax litigation. Plenty of administrative law scholars are and will be commenting on the case, but the opinions are nuanced, and careful consideration of the decision is worthwhile.

The question before the Court was whether a court should apply Chevron to review an agency’s determination of its own jurisdiction—an issue that had divided the circuits for some time. In an opinion written by Justice Scalia, a majority of five Justices answered this question in the affirmative. Justice Breyer wrote an opinion concurring in part and concurring in the judgment. Chief Justice Roberts wrote a dissenting opinion in which he was joined by Justices Kennedy and Alito.

Continue reading "Hickman: Don’t Overlook City of Arlington, Texas v. FCC"

NY Times: 'Artful Tax Dodger' Indicted for Failing to Report $12.5m Income on Sales of Fake Art to Fake Clients

New York Times:  Dealer at Center of Art Scandal Arrested on Tax Charges:

In a case of alleged forgeries that roiled the New York art market and led to a host of civil lawsuits, federal authorities on Tuesday declared a series of works sold as Modernist masterpieces to be fake and charged a little-known Long Island dealer at the center of the scandal with tax fraud.

Prosecutors charged that the dealer, Glafira Rosales, 56, of Sands Point, N.Y., failed to disclose $12.5 million that she had earned from the sale of the works and had never reported, as required, that she had Spanish bank accounts where she had hidden much of the proceeds.

“As alleged, Glafira Rosales gave new meaning to the phrase ‘artful dodger’ by avoiding taxes on millions of dollars in income from dealing in fake artworks for fake clients,” Manhattan United States Attorney Preet Bharara said in a statement announcing Ms. Rosales’s arrest.

The case drew attention in the art world because it illustrated the vulnerability of a market where value is based on authenticity but can be difficult for experts to determine with complete precision. Dealers who sold the works, often for millions of dollars, said they believed in their authenticity even after many of their clients began to challenge those assertions.

Houston Business & Tax Journal Publishes New Issue

The Houston Business & Tax Law Journal has published Vol. 12, Part 2 (2012):

• Beckett G. Cantley (Thomas Jefferson), Steering into the Storm: Amplification of Captive Insurance Company Compliance Issues in the Offshore Tax Crackdown, 12 Hous. Bus. & Tax L. J. 224 (2012)
• Frank H. Pedersen (NYU), Advancing the Study of Tax Complexity with the usability Model, 12 Hous. Bus. & Tax L. J. 282 (2012)
• Kristian Sullivan, Student Article, A Work in Progress: The Ever [or Never] Changing Role of the Machine-or-Transformation Test in Determinations of Patentable Subject Matter Under 35 U.S.C. § 101, 12 Hous. Bus. & Tax L. J. 362 (2012)
• David Wechsler, Student Article, The Indispensable Advisor: Why Communications with Certain Non-Parties Should Fall Within the Attorney-Client Privilege, 12 Hous. Bus. & Tax L. J. 388 (2012)

Taylor: Suppose FIRPTA Was Repealed?

Willard Taylor (Sullivan & Cromwell, New York), Suppose FIRPTA Was Repealed?, 14 Fla. Tax Rev. 1 (2013):

This article argues, as others have before, that the Foreign Investment in Real Property Tax Act of 1980 (or “FIRPTA”), or at least the provisions of FIRPTA relating to “United States real property holding corporations,” should be repealed. Their enactment in 1980 was misguided and in any event changes in the Internal Revenue Code since then have made the provisions obsolete. But if FIRPTA is repealed, in whole or in part, the article argues that the lack of parity between foreign investment in real property that is made directly or through a partnership, on the one hand, and foreign investment in a real estate investment trust (or a regulated investment company that invests in shares of real estate investment trusts) should be dealt with. Otherwise, repeal will exacerbate existing distortions (which were already pushed further by FIRPTA) resulting from the choice of the entity used to make an investment in US real property. The article also suggests that repeal of FIRPTA would provide an opportunity to look at the taxation of foreign investment in the United States more broadly and in particular the rules that tax income from U.S. real property. The tax treatment of inward investment is a generally neglected subject.

The article concludes by arguing against legislation that would keep the FIRPTA rules and simply expand provisions of present law that favor foreign investment through real estate investment trusts, such as the Real Estate Jobs and Investment Act of 2011.

More on Apple's Tax Planning

Following up on yesterday's post, Senate Holds Hearing Today on Apple's Tax Avoidance:

• Blog of the Legal Times:  Senators Question IRS Over Targeting Conservative Groups
• Bloomberg editorial:  Apple's Taxes Expose the Rotten U.S. Tax Code
• Bloomberg:  Apple CEO Cook Rebuts $9 Billion Tax-Avoidance Claim
• Bloomberg:  Google Joins Apple Avoiding Taxes With Stateless Income, by Jesse Drucker
• Bloomberg:  Tim Cook, Taxes, and Avoiding the Right Thing
• The Guardian:  Apple Chief Calls on U.S. Government to Slash U.S. Corporate Tax; Tim Cook Warns Congress That He Would Refuse to Repatriate $100bn Stashed Offshore Unless U.S. Severely Reduced its 35% Tax Rate
• The Hill:  Apple CEO Denies Using Tax ‘Gimmicks’
• The Hill:  Rand Paul: Senate Should Apologize to Apple for ‘Spectacle’ Hearing on Taxes
• National Law Journal:  Senators Grill Apple Executives About Tax Strategy
• National Review:  The Big Apple Circus: Apple Pays All the Taxes It Owes, and Congress Pretends It’s a Crime
• New York Times DealBook:  Finding the Economic Roots of Apple’s Taxable Product, by Victor Fleischer (San Diego)
• New York Times:  Even Before Apple Tax Breaks, Ireland’s Policy Had Its Critics
• New York Times:  For U.S. Companies, Money ‘Offshore’ Means Manhattan, by David Kocieniewski
• New York Times:  Disarming Senators, Apple Chief Eases Tax Tensions
• New York Times:  One Response to Apple Tax Strategy May Be to Copy It, by Floyd Norris
• Politico:  Apple’s Tim Cook Shines in D.C. Spotlight
• Politico:  Tim Cook Defends Apple Tax Policy
• Reuters:  Factbox: Apple, Amazon, Google and Tax Avoidance Schemes
• Wall Street Journal editorial:  The Apple Tax Diversion: Senators Beat Up a U.S. Success for Following the Tax Laws They Wrote
• Wall Street Journal:  Apple CEO Defends Tax Practices as Proper
• Wall Street Journal:  Apple CEO Tim Cook, Lawmakers Square Off Over Taxes
• Washington Post editorial:  Apple Is Shifting its Tax Burden

Henderson: Advice to University Presidents: Restructure Your Law Schools, or Close Them

National Law Journal, Law Schools: A Special Report:

• William D. Henderson (Indiana), The Calculus of University Presidents: Many Must Decide Between Two Difficult Paths: Tackle Law School Restructuring or Close Their Law Schools:

For the class entering law school in the fall of 2013, law school applicants have ebbed to a 30-year low. The collapse in demand for law school admission is producing profoundly serious business problems for a large proportion of U.S. law schools — problems that, for the moment, are hidden from public view as the resulting budgetary issues migrate from the dean's suite to the office of university presidents.

In a nutshell, central universities are being asked — or will be asked, in ways that will not inspire confidence in the current law school leadership — to provide a financial backstop so their law schools can enroll fewer students or offer more sizeable scholarships to fill the requisite number of seats. Because of the magnitude of the financial stakes involved — million-dollar shortfalls just for the upcoming fiscal year with no clear end in sight — this is as difficult a decision as a university president will ever face.

Below is the letter I would write to a university president who sought my advice on what to do. But the intended audience is law professors and practicing lawyers who seek to help their alumni institutions. For many of these readers, the best way to protect your law school is to make the university president's job easier by (1) coming to terms with the brutal facts, (2) honestly communicating your dilemma to the central administration and (3) proposing a solution that is realistic and potentially viable, even if the short- to medium-term tradeoffs are extraordinarily difficult and painful. ...

[C]losure may be the best long-term course for the university. One step short of closure may be rolling the law school into the College of Arts and Sciences under a newly created law department that can service the undergraduate population. Faculty teaching loads and salaries can be rationalized accordingly. This would permit a dramatically pared down J.D. program that could one day be rehabilitated.

The one militating factor is your faculty's willingness to restructure its curriculum and mindset. Law school graduates are not wanting for jobs because law is going away. Rather, the legal industry is suffering from a productivity imperative — both private citizens and wealthy corporations need better, faster, cheaper legal solutions. Delivery on this imperative requires a redesign of both the legal system and the migration away from customized legal services to standardized legal products.

The first hurdle in restructuring is the faculty tself embracing the need for change. The second hurdle is your own willingness to expand the scope of academic productivity. The most successful law schools in the future will be closely engaged with employers seeking to adapt to a rapidly changing industry. These same schools will also need to effectively collaborate with professionals from other disciplines, including systems engineering, information technology, finance, marketing and project management. Law faculties locked into the traditional positional competition over published legal scholarship are going to be unable to meet these heightened job demands. As the university president, you need to provide the law faculty with the latitude to adapt.

Frankly, saving your law school is going to require courage and leadership. Brace yourself for vilification. Even if you are successful, your efforts and intentions will not be appreciated for years to come. I do not envy your choices. I certainly wish you the best of luck — you will need it.

• Karen Sloan, Law for Laymen; Law Schools Hope to Fill Seats by Offering Master's Degrees
• Karen Sloan, Masters Programs Move Online
• Karen Sloan, A Place for Lawyers to Learn Executive Skills: Harvard, Georgetown Follow Business School Model

The IRS Scandal, Day 13

• Richard Epstein (NYU), The Real Lesson of the IRS Scandal
• ABC News:  First Conservative Groups File Suit Against IRS
• ABC News:  IRS ‘Blemish’ Prompts Scorn From Unappeased Senators
• Bloomberg:  Shulman’s Above-Fray Posture to Get Test From Issa in IRS Probe
• Bloomberg:  Sympathy for the IRS
• FactCheck.org:  Republican Overreach on IRS
• The Hill:  White House, Treasury Discussed How to Handle Disclosure of IRS Story
• L.A. Times:  IRS Officials Still Don't Have Full Explanation of Targeting
• L.A. Times:  IRS' Last Two Commissioners Deny Lying; Official to Take the 5th
• National Review:  Is the IRS Too Bog to Jail?
• National Review:  The Pinocchio Administration
• National Review:  True the Vote Files Suit Against the IRS
• National Review:  Washington All Along: D.c. Knew Exactly What Cincinnati Was Doing
• NBC News:  Ex-Cincy IRS Official Doubts Agency's Explanation for Tea Party Scandal
• New York Times op-ed:  Bring Back Ken Starr to Investigate IRS, by Bill Keller
• New York Times:  IRS Official Will Decline to Testify Before House Panel
• Politico:  Former IRS Chief Doug Shulman 'Dismayed' at Targeting
• Politico:  IG to Conduct New IRS Probe
• Politico:  White House Reveals New IRS Details
• Slate:  Stop Hating on the IRS, by Emily Bazelon
• Time:  Despite President Obama’s Optimism, No Quick Fix Likely For IRS
• U.s. News & World Report:  IRS, Congress Point Fingers About Who is to Blame for Scandal
• Wall Street Journal:  Activists Saw Vindication As IRS Controversy Erupted
• Wall Street Journal:  Director of IRS Unit Says She Won't Testify
• Wall Street Journal:  No Apologies From Former IRS Chief
• Wall Street Journal:  Spokesman: Obama Agrees With Counsel’s IRS Decision
• Wall Street Journal:  U.S. Treasury Was Told in Late April That IRS Officials Mulled Apology
• Washington Post:  Douglas Shulman Won’t Apologize — Yet, at Least
• Washington Post:  Internal IRS Probe Cited Same Problems With Approach to Conservative Groups in May 2012, House Aide Says
• Washington Post:  IRS Official Lois Lerner to Take the Fifth
• Washington Post:  IRS Scandal Focus of Senate Hearing
• Washington Post:  Watchdog Group Sues IRS for Stricter Tax-Exemption Rules
• Washington Post:  With More Clarity, White House Adds to Confusion on IRS

Prior TaxProf Blog coverage:

Continue reading "The IRS Scandal, Day 13"

House Holds Hearing Today on The IRS: Targeting Americans for Their Political Beliefs

The House Committe on Oversight and Government Reform holds a hearing today on The IRS: Targeting Americans for Their Political Beliefs at 9:30 a.m. EST (webcast here):

• Neal S. Wolin (Deputy Secretary, Treasury Department)
• J. Russell George (Treasury Inspector General for Tax Administration)
• Lois Lerner (Director of Exempt Organizations, IRS)
• Douglas Shulman (Former Commissioner, IRS)

Boudreaux: The Impact Xat: A New Approach to Charging for Growth

Paul Boudreaux (Stetson), The Impact Xat: A New Approach to Charging for Growth, 43 U. Mem. L. Rev. 35 (2012):

At a time when the economy and the housing market rise and fall together, the phenomenon of impact fees complicates the construction of new housing across the nation. Although justified as a means of forcing new development to “pay its way” for the costs of government infrastructure necessitated by the new housing, impact fees typically are imposed in a way that makes them, in effect, a dubious population tax. Indeed, the typical fee does little to discourage costly suburban sprawl. This Article--using economic lessons from policies that discourage usage of scarce resources with light bulbs, bathrooms, and buildings--suggests a new policy course. The Article proposes an “impact xat” (a hybrid of a tax and fee) based on a combination of location and size of the housing, along with a conservation baseline to encourage close-in, affordable housing. If it were to replace the current system of property taxes, the impact xat could offer a simpler, fairer, and wiser path for the regulation of housing development in the twenty-first century.

Foreign Tax Credits and the P&G Decision

John P. Dombrowski (J.D. 2013, Toledo), Note, Foreign Tax Credits: The Recent Decision in Proctor & Gamble v. United States Allows Procedure to Override the Statutory Intent, 43 U. Tol. L. Rev. 405 (2013):

The crux of this article stems from a recent case, Proctor & Gamble (P&G) v. United States, in which a U.S. District Court denied the taxpayer’s otherwise meritorious claim for a foreign tax credit due to the court’s misinterpretations of the regulation’s requirements and potential avenues of relief available under tax treaties. Between the presentation of this case and its analysis, this article will give a general overview of the foreign tax credit system. This discussion will lead to the factors or merits used to determine whether a tax is compulsory and thus allowable as a foreign tax credit. The procedural requirements, which involve the invocation of a competent authority, and the two distinct definitions of competent authority, that exist in treaties and regulations will then be discussed. Lastly, the article analyzes the P&G case, a case in which a company’s alleged failure to exhaust competent-authority procedures barred it from receiving a foreign tax credit on an otherwise meritorious claim.

Steven Colbert on the IRS Scandal

The Colbert Report
Get More: Colbert Report Full Episodes,Indecision Political Humor,Video Archive

The Colbert Report
Get More: Colbert Report Full Episodes,Indecision Political Humor,Video Archive

(Hat Tip: Evelyn Brody.)

Formula Clauses After Wandry

Patrick J. Duffey (The Duffey Law Firm, Boca Raton, FL), Brian K. Duffey (The Duffey Law Firm, Boca Raton, FL) & Lee-ford Tritt (Florida), A Question of Value: The Evolution of Formula Clauses Through The Decades, 47 Real Prop. Tr.& Est. 467 L.J. (2013):

Wealthy families often use closely-held businesses to manage, preserve, and transfer wealth. These entities are difficult to value and, therefore, present estate planning and transfer challenges when owners attempt to give or sell portions of the business. Attorneys often use formula clauses to ensure predictability in the parties' expected tax liability. Recently, the Tax Court decided Wandry v. Commissioner [T.C. Memo. 2012-88 (Mar. 26, 2012)] in favor of the taxpayer, where the taxable transfer employed a defined value clause with a non-charitable valve. Until this decision, courts have endorsed only the use of charitable valves in conjunction with defined value clauses. This Article analyzes the Tax Court's decision in Wandry and attempts to fit it within well-established case law decided in the last century. Although Wandry was decided in favor of the taxpayer, this Article suggests that attorneys who step outside the boundaries of court-blessed formula clauses do so at their own risk.

Prior TaxProf Blog coverage:

• Wendy C. Gerzog (Baltimore), Wandering Far Afield With Defined Value Clauses, 135 Tax Notes 1171 (May 28, 2012)
• WSJ: Tax Court Blesses Tax-Free Technique for Parents to Transfer Family Business, Wealth to Their Children (Apr. 29, 2012)

Bartlett: The Bush Tax-Cut Failure

New York Times:  The Bush Tax-Cut Failure, by Bruce Bartlett:

Ten years ago this month, Congress enacted the third major tax cut of the George W. Bush administration. Its centerpiece was a huge cut in the tax rate on dividends. Historically, they had been taxed as ordinary income, but the Bush plan, enacted by a Republican Congress, cut that rate to 15 percent. The tax rate on ordinary income went as high as 35 percent.

This initiative originated with the economist R. Glenn Hubbard, who had been chairman of the Council of Economic Advisers when the proposal was sent to Congress. Mr. Hubbard was a strong believer that the double taxation of corporate profits – first at the corporate level and again when paid out as dividends – was a major economic problem. ...

In an op-ed article in The Washington Post on Nov. 16, 2001, he predicted that the soon-to-be-enacted 2002 tax cut, which President Bush signed on March 9, 2002, would “quickly deliver a boost to move the economy back toward its long-run growth path.”Mr. Hubbard predicted that it would create 300,000 additional jobs in 2002 and add half a percentage point to the real gross domestic product growth rate.

There is no evidence that the tax cut had any such effect. The unemployment rate remained above 5.7 percent all year, rising to 5.9 percent in November and 6 percent in December. The real G.D.P. growth rate fell each quarter of 2002, and by the fourth quarter growth was at a standstill. Hence the need for yet another big tax cut. ...

The Treasury Department issued a fact sheet on July 30 asserting that the decline in dividends had been a cause of the weak stock market and noting that dividend payouts had risen since enactment of the tax cut on May 28. Subsequent research, however, found that the increase in dividends was a short-term phenomenon and mainly at companies where stock options were a major form of executive compensation.

• Federal Reserve Board, How Did the 2003 Dividend Tax Cut Affect Stock Prices and Corporate Payout Policy? (2005)
• Federal Reserve Board, Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut (2006)
• National Tax Journal, The Effect of the May 2003 Dividend Tax Cut on Corporate Dividend Policy: Empirical and Survey Evidence (2008)
• Federal Reserve Board, Effects of the 2003 Dividend Tax Cut: Evidence from Real Estate Investment Trusts (2010)
• U.S. Treasury Department, Office of Tax Analysis, Taxes and Financial Portfolio Choices: Evidence from the Tax Rate Reductions of the 2001 and 2003 Tax Acts (2011)
• UC-Berkeley, Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut (2013)

2013 Tax Filing Season: Processing, Refunds Down; e-File, IRS Web Site Use Up

IR-2013-52, More Taxpayers e-file from Home in 2013 (May 20, 2013):

Cumulative statistics comparing 5/11/12 and 5/10/13
Individual Income Tax Returns:	2012		2013		% Change
Total Receipts	135,473,000		134,349,000		-0.8
Total Processed	130,261,000		129,674,000		-0.5
E-filing Receipts:
TOTAL	112,089,000		113,954,000		1.7
Tax Professionals	70,344,000		70,380,000		0.1
Self-prepared	41,745,000		43,574,000		4.4
Web Usage:
Visits to IRS.gov	255,269,615		318,408,842		24.7
Total Refunds:
Number	102,522,000		101,082,000		-1.4
Amount	$277.180	Billion	$267.946	Billion	-3.3
Average refund	$2,704		$2,651		-2.0
Direct Deposit Refunds:
Number	79,308,000		79,880,000		0.7
Amount	$231.656	Billion	$228.467	Billion	-1.4
Average refund	$2,921		$2,860		-2.1

The IRS Scandal, Day 12

• Above the Law:  On the IRS Mess and What It Means to be a Lawyer
• American Spectator:  Obama and the IRS: The Smoking Gun?
• Bloomberg:  Obama’s Defense in IRS Case Is Pre-Election Ignorance
• CBS News:  Evidence Emerges that Obama Administration Official Knew of IRS Targeting During 2012 Campaign
• Dorf on Law:  Two Broader Lessons of the IRS/Tea Party "Scandal", by Mike Dorf (Cornell)
• The Hill:  Poll: Majority Believe IRS Targeting of Tea Party Was Intentional
• Human Events:  IRS and AP Scandals Cast a Big Chill on Free Speech, by Michael Barone
• Human Events:  White House Defends IRS Chief-Turned-ObamaCare Enforcer, by John Hayward
• Rush Limbaugh:  Goal of the IRS Scandal: Scare GOP Donors
• National Review:  Congress Audits its Own
• New York Times:  IRS Scandal: Questions and Answers
• Politico:  The White House’s Shifting IRS Account
• Wall Street Journal op-ed:  The IRS and the Drive to Stop Free Speech, by David Rivkin & Lee Casey
• Washington Post op-ed:  IRS Scandal Inspires a Kafka-esque Tale, by Richard Cohen
• Washington Post:  A bushel of Pinocchios for IRS’s Lois Lerner
• Weekly Standard:  IRS's Lerner Had History of Harassment, Inappropriate Religious Inquiries at FEC

Prior TaxProf Blog coverage:

Continue reading "The IRS Scandal, Day 12"

Avi-Yonah and Christians on Yesterday's PPL Decision

Reuven Avi-Yonah and Allison Christians share their thoughts on yesterday's U.S. Supreme Court decision in PPL Corp. v. Commissioner, No. 12-43 (U.S. May 20, 2013):

Reuven Avi Yonah (Irwin I. Cohn Professor of Law, University of Michigan Law School):

In PPL, the Supreme Court held unanimously that a British tax on privatized utility companies qualified as creditable despite not meeting the literal terms of the 1.901-2 regulations. This was a surprising decision from Justice Thomas because he is known for preferring a literal approach to reading the law. In fact, the last unanimous tax decision by the Court may have been Gitlitz, a 2001 decision by Justice Thomas applying a very literal reading to the Code (which was promptly reversed by Congress)

In any case, in my opinion PPL was correctly decided, for three reasons.

First, from a substance over form perspective the decision is clearly correct because as PPL argued in the majority of the cases the tax could be recast algebraically as a tax on profits. The fact that this reformulation did not work in a small number of cases, as argued in the amicus brief by Michael Graetz and his colleagues, should not affect the outcome because what matters is the overall character of the tax in the common situation it applies. Second, the 901 regulation does not define excess profit tax and this should leave the Court ample room to define it in any way it wants without regard to the three prong test for income taxes. Finally, as I have argued as a policy matter the credit should be allowed to give countries maximum freedom to fashion their tax laws without worrying about creditability.

The decisions main impact may be not be on the narrow issue it addresses, which is unlikely to come up again in this form, but rather on tax reform. Because the main territoriality proposals abolish the indirect credit under 902, and because the decision expands creditability, it makes tax reform more plausible as a revenue raiser. Whether this will be enough to persuade Congress to adopt territoriality despite the risk that it will prompt companies like Apple (whose CEO is testifying on this subject today before the Permanent Subcommittee on Investigations) to shift more profits overseas remains to be seen.

Allison Christians (H. Heward Stikeman Chair in Tax Law, McGill University, Faculty of Law):

The Supreme Court unanimously decided in favor of the taxpayer with respect to the creditability of a foreign tax in PPL Corp & Subsidiaries v. Commissioner, released yesterday. In an opinion authored by Justice Thomas with a concurrence from Justice Sotomayor, the Court held that PPL Corp., a US company that owned a large interest in a UK energy company, is allowed to credit against its US income tax an amount paid as a “windfall tax” to the UK government in 1997. The ruling reverses the judgment of the Court of Appeals for the Third Circuit, siding instead with the Tax Court and the Court of Appeals for the Fifth Circuit in Entergy Corp. & Affiliated Subsidiaries v. Commissioner, 683 F. 3d 233.

The case settles a circuit split but it leaves unresolved interpretive issues concerning Reg § 1.901-2(a)(1), which defines when a foreign tax is creditable for US purposes. The most discussed interpretive issue will likely be that involving the role of “outliers” in determining the predominant character of a tax, which Paul Clement focused on in his oral argument on behalf of PPL Corp. and which amici argued on both sides. The outlier issue is fairly simple to understand but, despite receiving direct attention in the decision in this case, is perhaps not wholly resolved. The issue turns on what the regulations mean when they say that “a tax either is or is not an income tax, in its entirety, for all persons subject to the tax.”

According to a tax professors’ amici brief led by Prof. Anne Alstott, this language means that no one taxpayer can be dismissed as an outlier: that a tax can only be an income tax if it acts as an income tax with respect to every taxpayer. But according to the taxpayer, and now according to the Supreme Court, some “outliers” can apparently be ignored so long as, for the most part, the tax acts like an income tax with respect to most taxpayers. At oral argument, Justice Kagan appeared to strongly disagree with this position, as discussed here, but she contributed no written opinion in the case. Justice Sotomayor also appeared disinclined to this position at oral argument, and her concurring opinion in the PPL decision leaves plenty of room for speculation as to how the Government might try to distinguish a future case from PPL.

But even though it will likely be the most discussed feature of the case, the outlier issue is not the only interpretive gloss to emerge here. Justice Thomas also introduced a small but potentially interesting twist on the habitual presentation of the last clause of the “predominant character” rule; namely, the part that requires the foreign tax to be an income tax “in the US sense.”

Justice Thomas explains in the decision that this clause means that “foreign tax creditability depends on whether the tax, if enacted in the US, would be an income, war profits, or excess profits tax” [emphasis added]. These italicized words present what might be viewed as a hardly noteworthy deviation from past jurisprudence, which generally seems to simply repeat verbatim the regulatory language before going on to discuss the longstanding doctrine starting with Biddle v. Commissioner, as Justice Thomas does in the present decision.

Thus, it is quite possible that the slight reworking of the language is completely immaterial. One could well argue that there is no meaningful difference between a tax that is an income tax “in the US sense” and one that would be an income tax “if enacted in the US.” But we in tax know how much can turn on a single word in a statute or a regulation, and even in a single punctuation mark. Perhaps it does not strain credulity too much to take this new language seriously as a gloss, and query what it might mean.

Justice Thomas looks at the tax in question and effectively asks, would it look like an income tax if it were enacted in the US? It is not too far of a leap to go from asking that question to asking whether, if Congress enacted a tax like this, it could survive constitutional challenge as an allowable tax under the 16^th amendment, whether it is a direct tax or an indirect tax, and what the constitutional implications of that decision might turn on, and so on, down the rabbit hole of constitutional parameters and permissions on taxation in America.

We can well imagine that many tax law professors and perhaps many practitioners as well could choose to have a lot of fun with the UK windfall tax if Congress tried to enact it as an income tax. Thus it is at least arguable that Justice Thomas’ suggestion that the tax would have to be an income tax if it were enacted in the US might ultimately prove to be a more, rather than less, strict analysis than that traditionally accorded to the “US sense” language.

Thus a small and perhaps insignificant interpretive step it may be, but fortunes have been made and lost on less distinction, as we in the tax community are all too aware.

You can view my more extensive opinion recap on SCOTUSblog some time later in the day today.

Update:  SCOTUSblog:  Opinion Analysis: U.S. Underwrites U.K. Tax on Privatized Energy Industry, by Allison Christians (McGill)

Graduation Day

Reed Caron, B.S. Mathematics, Grinnell College:

For more on my journey with my son, see:

• Off to the Ranch (July 1, 2005)
• Goodbye Sandy (June 6, 2006)
• Happy 16th Birthday, Reed (June 25, 2006)
• Opening Day and the Passage of Time (Apr. 2, 2007)
• A Father's Strange Bliss (Apr. 16, 2007)
• The Tax Prof Circle of Life (May 13, 2007)
• Schadenfreude at the Hampton Inn (Oct. 5, 2008)
• Belated Thanksgiving (Dec. 1, 2008)
• Graduation Day (June 5, 2009)
• Breakthrough Cincinnati (Aug. 1, 2009)
• A Bittersweet Day (Aug. 17, 2009)
• The Reach of the Blogosphere (Sept. 2, 2009)
• The Good and the Bad in Sports (Nov. 7, 2009)
• Off to the Big Dance (Nov. 9, 2009)
• Tax Stories in Paradise (Mar. 22, 2010)
• Farewell, Malibu (Mar. 30, 2010)
• Sending Your Child Into a Hurricane (July 4, 2010)
• Farewell, San Diego! (July 28, 2010)
• GOOOAAALLL!!! (Oct 31, 2010)
• What Does $49,144 Tuition Buy? A Mohawk. (Oct. 3, 2011)
• Farewell, 3810 Miami Road (Aug. 10, 2012)
• GOOOAAALLL!!! (Sept. 4, 2012)
• The Last Game (Nov. 3, 2012)
• Our Christmas Gift (Dec. 23, 2012)

Senate Holds Hearing Today on Apple's Tax Avoidance

The Senate Permanent Committee on Investigations holds a hearing today on Offshore Profit Shifting and the U.S. Tax Code - Part 2 (Apple Inc.):

Panel #1:
J. Richard Harvey (Villanova
Stephen E. Shay (Harvard)

Panel #2:
Timothy D. Cook (Chief Executive Officer, Apple)
Peter Oppenheimer (Senior Vice President & Chief Financial Officer, Apple)
Phillip A. Bullock (Head of Tax Operations, Apple)

Panel #3:
Mark J. Mazur (Assistant Secretary for Tax Policy, U.S. Treasury Department)
Samuel M. Maruca (Director, Transfer Pricing Operations, Large Business & International (LB&I) Division, IRS) 

Documents and press coverage:

• Memorandum from Sn. Levin & Sen. McCain
• Apple Statement
• Sen. Levin Press Release
• Bloomberg, Apple CEO to Take on Lawmaker Statements on Tax Avoidance
• Bloomberg, Apple Urges Simpler U.S. Tax Code Ahead of Senate Hearing
• Christian Science Monitor, Apple 'Tax Gimmicks': Rotten to the Core or Sensible Business?
• Citizens for Tax Justice, Apple Holds Billions of Dollars in Foreign Tax Havens
• Forbes, Apple Explains Position On U.S. Taxes as CEO Cook Prepares for Senate Hearing
• Forbes, Apple Used Loopholes To Skip Paying U.S. Taxes On $44 Billion In Offshore Income, Senate Committee Claims
• The Guardian, Senators Accuse Apple of 'Highly Questionable' Billion-Dollar Tax Avoidance Scheme
• L.A. Times, Apple Skirts U.S. Taxes, Panel Finds
• New York Times, Apple’s Web of Tax Shelters Saved It Billions, Panel Finds
• New York Times, Senate Panel Is Expected to Castigate Apple on Tax Tactics
• Politico, Apple Prepares for Washington Onslaught
• Politico, Senate Investigators: Apple Sheltered $44 Billion From Taxes
• Reuters, Apple's Stateless Subsidiaries Lower Tax Bills -- Senate Report
• Tax Foundation:  U.S. Multinationals Paid More Than $100 Billion in Foreign Income Taxes
• Wall Street Journal, Apple Avoided Taxes on Overseas Billions, Senate Panel Finds
• Washington Post, Apple Avoids Taxes With ‘Complex Web’ of Offshore Entities, Senate Inquiry Finds

Senate Holds Hearing Today on The IRS Scandal

The Senate Finance Committee holds a hearing today on A Review of Criteria Used by the IRS to Identify 501(c)(4) Applications for Greater Scrutiny:

• Steven T. Miller (Former Acting Commissioner, IRS)
• J. Russell George (Treasury Inspector General for Tax Administration)
• Douglas Shulman (Former IRS Commissioner) 

Press and blogosphere coverage:

• The Hill, IRS Officials on Hot Seat at Senate Finance Committee
• New York Times, Senate Panel Asks IRS Chief to Detail Communications With White House
• Politico, Max Baucus, Orrin Hatch Expand IRS Probe
• Wall Street Journal, Bipartisan Push in Senate for IRS Documents
• Washington Post, Senators Ask Ex-IRS Chief to Detail Communications with White House

Avant-Garde Art and the VAT

Rachel J. Tischler (J.D. 2013, Brooklyn), Note, "The Power to Tax Involves the Power to Destroy": How Avant-Garde Art Outstrips the Imagination of Regulators, and Why a Judicial Rubric Can Save It, 77 Brook. L. Rev. 1665 (2012):

This note will begin in Part I with brief overviews of Minimalist Art and Conceptual Art, paying particular attention to the public reception of⎯and reactions to⎯shifting trends in artworks over time and geography. Part II will give a brief explanation of the legislative systems at work in the European Community, as well as an introduction to the European value-added tax system. Part III of this note will discuss various instances of courts, both in the United States and abroad, attempting to navigate the intersection of artwork and customs duties and taxation. Part IV will explore various approaches to protection for conceptual and visual artworks, giving special attention to problems encountered by the more difficult cases. That part will conclude with a suggested method for evaluation and classification of artworks that can be applied by courts and legislators, domestically and abroad, that leaves intact both the artists’ intentions and their artworks’ integrity. This note will conclude with a brief discussion of how similar VAT or flat-tax systems implemented in the United States could lead to comparable difficulties in U.S. courts and legislatures.

Supreme Court Unanimously Reverses Third Circuit, Says PPL Can Claim Foreign Tax Credit for U.K. Windfall Tax

The U.S. Supreme Court today unanimously reversed the Third Circuit (665 F. 3d 60) and agreed with the taxpayer that the United Kingdom's Windfall Tax is a tax on income and thus qualifies for the § 901 foreign tax credit.  PPL Corp. v. Commissioner, No. 12-43 (U.S. May 20, 2013).

• Fox News, Supreme Court Rules Utilities Can Claim U.S. Tax Credit on U.K. Windfall Tax
• Reuters, U.S. Justices Rule for PPL Corp in Overseas Tax Case
• Wall Street Journal, Supreme Court Rules Utilities Can Claim U.S. Tax Credit on U.K. Windfall Tax

Prior TaxProf Blog coverage:

• Jacob Goldin (Ph.D. Candidate (Economics), Princeton University), Reconsidering Substance Over Form in PPL, 137 Tax Notes 1229 (Dec. 17, 2012)
• Tax Prof Amicus Brief in PPL Corp. v. Commissioner (Jan. 27, 2013)
• Reuven S. Avi-Yonah (Michigan), Should the U.S. Dictate World Tax Policy? Reflections on PPL Corporation v. Commissioner (Feb. 6, 2013)
• Michael Knoll (Pennsylvania), Economic and Legal Arguments in PPL v. Commissioner (Feb. 15, 2013)
• Supreme Court Hears Oral Argument in PPL Corp. v. Commissioner (Feb. 21, 2013)
• Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), PPL: How to Determine Whether a Foreign Tax is Creditable, 138 Tax Notes 1351 (Mar. 18, 2013)
• Jordan M. Barry (San Diego), Explanation of Issues in PPL v. Commissioner, ABA Preview of U.S. Supreme Court Cases, Vol. 40, Issue 5, pp. 201-04

When a Wife Earns More Than Her Husband

Marianne Bertrand (University of Chicago, Booth School of Business), Jessica Pan (National University of Singapore, Department of Economics) & Emir Kamenica (University of Chicago, Booth School of Business), Gender Identity and Relative Income Within Households:

We examine causes and consequences of relative income within households. We establish that gender identity { in particular, an aversion to the wife earning more than the husband - impacts marriage formation, the wife's labor force participation, the wife's income conditional on working, marriage satisfaction, likelihood of divorce, and the division of home production. The distribution of the share of household income earned by the wife exhibits a sharp cli at 0.5, which suggests that a couple is less willing to match if her income exceeds his. Within marriage markets, when a randomly chosen woman becomes more likely to earn more than a randomly chosen man, marriage rates decline. Within couples, if the wife's potential income (based on her demographics) is likely to exceed the husband's, the wife is less likely to be in the labor force and earns less than her potential if she does work. Couples where the wife earns more than the husband are less satised with their marriage and are more likely to divorce. Finally, based on time use surveys, the gender gap in non-market work is larger if the wife earns more than the husband.

French Tax Rate on Wealthy Exceeds 100%

Reuters:  Taxes on Some Wealthy French Top 100% of Income:

More than 8,000 French households' tax bills topped 100 percent of their income last year, the business newspaper Les Echos reported on Saturday, citing Finance Ministry data.

The newspaper said that the exceptionally high level of taxation was due to a one-off levy last year on 2011 incomes for households with assets of more than 1.3 million euros ($1.67 million).

President Francois Hollande's Socialist government imposed the tax surcharge last year, shortly after taking office, to offset the impact of a rebate scheme created by its conservative predecessor to cap an individual's overall taxation at 50 percent of income.

Hymel: Environmental Tax Policy in the U.S.

Mona L. Hymel (Arizona), Environmental Tax Policy in the United States: A 'Bit' of History, 3 Ariz. J. Envtl. L. & Pol'y 157 (2013):

This Article discusses the history of U.S. environmental tax policy. Well, not really “environmental tax policy,” because only a few decades of “environmental tax policy” history exist. If environmental tax policy addresses the development of new energy sources — “environmentally friendly” energy — this Article analyzes the “non-environmental” tax history of our old energy sources, primarily oil and gas (not “environmentally friendly”). Through a historical analysis of federal tax incentives and subsidies used to build the existing energy industry, the Article demonstrates that the United States must provide significant investment incentives in renewable and alternative energy technology if we hope to achieve a sustainable society. This historical analysis chronicles not only the development of tax laws, but also corresponding changes in American lifestyles. Americans’ appetite for technology and mobility (highly dependent upon fuel energy) began long before the implementation of the federal tax laws. Yet substantial government support provided to the burgeoning fossil fuel industry complemented the dramatic changes in the American way of life.

American consumption shows no signs of slowing down — yet. But without a dramatic shift away from fossil fuels, the entire world may come to an abrupt halt. Just as the government invested in oil and gas, it must now invest in new energy sources. In a sense, Americans need history to repeat itself.

Aprill: PowerPoint Slides on Political Activity, Private Benefit and Tax-Exempt Organizations

Ellen Aprill (Loyola-L.A.) has graciously allowed me to share two sets of PowerPoint slides from recent presentations she has made on:

• Primer on Political Activity by 501(c) and 527 Organizations
• Section 501(c)(4) and Private Benefit

Marineau: International Corporate Tax Reform

Paul K. Marineau (Thomas Cooley), International Corporate Tax Reform: It's Time to "Walk-the-Talk" (No More Platypuses, Please), 40 Syracuse J. Int'l L. & Com. 29 (2012):

it is the position of this article that a well-designed and comprehensive full-inclusion tax system for taxing a U.S. corporation's foreign-source income is the most efficient and effective tax system for accomplishing the many stated objectives outlined by Congress and recited above. Prior to delving into the full-inclusion tax system, this article will provide an overview of the current worldwide deferral tax system for taxing corporate foreign-source income and evaluate the proposed territorial tax system contained in the discussion draft of the Tax Reform Act of 2011.

Bergin: The IRS Is in Big Trouble

Christopher E. Bergin (President and Publisher, Tax Analysts), The IRS Is in Big Trouble, 139 Tax Notes 951 (May 20, 2013):

Bergin discusses the catastrophic ramifications of the IRS’s recent apology for mishandling the applications of conservative exempt organizations and how things might be worse for the agency now than they were after the 1998 restructuring act.

All Tax Analysts content is available through the LexisNexis® services.

The IRS Scandal: Really?!

(Hat Tip: Ann Murphy.)

The IRS Scandal, Day 11

• Daily Beast:  The IRS Will Come for You Next, Unless Congress Acts Now
• Business Insider:  How One Overworked IRS Worker Ignited The Tea-Party Targeting Scandal
• Forbes:  6 Questions Everyone Should Ask the IRS, by Robert W. Wood
• The Hill:  Paul Ryan:  IRS Targeting Scandal Reveals ‘Big Government Cronyism’
• The Hill:  Rangel Worries Honest IRS Agents Are Now ‘Getting a Bad Shake’
• The Hill:  Sen. Portman: IRS Will Need Special Counsel
• New York Times:  The IRS King
• Politico:  Pfeiffer Defends IRS Handling
• Politico:  IRS Special Counsel Debated
• Wall Street Journal:  Obama's Counsel Told of IRS Audit Findings 
• Washington Examiner:  Anonymous Cincinnati IRS Official: “Everything Comes from the Top”
• Washington Post:  How the IRS Seeded the Clouds in 2010 for a Political Deluge Three Years Later
• Washington Post:  IRS Scandal: Fair play or Foul Play?
• Washington Post:  Obama Senior Adviser Blasts IRS
• Washington Times:  White House Aide: ‘Nothing That Suggests’ IRS Official at Center of Scandal 'Did Anything Wrong’

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)
• The IRS Scandal, Day 6 (May 15, 2013)
• Ellen Aprill, The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report (May 15, 2013)
• Phillip Hackney, The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts (May 15, 2013)
• The IRS Scandal, Day 7 (May 16, 2013)
• The IRS Scandal, Day 8 (May 17, 2013)
• The IRS Scandal, Day 9 (May 18, 2013)
• The IRS Scandal, Day 10 (May 19, 2013)

WSJ: Law Schools Turn to Non-J.D. Students to Make Up for Enrollment Shortfall

Wall Street Journal:  More Often, Nonlawyers Try Taste of Law School:

Law schools hunting for students as their enrollment numbers drop are increasingly trying to attract an unexpected group: people who have no intention of practicing law.

Doctors, environmental consultants and even an urban planner have signed up for the programs, which offer master's degrees in law and typically cost about the same as one year of law school.

Pitched at midcareer professionals, the programs tend to draw people who work in heavily regulated fields where compliance with a growing body of rules requires an increasingly sophisticated understanding of the law. Some students also hope to gain a competitive edge. ...

Student enrollment in programs that don't offer a juris doctor, or J.D.—the traditional three-year-law degree—has increased 13% since 2010, according to a Wall Street Journal analysis of American Bar Association data. ...

"Adding new degree programs is like a company diversifying its product lines. If demand for one sags, you've still got alternative sources of revenue coming in," said Paul McGreal, dean of the University of Dayton School of Law, which now offers master's degrees for nonlawyers and practicing attorneys alike. ... Barry Currier, the ABA's managing director of accreditation and legal education, said more non-J.D. programs are popping up now for two reasons: They can generate revenue for schools, and they respond to market needs for people with specialized training.

Update:

• ABA Journal, Schools Market to Mid-Career Professionals as Fewer Traditional Students Seek Law Degrees
• Above the Law, Law Schools Target New Students To Fleece

TaxProf Blog Weekend Roundup

Saturday:

• Sense and Sensibility: Estate Planning Lessons From Jane Austen
• WSJ:  Tax Court Slaps Down IRAs Holding 'Alternative Assets'
• The IRS Scandal, Day 9
• FATCA:  Toward a Multilateral Automatic Information Reporting Regime

Sunday:

• SNL on the IRS Scandal
• The IRS Scandal, Day 10
• Top 5 Tax Paper Downloads
• Benefit Corporations and the Business Expense Deduction

SNL on the IRS Scandal

The IRS Scandal, Day 10

• ABC News:  Republicans Informed of IRS Investigation Last Year
• Conglomerate:  The IRS Scandal: Does It Fit With The IRS Weltanschauung?, by David Zaring (Pennsylvania)
• Fox News:  Republicans: IRS Scandal Shows Agency 'Rotten at the Core,' Needs Major Reform
• Fox News op-ed;  Watergate 2.0 -- Why the IRS Scandal Is Far Worse, by Mike Kibbe(Freedom Works)
• The Hill:  Complaints of IRS targeting by Religious Groups on the Rise
• The Hill:  Dem: Ex-IRS Chief Lied to Congress
• The Hill:  Ways and Means Chairman: 'We Need to Dig a Lot Deeper' on IRS Scandal
• Houston Chronicle:  Inside the Scandal: How the IRS’ Nonprofit Division Got So Dysfunctional
• L.A. Times:  How the IRS Spun Out of Control
• New York Times:  Confusion and Staff Troubles Rife at IRS Office in Ohio
• New York Times:  Government's Worst Face
• New York Times op-ed;  Hard of Hearings, by Gail Collins
• NPR:  Nonconservative Groups Say IRS Scrutinized Them, Too
• Politico:  5 Fixes for the IRS
• Politico:  Jack Lew Learned of IRS probe in March
• Politico:  Jindal: IRS Officials Deserve Prison
• Politico:  Ousted IRS Chief Steven Miller Defiant as GOP Attacks
• USA Today:  Planted Question Gambit Backfires on IRS Officials
• Wall Street Journal:  Former IRS Division Chief Predicts Wave of Departures
• Wall Street Journal:  Question to IRS Official Was Planted
• Wall Street Journal:  The Odd Case of the Planted IRS Question
• Washington Post:  ‘Who’s Going to Jail’ Over IRS Scandal? Probably Nobody
• Weekly Standard:  Ideological Revenue Service

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)
• The IRS Scandal, Day 6 (May 15, 2013)
• Ellen Aprill, The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report (May 15, 2013)
• Phillip Hackney, The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts (May 15, 2013)
• The IRS Scandal, Day 7 (May 16, 2013)
• The IRS Scandal, Day 8 (May 17, 2013)
• The IRS Scandal, Day 9 (May 18, 2013)

Top 5 Tax Paper Downloads

This week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list:

1.  [333 Downloads]  Using a Sledgehammer to Crack a Nut: Why FATCA Will Not Stand, by Frederic Alain Behrens (J.D. 2013, Wisconsin)

2.  [306 Downloads]  The Supercharged IPO, by Victor Fleischer (Colorado; moving to San Diego) & Nancy Staudt (USC)

3.  [233 Downloads]  Was Blackstone's Initial Public Offering Too Good to Be True?: A Case Study in Closing Loopholes in the Partnership Tax Allocation Rules, by Emily Cauble (DePaul)

4.  [193 Downloads]  Recent Developments in Federal Income Taxation: The Year 2012, by Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston) & Daniel L. Simmons (UC-Davis)

5.  [173 Downloads]  Reforming the Taxation of Retirement Income, by Richard L. Kaplan (Illinois)

Benefit Corporations and the Business Expense Deduction

Emily Cohen (J.D. 2013, William & Mary), Note, Benefit Expenses: How the Benefit Corporation's Social Purpose Changes the Ordinary and Necessary, 4 Wm. & Mary Bus. L. Rev. 269 (2013):

The recent spread of Benefit Corporations formally challenges the assumption that for-profit companies are strictly profit maximizing entities. Businesses can now incorporate under charitable business purposes that were once restricted to 501(c)(3) non-profit organizations. While incorporating under a charitable purpose is no longer restricted to only non-profit entities, Benefit Corporations are not able to receive the same income tax exemption under the Internal Revenue Code. While for-profit entities do receive some tax benefits for their charitable behavior, such as the charitable donation deduction, the current tax structure does not provide an equal amount of tax benefits for charitable behavior when performed by a Benefit Corporation as it does for a 501(c)(3). This Note argues that the Internal Revenue Code’s entity classification for non-profits and forprofits does not accommodate the mixed-purpose structure of the Benefit Corporation. This Note will explore the Internal Revenue Code’s treatment of non-profit 501(c)(3)s and charitable behavior by for-profit entities and posits that the Internal Revenue Code attempts to treat the charitable behavior of an entity favorably more than it attempts to treat an entity as a whole favorably. Because charitable behavior is not considered a trade or business under the Internal Revenue Code, Benefit Corporations will now be regularly engaging in charitable behavior, the expense of which will not be categorized as either a charitable deduction or as ordinary and necessary business expenses. This Note suggests that a possible way to give Benefit Corporations the same tax treatment for its charitable behavior as non-profits engaging in the same behavior is to create a “Benefit Expense” deduction akin to the ordinary and necessary business expense deduction currently available to for-profit entities.

Sense and Sensibility: Estate Planning Lessons From Jane Austen

Michael D. Whitty (Vedder Price, Chicago), The Jane Austen Plan Club: Lessons For Estate Planners and Their Clients From The Life and Novels of Jane Austen, 47 Real Prop. Tr.& Est. 501 L.J. (Winter 2013):

As we commemorate the 200th anniversaries of the publication of Jane Austen's novels, estate planners and their clients can learn many valuable lessons from Austen's life and novels. The themes of family, property, wealth, and society that connect Austen's life and stories still resonate today.

[T]his Article will focus primarily on her six completed novels: four published during her life -- Sense and Sensibility, Pride and Prejudice, Mansfield Park, and Emma -- and two published shortly after her death in 1817 -- Northanger Abbey and Persuasion. This Article also will illustrate some of the lessons it describes with experiences and examples from Jane Austen's own life. The author has selected nineteen relevant lessons for estate planners and their clients that can be illustrated by examples from Austen's life and novels. These nineteen lessons are by no means an exhaustive list, but the author hopes these will be a good start. The first lesson will be the lengthiest, as it provides some context for the subsequent lessons, while the next most lengthy lesson is saved for last as it involves the most quantitative analysis.

1. Wealth Is More Than Financial Capital
2. The Fundamentals of a Will Remain the Same
3. Will It, Don't Wish It
4. Name a Faithful Fiduciary
5. Draft Wills and Trusts Using Flexible Provisions
6. Consider All Consequences
7. Cash Flow Reality Will Trump Estate Plan Wishes
8. Diversification
9. Encourage Thrift, Discourage Waste and Extravagance
10. Teach A Man to Fish: Beneficiary Education and Career Training
11. Separating Suitors from Seducers, Gracious Ladies from Gold Diggers
12. Using Prenuptial Agreements and Settling Trusts to Protect Wealth
13. Providing Care for Elders and the Incapacitated
14. Annuities
15. The Simple Pleasures of Country Life
16. Philanthropy Adds Purpose
17. Be Proactive, Not Passive
18. Successful Succession Planning Requires Long-Term Effort
19. The Hard Facts of Demographics 

WSJ: Tax Court Slaps Down IRAs Holding 'Alternative Assets'

Wall Street Journal:  Tax Court Slaps Down IRAs Holding 'Alternative Assets', by Laura Saunders:

A U.S. Tax Court decision offers a cautionary tale for people who want to invest individual retirement account funds in "alternative" assets, especially operating businesses.

The case involved Lawrence Peek and Darrell Fleck, two Colorado taxpayers who used IRA assets to help them buy a fire-safety business [140 T.C. No. 9]. In a May 9 opinion, a judge ruled that Messrs. Peek and Fleck engaged in forbidden actions that terminated their accounts when they bought the business.

As a result, each owes tax of more than $225,000 plus more than $45,000 in penalties. Their lawyer, Sheldon H. Smith of Bryan Cave LLP in Denver, says they haven't decided whether to appeal.

According to the decision, the two men each used $309,000 of assets from their respective IRAs in August 2001 to buy two 50% shares in a corporation. The corporation then paid $1.1 million to buy Abbot Fire & Safety, a provider of fire alarms, sprinkler systems and related equipment.

The purchase price consisted of $400,000 of the taxpayers' IRA assets, a bank loan and other funds, including a $200,000 promissory note personally guaranteed by the two men. The note was secured by their homes.

The Tax Court ruled that the personal guarantees were "prohibited transactions" under federal law, which forbids "any direct or indirect...lending of money or extension of credit between a retirement plan" and insiders such as Messrs. Peek and Fleck.

The IRS Scandal, Day 9

• Bloomberg:  Former IRS Commissioner Shulman Will Testify May 22
• Bloomberg:  IRS Answers Leave Unsatisfied Republicans
• Bloomberg:  IRS Wrote Lawyer’s Question That Prompted Scandal Disclosure
• CNN op-ed;  IRS Scandal Is About Donors, Not Tax, by Roger Colinvaux (Catholic)
• Election Law Blog:  Dept. of Profoundly Dumb PR Moves: IRS Edition, by Rick Hasen (UC-Irvine)
• FactCheck.org:  IRS Not So ‘Independent’
• Human Events:  Barack Obama Not Outraged; He Adores the IRS
• Human Events:  Official in Charge of Corrupt IRS Department Promoted – To Top ObamaCare Enforcer
• L.A. Times:  IRS Problem Started with Vague Tax Exemption Rules
• Legal Ethics Forum:  IRS Scandal: Where Were the IRS and WH Lawyers?, by John Steele (Santa Clara)
• Legal Insurrection:  IRS Planted Question at ABA Meeting Disclosing Targeting of Conservatives, by WIlliam Jacobson (Cornell)
• Legal Insurrection:  Questioner Initially Denied IRS Q&A Was Set Up, by William Jacobson (Cornell)
• Mother Jones:  Blame Congress For the IRS-Tea Party Mess
• National Review:  Gotta Be a Special Counsel: Only Way to Clean Up the IRS Rat’s Nest
• National Review:  Hearing Out the IRS: Congress Is Far From Satisfied
• New York Times:  Republicans Expand IRS Inquiry, With Eye on White House
• New York Times DealBook: Where the IRS Investigation May Go From Here, by Peter J. Henning (Wayne State)
• New York Times FiveThirtyEight Blog: New Audit Allegations Show Flawed Statistical Thinking, by Nate Silver
• Real Clear Politics:  Benghazi and IRS Targeting: Politics by Other Means, by Michael Barone
• Real Clear Politics:  GOP Congressman Receives Standing Ovation After He Rips IRS Commissioner
• Tax Analysts Blog:  Lois Lerner Must Resign, by David Cay Johnston (Syracuse)
• Tax Analysts Blog:  Scandal, Scandal, Scandal, by Christopher Bergin (Tax Analysts)
• Wall Street Journal editorial:  Merely a Tax Misunderstanding: IRS Agents Just Wanted to be 'More Efficient'
• Wall Street Journal:  At Hearing, the Venting Is Bipartisan
• Wall Street Journal:  Higher-Ups Knew of IRS Case 
• Wall Street Journal:  IRS Timeline: What We Know So Far
• Wall Street Journal:  President Asterisk:  Why the Obama IRS Scandal may be Worse Than "a Cancer on the Presidency"
• Washington Examiner:  Congressman: IRS Asked Pro-life Group About 'the Content of Their Prayers'
• Washington Examiner:  IRS Tax Exemption/ObamaCare Exec Got $103,390 in Bonuses; Did Obama OK Them?
• Washington Post op-ed:  An ‘Unthinkable’ IRS Scandal? More Like Unavoidable, by Joseph J. Thorndike (Tax Analysts)
• Washington Post:  At Cincinnati IRS Office, Surprise Over Claims of Partisan Villainy
• Washington Post:  House Panel Launches Inquiries Into IRS Targeting of Conservative Groups
• Washington Post:  IRS Scandal: Peggy Noonan vs. Nate Silver
• Washington Post:  IRS Stalled Conservative Groups, But Gave Speedy Approval to Obama Foundation
• Washington Post:  Lawyer Says IRS Question Was Planted
• Washington Post:  The 10 Most Bizarre Things About the IRS Scandal
• Washington Post:  The IRS’s Unreasonable 501(c)4 Requests
• Washington Times editorial:  Rotten Fish at the IRS
• Weekly Standard:  IRS Deliberately Chose Not to Fess Up to Scandal Before Election

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)
• The IRS Scandal, Day 6 (May 15, 2013)
• Ellen Aprill, The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report (May 15, 2013)
• Phillip Hackney, The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts (May 15, 2013)
• The IRS Scandal, Day 7 (May 16, 2013)
• The IRS Scandal, Day 8 (May 17, 2013)

FATCA: Toward a Multilateral Automatic Information Reporting Regime

Joanna Heiberg (J.D. 2013, Washington & Lee), Note, FATCA: Toward a Multilateral Automatic Information Reporting Regime, 69 Wash. & Lee L. Rev. 1685 (2012):

This Note will argue that international cooperation is essential for successful FATCA implementation. Part II will provide background information on offshore tax evasion and existing U.S. mechanisms for international tax enforcement. Part III will explain key FATCA provisions, and Part IV will discuss concerns regarding FATCA as originally enacted. Finally, Part V will introduce the proposed intergovernmental approach to FATCA and argue that international cooperation and development of standardized requirements will mitigate FATCA concerns and facilitate its implementation. Part V also argues that abandonment of the U.S. policy of citizenship-based taxation is necessary to achieve an efficient multilateral FATCA regime.

UC-Hastings Hosts Northern California Tax Roundtable Today

UC-Hastings hosts the Spring 2013 Northern California Tax Roundtable today with these papers:

Heather Field (UC-Hastings), Tax Planning and the Ethical Tax Lawyer
Commentator:  Caroline Chen (Santa Clara)

David Gamage (UC-Berkeley), On Double-Distortion Arguments, Distribution Policy, and the Optimal Tax Mix
Commentator: Susie Morse (UC-Hastings)

Stu Karlinsky (Pacific Rim Tax Institute), Back to the Future
Commentator: Mark Gergen (UC-Berkeley)

Rasmusen: The Meaning of 'Value' for Estate & Gift Tax Purposes

Eric B. Rasmusen (Indiana University, Kelley School of Business), The Meaning of 'Value' for Gift and Estate Tax Donee Limitations in § 6324(B): An Amicus Brief for Marshall v. Commissioner:

In 1995, J. Howard Marshall II made a gift to Elaine Marshall worth some $43 million at the time of transfer. The IRS assessed gift tax against his estate, which failed to pay. In 2008 the IRS assessed gift tax of $74 million against donee Elaine Marshall, which exceeds $43 million because of the interest accumulated since 1995 but is less than the $81 million the gift would compound to at 5% per year. Does the limitation on donee liability to “the value” of the gift imposed by § 6324(b) mean to “the original amount of the gift” or to “the value of the gift at the time of eventual tax payment”? In effect, that is the issue in Marshall v. Commissioner, which is now before the 5th Circuit. The SD Texas and the 11th Circuit went one way; the 3rd and 8th Circuits went the other way on the issue. This paper is an amicus brief for that case and, I hope, a good example of how economics can inform and simplify law.

Lang: Tax Malpractice -- Issues and Avoidance

Michael B. Lang (Chapman), Tax Malpractice: Issues and Avoidance, 54 Bloomberg BNA Tax Mgmt. Mem. ___ (2013):

Despite considerable regulation of tax practitioners by both statutory rules and professional ethical standards, when a tax advisor mishandles a client’s tax work, whether because of incompetence, a conflict of interest or for some other reason, the client seeking redress must generally resort to malpractice or related actions against the errant tax advisor. Such actions draw upon a peculiar mixture of tax law, professional ethical standards promulgated by state bars and the IRS Office of Professional Responsibility and torts law, three areas of law usually frequented by different groups of experts. This article attempts to further understanding of this peculiar mixture by addressing core issues of malpractice and related causes of action in a tax practice context, covering issues such as the duties to the client, possible causes of action, damages, privity, statutes of limitations and repose, and the relevance of ethical rules. In addition, it discusses key procedures that tax practitioners can use to reduce their malpractice risk and explores some classic tax practice situations fraught with malpractice potential. While the discussion is largely based upon the standards applicable to lawyers, much of it applies equally to other tax practitioners, particularly CPAs. However, unlike other tax practitioners, lawyers generally cannot limit their malpractice liability prospectively or, if they can, can only do so with some difficulty. In addition, in some contexts lawyers may be subject to special rules, such as with regard to the applicable statutes of limitations. The article represents one view of important legal issues and concerns that tax professionals should bear in mind, along with other factors, in trying to prevent, avoid or mitigate the risk presented by malpractice-type litigation.  

AEI: Taxing Individuals Rather Than Families

AEI:  The Tax Treatment of the Family, by Aspen Gorry & Sita Nataraj Slavov:

In two recent cases, the U.S. Supreme Court considered constitutional challenges to the federal Defense of Marriage Act—which denies federal recognition of same-sex marriage—and to California’s Proposition 8, a constitutional amendment banning same-sex marriage. Regardless of the outcomes of these two cases, the controversy over same-sex marriage highlights an important tax policy question: should the US tax code treat people as families, as it currently does, or as individuals? This paper considers the costs and benefits of switching to a tax system based on individual, rather than family, income. 

Yin: The Role of Nonpartisan Staff in the Legislative Process

George K. Yin (Virginia), The Role of Nonpartisan Staff in the Legislative Process:

This short paper explains why the value of nonpartisan staff in the legislative process may stem primarily from the staff’s responsibilities to serve a broad group of legislators with heterogeneous interests, rather than on the “nonpartisan” nature of the staff. An earlier version of this paper was the keynote address to the participants of an April, 2013 Tax Symposium sponsored by the Northwestern University Law School in celebration of the centennial of the modern income tax.

The IRS Scandal, Day 8

• White House Press Release:  President Obama Appoints Daniel Werfel as Acting Commissioner of Internal Revenue
• White House Profile:  Daniel Werfel
• IRS:  Questions and Answers on 501(c) Organizations
• IRS:  Approved Tax-Exempt Applications for Advocacy Organizations through May 9, 2013
• American Enterprise Institute:  What Congress Should Do About IRS Tea Party Bias
• Bloomberg:  IRS Probe Sheds Light on Nonprofit Election-Year Surge
• Bloomberg:  Ousted Acting IRS Head Faces Lawmaker Grilling in Scandal
• CNN:  IRS Scandal May Unleash a Flood of Conservative Donors
• Daily Caller:  Did the IRS Give Mitt Romney’s Tax Returns to Harry Reid?
• Daily Caller:  Schumer, Franken urged IRS to target tea party in 2012
• Dorf on Law:  The IRS Mess Is Already Badly Misunderstood -- And the Distorted Narrative Will Only Get Worse, by Neil H. Buchanan (George Washington)
• The Fiscal Times:  Now We Find Out That the IRS Is Incompetent
• Fox News:  Conservative Hispanic Groups Targeted In IRS Scandal
• Fox News:  IRS Official Who Oversaw Unit Targeting Tea Party Now Heads ObamaCare Office
• National Review:  An Agency After Obama’s Own Heart: Sure, Obama Probably Didn’t Order the IRS to Discriminate. But He Set the Tone 
• National Review:  The IRS and Big Government
• New York Times:  GOP, Energized, Weighs How Far to Take Inquiries
• New York Times:  Obama to Name Budget Official as Acting IRS Chief
• New York Times Opinionator:  Behind the IRS Mess: A Campaign Finance Scandal, by Steven Ratner
• Wall Street Journal editorial:  Nina Olson for IRS Commissioner:  To Atone for Political Abuse, Give the Taxpayer Advocate a Promotion
• Wall Stret Journal op-ed:  This Is No Ordinary Scandal: Political Abuse of the IRS Threatens the Basic Integrity of Our Government, by Peggy Noonan
• Wall Street Journal:  The IRS Scandal Started at the Top: The Bureaucrats at the IRS Did Exactly What the President Said Was the Right and Honorable Thing to Do
• Wall Street Journal:  Republicans Step Up IRS Scrutiny
• Washington Examiner:  The IRS is Deeply Political — And Very Democratic
• Washington Post:  Five Steps to Remedy Wrongs Done by the IRS
• Washington Post:  Obama Appoints Daniel Werfel as Acting Head of IRS

NBC Sports:  Evan Mathis Shows His Disdain for the IRS:

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)
• The IRS Scandal, Day 6 (May 15, 2013)
• Ellen Aprill, The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report (May 15, 2013)
• Phillip Hackney, The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts (May 15, 2013)
• The IRS Scandal, Day 7 (May 16, 2013)

NY Times Debate: Should 501(c)(4)’s Be Eliminated?

New York Times Room for Debate:  Should 501(c)(4)’s Be Eliminated?:

The IRS has been harshly criticized for singling out conservative organizations when it investigated which groups were legitimately applying for 501(c)(4) status, which makes them tax exempt, keeps donors confidential and allows some political activity. But should the 501(c)(4) status even exist? Should nonprofits be allowed any political activity?  

• Ellen Aprill (Professor, Loyola-L.A.), Create a New Category:  "By establishing a new exemption category of organizations that primarily lobby, we could help cure the schizophrenia that infects Section 501(c)(4)."
• John Colombo (Professor, Illinois), Do Away With Them:  "If you want to be a charity, be a charity; if you want to be engaged in the political process through lobbying or otherwise, pay taxes or register as a 527."
• Rosemary Fei (Attorney, Adler & Colvin, San Francisco), A Unique and Useful Purpose:  "The IRS needs to fix Section 501(c)(4) to address its use by abusive organizations, but we shouldn’t eliminate it."
• Doug Mancini (Attorney, Hunton & Williams, Los Angeles), Don't Eliminate Them:  "501(c)(4) exemption serves a useful purpose and actual or perceived abuses are capable of being addressed with minor legislative change and better enforcement."
• Lloyd Hitoshi Mayer (Professor, Notre Dame), Require Disclosure of Their Donors:  "Congress needs to revise the disclosure rules to target the political activity and apply those rules to all groups, regardless of tax classification."

House Holds Hearing Today on IRS Targeting of Conservative Groups

The House Ways & Means Committee holds a hearing today on IRS Targeting of Conservative Groups:

The hearing will focus on the IRS’s practice of discriminating against applicants for tax-exempt status based on the political leanings of the applicants.

• Steve Miller (Former Acting Commissioner, IRS)
• J. Russell George (Treasury Inspector General for Tax Administration) 

Fleischer: The IRS Scandal as Bleak House

New York Times DealBook:  A Dickensian Delay at the IRS, by Victor Fleischer (Colorado; moving to San Diego):

A plot device in Charles Dickens’s Bleak House follows the interminable case of Jarndyce v. Jarndyce through the English Court of Chancery. The litigation winds on for years until, finally, the costs of litigating the case have consumed the entire estate, leaving nothing for the heirs.

A report released on Tuesday by the Treasury Inspector General for Tax Administration on a scandal at the IRS surrounding the processing of tax-exempt applications from conservative groups, while decidedly less enthralling than Dickens, shows that the agency has inherited the mantle of indefinite detention from those English courts.

Government investigative reports are most damning in the detail, not the sound bite. Some 80 percent of the sample of applications studied in the report were not resolved within a year. Of the 296 cases reviewed, 160 were still open as of December 2012, with delays running 206 to 1,138 days. Some of those open cases are nearly as old as my 4-year-old daughter, Penelope, who has learned to speak, read, write, count, walk, run, skip, jump and swim in that time. When it comes to dawdling, however, even she cannot match the IRS.

The causes of delay are soul-crushingly mundane. The IRS unit in Cincinnati responsible for making determinations of tax-exempt status had trouble getting guidance from the unit in Washington that is supposed to give technical advice on how to apply the law. ...

Long delays are evidence of ineptitude and a reluctance to tackle difficult issues, not evidence of a political conspiracy. It may be the case that a couple of IRS employees went rogue, as the acting IRS commissioner, Steven T. Miller, suggested on Wednesday before he was ousted from the job.

Aggressive investigation of those individuals may be appropriate. But firing Mr. Miller, as President Obama did on Wednesday, is mere tokenism. The witch hunt obscures the institutional failures that Congress could actually correct.

The publication of Bleak House helped spur legal changes in England. Perhaps this IRS scandal will do the same.

British Lawmakers Charge Google With Tax Dishonesty

• BBC News
• Bloomberg
• The Guardian
• Wall Street Journal
• Washington Post

Virginia Tax Review Publishes New Issue

The Virginia Tax Review has published Vol. 32, No. 3 (Winter 2013):

• Heather M. Field (UC-Hastings), Binding Choices: Tax Elections & Federal/ State Conformity, 32 Va. Tax Rev. 269 (2012)
• George Mundstock (Miami), The Tax Import of the FASB/IASB Proposal on Lease Accounting, 32 Va. Tax Rev. 327 (2012)
• Eric Chason (William & Mary), Extending the Taxation-of-Risk Model to Timing Options and Marked-to-Market Taxes, 32 Va. Tax Rev. 367 (2012)
• Ilan Benshalom (Hebrew University, Faculty of Law), Rethinking the Source of the Arm’s Length Transfer Pricing Problem, 32 Va. Tax Rev. 387 (2012)