TaxProf Blog

Columbia Journal of Tax Law Publishes New Issue

The Columbia Journal of Tax Law has published its eighth issue (Vol. 4, No. 2):

• Andrew J. Haile (Elon), Sales Tax Exceptionalism, 4 Colum. J. Tax. L. 136 (2013): "There is something different about the state sales tax, or so it seems based on judicial decisions creating unique jurisdictional and apportionment standards for the tax. This article explores the concept of 'sales tax exceptionalism,' and assesses whether the special treatment afforded to the sales tax is justified by the theoretical foundations of the tax. In particular, the article examines whether theoretical justifications exist for the jurisdictional standard applied to the sales tax (a 'physical presence' standard), as compared to the 'economic presence' standard applied to the corporate income tax. Ultimately, the article concludes that only weak theoretical justifications support the different jurisdictional standards, and that recent changes to many states’ corporate income taxes further undercut the notion of 'sales tax exceptionalism.'"

• Jonathan Olsen (J.D. 2013, Columbia), Note, The Unique Case of Treasury Regulations Issued to Prevent Abuse, 4 Colum. J. Tax. L. 174 (2013):  "The Administrative Procedures Act prescribes procedural requirements that govern the rulemaking activities of administrative agencies, including the IRS. It imposes, inter alia, notice and comment requirements which an agency may only bypass for good cause. While the Treasury Department’s assertion of the good cause exception when promulgating regulations to prevent tax abuse is a plausible application of the exception, it is distinguishable from typical assertions of good cause in one critical respect. Unlike many other agencies claiming good cause to bypass the notice and comment procedure, the IRS’s organic statute provides a viable alternative by allowing for the retroactive application of regulations issued to prevent abuse. As a result, two functionally equivalent approaches to combat tax abuse emerge, differentiated only by the presence or absence of public participation in rulemaking processes. By comparing the public policy ramifications of these different rulemaking approaches, I contribute to key policy debates centering on administrative rulemaking procedures. I find that issuing regulations under the good cause exception provides efficiency gains, but does so at the expense of increased litigation risk and a failure to mitigate the principal-agent problem animating the rulemaking requirements in the APA. On the other hand, regulations issued retroactively reduce agency costs, provide modest efficiency gains and partially outsource the burden of compliance to interested constituents who participate in rulemaking processes. On these grounds, I conclude that Treasury’s assertion of good cause to promulgate regulations to prevent abuse is unconvincing given the viable alternative of retroactive application of finalized regulations. These conclusions are specific to the trade-offs inherent when Treasury promulgates regulations to prevent tax abuse, but also speak to IRS compliance with the APA more generally."

Merritt: W&L's Dismal Placement Results Question Experiential Learning Push for 'Practice-Ready' Lawyers

Deborah Jones Merritt (Ohio State), An Employment Puzzle:

Employers say they are eager to hire these better-trained, more rounded, more “practice ready” lawyers -- and they should be. That’s why the employment results for Washington & Lee’s School of Law are so troubling. Washington & Lee pioneered an experiential third-year program that has won accolades from many observers. Bill Henderson called Washington & Lee’s program the biggest legal education story of 2013 [more here].  The National Jurist named the school’s faculty as among the twenty-five most influential people in legal education. Surely graduates of this widely praised program are reaping success in the job market?

Sadly, the statistics say otherwise. Washington & Lee’s recent employment outcomes are worse than those of similarly ranked schools. The results are troubling for advocates of experiential learning. They should also force employers to reflect on their own behavior: Does the rhetoric of “practice ready” graduates align with the reality of legal hiring? ...

Washington & Lee’s employment outcomes for 2011 were noticeably mediocre. By nine months after graduation, only 55.0% of the school’s graduates had obtained full-time, long-term jobs that required bar admission. That percentage placed Washington & Lee 76th among ABA-accredited schools for job outcomes. Using the second, broader metric, 64.3% of Washington & Lee’s class secured full-time, long-term positions. But that only nudged the school up a few spots compared to other schools -- to 73rd place.

In 2012, the numbers were even worse. Only 49.2% of Washington & Lee’s 2012 graduates obtained full-time, long-term jobs that required a law license, ranking the school 119th compared to other accredited schools. Including JD Advantage jobs raised the percentage to 57.7%, but lowered Washington & Lee’s comparative rank to 127th.

These numbers are depressing by any measure; they are startling when we remember that Washington & Lee currently is tied for twenty-sixth place in the US News ranking. Other schools of similar rank fare much better on employment outcomes.

The University of Iowa, for example, holds the same US News rank as Washington & Lee and suffers from a similarly rural location. Yet Iowa placed 70.8% of its 2012 graduates in full-time, long-term jobs requiring bar admission–more than twenty percentage points better than Washington & Lee. The College of William & Mary ranks a bit below Washington & Lee in US News (at 33rd) and operates in the same state. William & Mary placed only 55.9% of its 2012 graduates in full-time, long-term jobs requiring bar admission -- but that was still significantly better than Washington & Lee’s results. ...

Just last week, California’s Task Force on Admissions Regulation Reform suggested: “If, in the future, new lawyers come into the profession more practice-ready than they are today, more jobs will be available and new lawyers will be better equipped to compete for those jobs.” (p. 14) If that’s true, why isn’t the formula working for Washington & Lee?

I think we need to explore at least four possibilities. First and most important, the connection between practical training and jobs is much smaller than practitioners and bar associations assert. ... Second, even when allocating existing jobs, employers may care less about practical training than they claim. ... Third, employers may care about experience, but want to see that experience in the area for which they’re hiring. ... A fourth possible explanation for Washington & Lee’s disappointing employment outcomes is that the students themselves may have developed higher or more specialized career ambitions than their peers at other schools. ...

What lessons should we take from Washington & Lee’s 2011 and 2012 employment outcomes? First, the school still deserves substantial credit for its willingness to innovate–as well as for the particular program it chose. ... Second, legal employers should take a hard look at the factors they actually value in hiring. ... Third, law schools and employers should work together to design the best type of experiential education -- one that prepares graduates for immediate employment as well as long-term success. ...

Washington & Lee’s employment outcomes are a puzzle that we all need to confront. Graduates from most law schools, even high-ranking ones, are struggling to find good jobs. Experiential education can work pedagogic magic and prepare better lawyers, but it’s not a silver bullet for employment woes or heavy debt. On those two issues, we need to push much harder for remedies.

Mann: Smart Tax Incentives for the Smart Energy Grid

Roberta F. Mann (Oregon), Smart Incentives for the Smart Grid, 43 N.M. L. Rev. 127 (2013):

Clean, renewable energy from the sun and wind — the green revolution is supposed to change the world. Since 2005, the United States has increased government investment in renewable energy generation, both from direct subsidies and indirectly through tax subsidies. But before renewable energy can change the world, it has to get to the customers who use it. Thomas Edison did change the world when he developed the first working electric power system. Unfortunately, the system for transmitting electrical power throughout the United States (the “grid”) has not changed much since then. The grid was designed and built around fossil energy generation. Wind and solar energy pose several problems for the grid. First, wind and solar energy are intermittent. The sun doesn’t shine all the time; the wind doesn’t blow all the time. Second, the best sun and wind resources aren’t always near large numbers of electricity users. Third, when the wind blows, sometimes it blows a lot, generating spikes of power. Electricity requires a steady flow of power. Intermittent renewable sources such as wind and solar pose logistical challenges to maintaining a consistent flow of electricity to users. This problem can be solved the hard way, or the soft way. The hard way is building more and longer transmission lines. The soft way is conserving energy and smoothing demand by smart grid technology. Smart grid technology can overcome logistical challenges at a much lower cost than building more transmission lines. This paper will examine the incentives provided through the tax system for development and implementation of smart grid technology, assessing the progress of the United States and considering strategies for the future. Tax policies that could facilitate the development of the smart grid include incentives for plug-in electric vehicles used to store and manage energy, the credit for qualified advanced manufacturing and enhanced cost recovery to facilitate additional investment in grid technology.

How Librarians Can Enhance the Visibility of Faculty Scholarship

Simon Canick (William Mitchell), Library Services for the Self-Interested Law School: Enhancing the Visibility of Faculty Scholarship, 105 Law Libr. J. 175 (2013):

This article suggests a new set of filters through which to evaluate law library services, in particular those that support faculty scholarship. These filters include recent profound changes in legal education and the motivators of today’s law professors. By understanding the needs of self-interested deans and professors, libraries can fill new roles that are consistent with our core values. Libraries can also focus on dissemination and promotion of faculty work, especially through innovative open access projects.

The IRS Works to Regain the Public's Trust

Here. (Hat Tip: Andy Morriss.)

Taxation, Tyranny, and Theocracy: A Biblical Response to Susan Hamill

Gary North, Taxation, Tyranny, and Theocracy: A Biblical Response to Susan Hamill, 14 J. Accounting, Ethics & Pub. Pol'y 331 (2013):

I respond to Prof. Hamill’s assertion that she is not recommending the exercise of theocratic power, as defined by Rev. Gregory Boyd. [Susan Pace Hamill (Alabama), Tax Policy Inside the Two Kingdoms, 14 J. Accounting, Ethics & Pub. Pol'y 1 (2013)]. She is in fact a theocrat in terms of Rev. Boyd’s definition. In two previous peer-reviewed articles [An Evaluation of Federal Tax Policy Based on Judeo-Christian Ethics, 25 Va. Tax Rev. 671 (2006); The Vast Injustice Perpetuated by State and Local Tax Policy, 37 Hofstra L. Rev. 117 (2008)], she has called on Christians to organize politically in order to re-stricture specific tax codes. She has said that Christians have the votes to do this: around 80% of the electorate. She has identified what the top federal tax bracket rate should be: 50%. This is in addition to state and local taxes. She has made this call to political action on the basis of a specific ethical system: Christianity. Her social outlook is consistent with a Protestant tradition known as the social gospel. She says that the Bible has provided Christians with the basis of tax reform. I agree entirely with her regarding the legitimacy of such a call to political action by Christians. But I do disagree with the biblical texts she uses to argue her case. I use the Bible’s tax texts, plus the Mosaic text that affirms the rule of law (Exodus 12:49) and also the text mandating the equal application of justice, irrespective of wealth (Leviticus 19:15).  

Listokin & Eigen: Do Lawyers Really Believe Their Own Hype?

Yair Listokin (Yale) & Zev J. Eigen (Northwestern), Do Lawyers Really Believe Their Own Hype, and Should They? A Natural Experiment, 41 J. Legal Stud. 239 (2012):

Existing research suggests that practicing litigators are too confident in the merits of their clients’ cases. But practicing attorneys often self select (1) the area of law in which they practice, (2) the side on which to practice within that area, (3) law firms with whom they practice, and (4) the clients they represent. We explore whether, after stripping away these selection-biases, legal advocates are still overconfident in their clients’ claims by exploiting a natural experiment involving participants in moot court competitions at three U.S. law schools. Students are randomly assigned to advocate for either petitioner or respondent, so none of the selection-bias problems above are present. We find that following participation in moot court contests, students overwhelmingly perceive that the legal merits favor the side that they were randomly assigned to represent. We also find that overconfidence is associated with poorer performance in advocacy as measured by legal writing instructors. Theoretical and practical implications are discussed.

Institutional Corruption in the Tax-Exempt Bond Market

Zachary Fox (Harvard University, Edmond J. Safra Center for Ethics), Tax-Exempt Corruption: Exploring Elements of Institutional Corruption in Bond Finance:

This paper will apply the theory of institutional corruption to the world of private-activity bonds, which offer private entities access to tax-exempt borrowing, which generally provides lower interest rates. The bonds are issued by a public authority that requires the funds be used for a purpose that serves the public benefit. There is a long history of corruption in the bond market, the latest development being a 2011 Department of Justice investigation that exposed rampant bid-rigging by Bank of America, J.P. Morgan Chase and others. This paper will focus on bonds used for affordable housing, and explore whether the theory of institutional corruption might apply to either housing bonds or tax-exempt bonds writ large. Readers with real estate backgrounds should take care to note this paper, and institutional corruption theory, allege no impropriety whatsoever.

The IRS Scandal, Day 41

• American Thinker:  What the IRS Has Become
• Atlanta Journal-Constitution:  Democrats' IRS Testimony 'Bombshell' Is a Big Nothingburger
• The Atlantic:  The Great Battle Over the IRS Scandal Enters the Please-Let-It-End Phase
• Bloomberg:  How IRS Says One Tea Party Application Goaded Controversy
• Business Insider:  Darrell Issa Furious After Democrat Releases IRS Transcript That Blows Up His Investigation
• CNN:  Shifting IRS polls Contradict Key Deposition
• Commentary:  The “Apolitical” Fantasy and the IRS
• Fiscal Times:  Investigators Coming Up Short on IRS 'Conspiracy'
• The Hill:  Cummings Releases IRS Interview Transcripts
• The Hill:  IRS Official Denies Politics Were Behind Tea Party Targeting 
• The Hill:  47 Percent Think White House Involved in IRS Targeting
• Houston Chronicle:  Darrell Issa Furious After Democrat Releases IRS Transcript That Blows Up His Investigation
• Houston Chronicle:  IRS Official Contradicts Claims About Reviews
• Huffington Post:  Holly Paz, IRS Supervisor, Admits Scrutinizing Applications From Tea Party Groups
• Huffington Post:  IRS Officials: Washington Was Not Involved In Targeting Of Conservative Groups
• Huffington Post:  Juan Williams Flips Out at Bill O'Reilly Over IRS Scandal
• Huffington Post:  Tea Party: 'Audit The IRS' Rally Will Be Movement's 'Largest Demonstration' Since 2010
• L.A. Times:  IRS Manager Says Tea Party Groups Not Politically Targeted
• McClatchy:  IRS Cases Were Referred to ‘Group 7822’
• MSNBC:  Bucking Issa, Cummings Releases IRS Transcript
• MSNBC:  IRS ‘Scandal’: Issa’s Case Crumbles After Release of Transcripts
• MSNBC:  Issa’s Hypocritical ‘Selective’ Information
• MSNBC:  Will Releasing the IRS Transcripts Kill the Conspiracy Theories?
• NPR:  Liberal Groups Say They Received IRS Scrutiny Too
• NPR:  Six Surprising Things About the IRS Scandal
• Politico:  Dems Release Their Own IRS Transcripts
• Reason:  Democrats Downplay D.C. Role in IRS Targeting of Conservatives
• Salon:  War Against Issa Heats Up, as Cummings Releases IRS Transcript
• Slate:  Republicans Can't Say That Obama Was Behind the IRS' Tea Party Campaign, but Pollsters Can
• Town Hall:  Poll: 70 Percent Believe IRS Targeting Started in Washington D.C. 
• USA Today:  Republican at Cincinnati IRS: Scrutiny Was 'Normal'
• Wall Street Journal:  Issa, Cummings Fight Publicly Over Interview Transcript
• Wall Street Journal:  New IRS Interview: More Blip Than Bombshell
• Washington Post Fact Checker:  The Claim That the White House Was ‘Aware’ of the IRS Behavior: Three Pinocchios
• Washington Post:  Full House Committee Transcripts Shed New Light on Genesis of IRS Targeting
• Washington Post:  How the IRS Keeps the $4.3 Trillion Nonprofit World Secret
• Washington Post:  Rep. Elijah Cummings Releases a Full IRS Interview Transcript
• Washington Times op-ed:  Moving a Washington Scandal Out of Town: The Left’s Outrage Over the IRS Turns to a Plea to ‘Move On’, by Jay Sekulow
• Washington Times:  Cummings: Full IRS Interview Shows White House Didn’t Direct Tea Party Targeting
• Washington Times:  Sen. Chuck Grassley: IRS Poised to Pay $70M in Employee Bonuses
• The Week:  The House's Cold War Over the IRS Scandal Just Turned Hot

Prior TaxProf Blog Posts:

Continue reading "The IRS Scandal, Day 41"

Dubay's New Tax Papers

Curtis S. Dubay (Heritage Foundation):

• PEP and Pease Hurt Larger Families Most and Slow Growth:  "In the fiscal cliff deal, President Barack Obama and Congress surprisingly reinstated two long dormant tax policies: the personal exemption phaseout (PEP) and “Pease,” a cap on itemized deductions. The 2001 Bush tax cuts rightfully abolished them because they are bad policies. Now they are back, raising taxes on larger families and reducing the incentives to work and save. These reduced incentives will slow economic growth and, like the tax increase, hit larger families hardest. Pease is similar to the cap on deductions and exemptions that President Obama has proposed in his budgets. Fundamental tax reform is the best way for Congress to fix its mistake of reviving these policies."
• CBO Report on “Tax Expenditures” Has It Wrong:  "The Congressional Budget Office (CBO) released a report on the distribution of tax expenditures” that some are wrongly using to push for additional tax increases. This was inevitable because the report takes the wrong approach to the issue."
• E-sales Tax No Bargain:  "Gov. Bob McDonnell’s transportation plan includes a unique provision. If Congress passes the Marketplace Fairness Act, Virginia would use the new revenue from Internet sales taxes for transportation projects, sparing Virginians an increase of the gas tax. A respite from higher gas taxes sounds good. But Virginia’s businesses will pay a hefty compliance toll if the bill becomes law. And Virginians who shop online will pay the tab that drivers would’ve paid had the bill not become law."
• Senate Immigration Bill Does Not Require Payment of All Back Taxes:  "There are many serious flaws in the controversial Senate immigration bill, the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744). One such flaw is that it fails a standard of basic fairness to which immigration has long been held: It does not meaningfully require illegal immigrants to pay back taxes, interest, and penalties on all the income they earned while here in the U.S. illegally before being granted legal status."

NYU Provides Sweetheart Loans to Faculty, Administrators to Buy Vacation Homes

New York Times:  NYU Gives Its Stars Loans for Summer Homes:

NYU has already attracted attention for the multimillion-dollar loans it extends to some top executives and professors buying homes in New York City, a practice it has defended as necessary to attract talent to one of the most expensive cities on earth. Mortgage loans to Jacob Lew, a former N.Y.U. executive vice president, part of which was eventually forgiven, became an issue during Mr. Lew’s confirmation hearings as treasury secretary this year.

Universities in similar circumstances, like Columbia and Stanford, also have helped professors and executives with home loans. Aid for vacation properties, however, is all but unheard-of in higher education, several experts in university pay packages say.

“That’s getting to be a little too sexy even for me, and I have a good sense of humor about these things,” said Stephen Joel Trachtenberg, a former president of George Washington University who has publicly defended high salaries for professors and university executives. “That is entertaining, actually. I don’t think that’s prudent. I don’t mind paying someone a robust salary, but I think you have to be able to pass a red-face test.” ...

Since the late 1990s, at least five medical or law school faculty members at N.Y.U. have received loans on properties in the Hamptons or Fire Island, in addition to Dr. Sexton. ... Dr. Sexton declined to comment for this article, but in a March interview he said: “Faculty housing loans on which interest is paid and appreciation is enjoyed by the university actually produce additional revenue. They’re probably the best-performing parts of our portfolio, so as to reduce the amount of tuition that we require.” ...

[T]he compensation committee of NYU’s board of trustees approves such loans, with the exception of law school loans, which in the past were approved by the law dean and the board of the law school’s foundation. The law school’s current policy “is to participate fully in the university’s process for evaluation and approval of loans and loan programs.” ....

Senator Charles E. Grassley, Republican of Iowa, raised the issue of Mr. Lew’s loans during hearings over his confirmation, which was approved; since then, the senator, who is a member of the Finance Committee, has asked NYU for more records of compensation and loans to executives and employees. He noted NYU’s nonprofit status, which generally exempts it from income and property taxes.

“Universities are tax-exempt to educate students, not help their executives purchase vacation homes,” he said in a statement on Monday. “It’s hard to see how the student with a lifetime of debt benefits from his university leaders’ weekend homes in the Hamptons.”

• TaxProf Blog, Eye-Popping Housing Assistance for NYU Law Faculty
• ABA Journal, Law Faculty Perk at NYU Includes Loans for Pricey Vacation Homes
• Above the Law, NYU Law’s Secret Slush Funds
• The Atlantic:  Why Is NYU Helping Faculty Buy Vacation Homes?
• Business Insider, NYU Loans Helped Its Millionaire President Buy His Fire Island Vacation House
• Gothamist, Congrats, NYU Students: You're Paying For Your Faculty's Million-Dollar Vacation Homes
• Inside Higher Ed, NYU Gives Loans for Executives Vacation Homes
• Naked Capitalism, NYU Administrators Creat Student Debt Slaves to Subsidize Summer Homes, Ginormous Pensions
• New York Magazine, NYU Offers Top Talent a Path to Beachfront Property
• Slate:  NYU Neatly Embodies Everything Wrong With Higher Education in America

Posner, Becker Debate Tax Reform

Richard Posner, Tax Reform:

There is a good deal of dissatisfaction with the federal tax system (the state and local systems as well, but I’ll confine my attention to the federal). Most proposals for reform, however good in theory, are totally impractical from a political standpoint. But since politics is volatile, there is value to evaluating such proposals in order to lay a foundation for future reform. ...

Given political resistance, the practical feasibility of substantial tax reform is very limited. But at least a modest increase in federal income tax rates seems a politically feasible as well as economically defensible response to the need to increase federal revenue to cope with the fiscal deficit.

Gary Becker, Reform of the Tax Code:

The federal tax code is a mess from any economic perspective. It is not efficient, fair, or clear. A complete set of suggestions to improve the tax system would take hundreds of pages, as did the excellent 2005 Report of the President’s Advisory Panel on Federal Tax Reform. My discussion will concentrate on a few of the needed changes that would help stimulate a more efficient and faster growing American economy. ...

I discussed the most needed reforms, although other reforms are also desirable-many are considered in the report mentioned above on federal tax reform. Unfortunately, major reforms do not have much chance of enactment in the present political climate, but they are longer run goals that should appeal to both Democrats and Republicans.

Billionaire Claims IRS Political Bias in $186 Million Tax Refund Suit

Forbes:  Billionaire Seeks $186 Million Tax Refund, Claims IRS Biased By 'Politically Charged Atmosphere', by Janet Novack:

Billionaire investor Peter R. Kellogg and IAT Reinsurance Co. Ltd.,  the Bermuda-based insurance company his family owns, are suing the Internal Revenue Service for refunds of $186 million in taxes and interest they paid after the IRS revoked IAT’s tax-exemption retroactively. In court documents, Kellogg and IAT claim IRS officials were “unduly prejudiced” against them by a “politically charged atmosphere” created by journalists and that the IRS arbitrarily timed the revocation to maximize the taxes owed and “punish” them.

The IRS also disallowed IAT’s deduction of $1.3 million in business and personal travel expenses for Kellogg in 2000 and 2001. IAT argues its board properly authorized payment for Kellogg’s personal travel since it “recognized the need for Mr. Kellogg to travel privately because of his status including being listed by Forbes magazine.” Forbes estimates that Kellogg, 70, is worth $2.7 billion. He ran Wall Street’s top market maker, Spear, Leeds & Kellogg, until engineering its sale to the Goldman Sachs Group in 2000 for $6.5 billion.

Kellogg’s use of  a 501(c)(15) tax exempt insurance company to shield hundreds of millions in capital gains from tax was first exposed in a March 2001 Forbes cover story on the proliferation of edgy and over the edge tax shelters, Are You A Chump? Back then, the law limited the tax exemption to companies writing no more than $350,000 a year in premiums, but did not cap the investment income or assets exempt insurers could have. So in 1999, Forbes reported, IAT wrote $3,330 in premiums, earned $179 million on its investments and ended the year with $330 million in assets.  (Full disclosure: I was the author of that Forbes article.)

The loophole got even more attention in April 2003 when The New York Times published a long story on 501(c)(15), also featuring Kellogg. David Cay Johnston, the author of that article, also singled out Kellogg in his December 2003 book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich – and Cheat Everybody .

Kellogg’s assertions about the IRS’ bias and political sensitivity are contained in three previously unreported refund lawsuits he and IAT filed in the Court of Federal Claims at the end of April—before the public disclosure that the tax exempt division had improperly singled out 501(c)(4) exempt applications from groups with  “Tea Party” in their name for extra scrutiny.

CBPP: State Income Tax Revenues Surge 17.6%

Center on Budget and Policy Priorities:  States Should React Cautiously to Recent Income Tax Growth April Surge Provides Opportunity to Invest in Infrastructure, Boost Reserves:

Recent tax collections are considerably higher than last year in most states and, in many cases, exceed states’ projections when they adopted their current budgets in the spring of 2012.  In 32 states for which data are available, state tax collections in the first ten months of fiscal year 2013 were 5.7 percent higher than in the same period last year, on average. 

  A closer look into the tax collection reports reveals that: 

• Much of the recent growth is in the income tax.  With two months left in the fiscal year, the typical state has collected 8.9 percent more personal income taxes than it did in the same period last year.  Sales taxes have grown more slowly.  This is, in part, the latest demonstration of the fact than income taxes rise more rapidly than sales taxes during periods of economic growth. 
• The revenue growth and particularly income tax growth is nationwide.  Some 26 of the 30 states for which data are available experienced double-digit growth in income taxes between April 2012 and April 2013. 
• While a portion of the income tax growth reflects the economic recovery, an additional portion reflects wealthy taxpayers shifting income into 2012 that they would have received in 2013 in anticipation of federal tax rate increases in 2013.
• Even with this recent growth, state tax revenues have not recovered from the Great Recession. Revenues likely still remain more than 3 percent below pre-recession levels, after adjusting for inflation.  And because of the one-time nature of much of the recent revenue growth, revenue growth is likely to slow again.

G-8 Declares War on Corporate Tax Evasion

President Obama announced at the G-8 Summit today a National Action Plan on Preventing the Misuse of Companies and Legal Arrangements to assist law enforcement and tax authorities in their investigations of shell companies set up to illegally avoid paying taxes.

• United States G-8 Action Plan for Transparency of Company Ownership and Control
• Fact Sheet: U.S. National Action Plan on Preventing the Misuse of Companies and Legal Arrangements
• G8 Action Plan Principles to Prevent the Misuse of Companies and Legal Arrangements
• BBC News, OECD Urges G-8 to Clamp Down on Tax Evasion
• Financial Times, G8 Urges Overhaul of Corporate Tax Rules
• Huffington Post, G-8 Summit: Tax Evasion Becomes Focus of Group of 8 Meetings
• Reuters, G8 Pledges Action on Tax Evasion, Few Concrete Measures
• USA Today, G-8 Summit Turns Focus to Clampdown on Tax-Dodging
• Wall Street Journal editorial, A Taxing G-8 Summit: World Leaders Go After a Bigger Share of Private Wealth
• Washington Post, G-8 Leaders Issue Declaration on Corporate Tax Evasion, Say Countries Must Close Tax Loopholes

Ault: The OECD and Sources of International Tax Law

Hugh J. Ault (Boston College), Some Reflections on the OECD and the Sources of International Tax, 70 Tax Notes Int'l 1195 (June 17, 2013):

This article is the revised text of a lecture held on May 2, 2013, at the Max Planck Institute.

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

GAO: Taxing Bitcoin

Following up on my previous post, The IRS Takes a Bite Out of Bitcoin (May 2, 2013): GAO, Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks (GAO-13-516):

Recent years have seen the development of virtual economies, such as those within online role-playing games, through which individual participants can own and exchange virtual goods and services. Within some virtual economies, virtual currencies have been created as a medium of exchange for goods and services. Virtual property and currency can be exchanged for real goods, services, and currency, and virtual currencies have been developed outside of virtual economies as alternatives to government-issued currencies, such as dollars. These innovations raise questions about related tax requirements and potential challenges for IRS compliance efforts.

This report (1) describes the tax reporting requirements for virtual economies and currencies, (2) identifies the potential tax compliance risks of virtual economies and currencies, and (3) assesses how IRS has addressed the tax compliance risks of virtual economies and currencies.

• Accounting Today, IRS Could Begin Taxing Bitcoin and Other Virtual Currencies
• The Hill:  GAO: IRS Needs to Keep an Eye on Virtual Currencies
• National Journal:  The Tax Man Cometh—For Your Bitcoins

Nussbaum & Wolf: The Misguided Push for a Two-Year J.D.

Bloomberg op-ed:  Two-Year Law School? Don’t Rush the Paper Chase, by Martha C. Nussbaum (University of Chicago Law School) & Charles Wolf (Vedder Price, Chicago):

Today, in addition to basic law subjects and a variety of practice-oriented courses, law students learn to see society through the lens of the social sciences and the humanities, primarily in elective courses taken during the second and third years.

As the ABA reassesses the nature of legal education, many are calling for drastic changes in the way lawyers are trained. One argument is that we need to offer a stripped-down, two-year degree aimed narrowly at legal practice. ...

This zeal for change is inspired partly by rising fears about costs and student debt, a legitimate concern exacerbated by the shrinking market for law-school graduates. ... We believe the reason there is no trend toward a three-year undergraduate degree is that wise administrators have long been aware of the problem of cost and are addressing it creatively through aid. Law schools are behind the curve, and they must catch up, rather than diluting the quality of the education they offer....

[L]awyers are influential members of a complicated and often troubled society. They need all the help they can get if they are to have enough understanding of social forces to operate effectively, rather than just deferentially or by rote. ... [L]awyers who join firms also need to understand how society works if they aspire to be independent thoughtful leaders of their chosen profession, rather than passive followers of custom. In the life of the firm, a deferential model of lawyering (doing it because that is how it has been done) will further erode professional standards.

AAUP: Budget Woes Are No Excuse to Fire Tenured Faculty

Inside Higher Ed:  Budget Woes Are No Excuse:

Citing “chilling” violations of shared governance principles under the guise of financial crises, the American Association of University Professors voted unanimously to censure two institutions [National Louis University, Southern University] during its annual meeting Saturday. ...

Financial exigency, a state in which an institution's survival is threatened, is one of the only ways AAUP policy permits eliminations of tenured faculty jobs. The organization shored up its definition of the term earlier this year to try to prevent abuses of the term by administrators wishing to eliminate jobs in non-emergencies.

• Chronicle of Higher Education, AAUP Censures 2 Institutions and Removes 2 Others From Censure List

The IRS Scandal, Day 40

• American Spectator:  Keep the IRS Scandal Alive
• American Thinker:  IRS Fires Another...
• Bloomberg:  IRS Couldn’t Process Groups’ Cases Quickly Enough, Manager Says
• Bloomberg:  Lew Sees No Evidence of Political Involvement in IRS Targeting
• CBS News:  IRS Scandal: Is Partisanship Overshadowing Facts?
• Cincinnati Enquirer:  IRS Scrutinized Pro-Kasich Group
• CNN Poll:  Did White House order IRS targeting?
• Daily Beast:  D.C. IRS Knew About Targeting
• Daily Mail:  IRS Lawyer Who Donated $4,000 to Obama's 2008 Campaign, and Hovered Over Inspector General Interviews with Subordinates, Emerges as Villain in Tea Party Scandal
• Fox News:  Former IRS Boss Involved in Decision to Use Planted Question to Address Scandal
• Fox News:  Should IRS Remain in Charge of Enforcing ObamaCare?
• The Hill:  Glenn Beck to Attend 'Audit the IRS' Rally at Capitol
• The Hill:  IRS Official: 'Apolitical' Ohio Staffers Not Sensitive Enough
• Huffington Post:  IRS Investigation: Darrell Issa Releases More Partial Transcripts Despite Calls For Full Accounts
• Human Events:  IRS Supervisor: “Tea Party” Was Just Our Little Pet Name for Everyone
• National Review:  Publicly Evenly Split on Belief in White House Direction of IRS Scandal
• New York Post:  IRS Tea(m) No Rogue
• Philadelphia Inquirer editorial:  Problem Larger Than IRS Role
• Renew America:  Why Does Rep. Cummings Want House Investigation of IRS Scandal to Stop Before Catherine Engelbrecht Testifies?
• Sacramento Bee:  Activist Groups: IRS Reviewed Us Under Previous Presidents
• Wall Street Journal:  Treasury's Lew: IRS Set to Recommend Changes
• Wall Street Journal:  Where's the FBI? Targeted Conservative Groups Have Not Been Contacted
• Washington Post:  What Did Holly Paz Tell IRS Investigators?
• Washington Times:  IRS Supervisor in D.C. Reviewed Tea Party Cases

Prior TaxProf Blog Posts:

Continue reading "The IRS Scandal, Day 40"

Brooklyn President Steps Down, Leaving Dean in Sole Charge of Law School Amidst Tenured Prof's ABA Complaint

Following up on my previous posts (links below):  New York Law Journal, Departure of President Leaves Dean in Charge at Brooklyn Law:

Joan Wexler [2011 salary: $658,471] will step down at the end of this month as Brooklyn Law School president, a position she took in 2010 after serving 16 years as the school's dean, the chairman of Brooklyn Law's board of trustees announced Thursday.

With her departure, the school is turning its back on a short-lived experiment under which it was governed by two top administrators: a president handling business affairs and fundraising and a dean overseeing academics.

Dean Nicholas Allard, who was hired last July, will now have sole responsibility for running the 1,000-student school.

Wexler will begin a two-year sabbatical on June 30, school officials said. She will remain as a tenured faculty member at Brooklyn Law although there are no immediate plans for her to teach. She will continue to assist the school on the planned sale of six "smaller" properties in Brooklyn, said Eric Riley, the school's director of communications. Wexler will assume the title of "dean and president emerita." ... Wexler was provided with a rent-free apartment in Feil Hall. Riley said she will retain the apartment after June 30, but not the car and driver that have been available to her as dean and president. ...

The change in her status comes shortly after Gary Minda, a tenured faculty member hired in 1978, filed a complaint with the ABA claiming, among other things, that having a separate dean and president wasted resources and created confusion among administrators and faculty about who was in charge.

Minda also contends that Brooklyn Law has allowed Allard to remain in full-time practice at Patton Boggs while also serving as dean in a possible violation of ABA standards. ...

"I am not going to comment on a matter that is pending before the ABA and I will not comment on personnel issues involving individual faculty members," Allard said in an interview. However, in response to mentions of Minda's complaint on law school blogs, the administration said in a May statement it was "unfortunate" that a professor the school didn't identify has "apparently chosen to attempt to gain leverage in what is essentially a personnel issue by complaining to the ABA and in the press. We look forward to addressing the matter with the ABA and are confident that the ABA will find the professor's claims to be wholly without merit." ...

Minda said he showed Allard and assistant dean Michael Cahill a draft of his complaint at a March 6 meeting. At that meeting, Minda said he was offered a $300,000 payment by Allard to take early retirement, which Minda said he refused.

Minda subsequently told Allard that he plans to keep teaching "into my late 70s" and asked for a lump sum buyout of $2.8 million or for the school to purchase an annuity that would pay him his salary and benefits until age 76. Minda also said that during the same meeting he was informed that his request to go on sabbatical next spring to work on a book was denied.

In an April 16 letter to Minda, Allard said he expected the ABA to find the professor's complaints "completely misplaced and erroneous." Allard called Minda's payment requests "unreasonable" and suggested that Minda was trying to gain leverage for his severance demands through his complaint.

Minda said that Allard told him that he had received unsolicited comments from several other faculty members regarding Minda's "less than adequate performance, lack of collegiality with your colleagues and your disrespect for me and others."

"I love teaching," Minda said in an interview. "I love my law school. I have no plans to retire from the law school. I think I have a responsibility to raise the issues that I have and if I am wrong, then I will be wrong. If they want to buy me out, then they can buy me out."

• Above the Law, How Many Deans Does It Take to Run a Law School?

Prior TaxProf blog coverage:

• Brooklyn Law School to Permit Dismissal of Tenured Faculty for Lack of Collegiality or Poor Student Evaluations (Apr. 26, 2013)
• Brooklyn Dean Responds to New Standards for Dismissal of Tenured Faculty (May 1, 2013)
• Tenured Brooklyn Law Prof Files ABA Complaint Against School (May 13, 2013)
• Brooklyn Law School Responds to Tenured Prof's ABA Complaint (May 14, 2013)

Tyson: A Ringing Defense of the Value Proposition of Higher Education

New York Times op-ed:  Getting More Bang for the Buck in Higher Education, by Laura Tyson (UC-Berkeley, Haas School of Business):

The rising cost of college and the soaring student debt burden have led some to conclude that a college education is a bad investment for young Americans. Don’t believe the naysayers. The value of a college education as a way to improve lifetime earnings is near an all-time high. The returns to a college education outpace the returns to other investments — stocks, bonds, housing and gold — by sizable margins. A college graduate is almost 20 percentage points more likely to be employed than someone with a high-school diploma. Although the cost of a college degree is 50 percent higher than it was 30 years ago, the increase in lifetime earnings associated with a college degree is now 75 percent higher.

Higher education is also a good investment for the country. In a recent study, the Organization for Economic Cooperation and Development compared the fiscal costs and fiscal benefits of higher education. The fiscal costs include government spending on higher education and forgone tax revenues while students are not working. The fiscal benefits include higher tax revenues from college graduates because of higher incomes and lower outlays for safety-net programs. The bottom line: on average across O.E.C.D. countries, the public return from higher education is about four to one — with a net public benefit of $100,000 per man and about $52,000 per woman. In the United States, the net public benefit is more than $250,000, or five to one for men and about three to one for women. A college degree has not closed the gender pay gap, but it does generate sizable returns for both men and women.

From a fiscal standpoint, cutting government spending on higher education may be penny-wise but it is undoubtedly pound-foolish. ...

Despite its rising cost, college education remains a great investment both for students and for the country. But there is much more that can be done to increase the value of this investment by improving completion rates through greater transparency and accountability, greater program flexibility and the growth of well-planned online courses and degree programs.

Morse: Startup Ltd.: Tax Planning and Initial Incorporation

Susan C. Morse (UC-Hastings, moving to Texas), Startup Ltd.: Tax Planning and Initial Incorporation, 14 Fla. Tax Rev. ___ (2014):

This Article analyzes the incorporation decisions of relatively new, U.S.-based private business enterprises with global ambitions. Such startup firms generally organize as U.S. corporations. This Article theorizes this dominant structure and its exceptions, drawing from prior literature and illustrating with informal interview results. It identifies explanatory factors including limited tax benefits of non-U.S. incorporation, legal benefits of U.S. incorporation, startups’ liquidity and other resource constraints, and investor preferences.

Baby Boomer Faculty Put Off Retirement

Inside Higher Ed:  Data Suggest Baby Boomer Faculty Are Putting Off Retirement:

At the height of the financial crisis, it was unclear how diminished 401(k)s and general economic uncertainty would impact retirement trends for baby boomer professors. But new data suggest that professors are either significantly -- or indefinitely -- putting off retirement, and not just for financial reasons. Experts say the trend is forcing institutions to rethink traditional faculty models.

Some 74% of professors aged 49-67 plan to delay retirement past age 65 or never retire at all, according to a new Fidelity Investments study of higher education faculty. While 69% of those surveyed cited financial concerns, an even higher percentage of professors said love of their careers factored into their decision.

Reasons Professors List for Delaying Retirement

Economic concerns (total)	69%
--Unsure whether they'll have enough to retire comfortably	55%
--Want to maximize Social Security payments	42%
--Will need to continue receiving health insurance benefits	42%
Personal/professional reasons (total)	81%
--Want to stay busy and productive	89%
--Love the work too much to give it up	64%
--Want continued access to and affiliation with institution	41%

[T]he idea of legions of aging professors is worrisome to people starting academic careers, to adjuncts longing for tenure-track slots and to some administrators, who already see this trend playing out on their campuses. ... That means delayed opportunities to reorganize the academic priorities of an institution and diversify its professoriate. ...

The trend may force higher education to rethink traditional faculty models, Mathews said, to those beyond the “three-legged stool” of assistant, associate and full professor. One idea that’s gaining traction is making more meaningful the role of the emeritus professor, “making it an alternative to retirement that keeps faculty engaged, and we’re not losing that intellectual capital.”

Roger Baldwin, professor of educational administration at Michigan State University, has studied retired faculty organizations and a growing, more formalized subset of such groups called “emeritus colleges,” such as the one at Emory University. Although retired faculty organizations can vary in their levels of activity, they can be effective in giving professors a sense of purpose and identity following retirement, he said. “I think many people are delaying retirement because there are no clear options as to how they’re going to continue and intellectually fulfilling life once they ‘drop off a cliff,’” he said. “That, coupled with the [recession of 2008], caused a lot of people to reassess retirement.”

Public Citizen: Industry Lobbyists Dominate Tax Reform Debate

Public Citizen, Lax Taxes: Industry Has Resource Advantage in Battle over Bills that Would Raise Revenue and Bring Fairness to Tax Code:

Legislation in Congress that would address tax loopholes, raise revenue, increase the fairness of the tax code and provide stability to the financial system are subject to lobbying efforts that are overwhelmingly lopsided in favor of industry interests, a new Public Citizen report shows. The report analyzes lobbying disclosure data to illustrate the number of lobbyists that are working on each of three bills: the Cut Unjustified Tax Loopholes Act (CUT Loopholes), the Stop Tax Haven Abuse Act and the Wall Street Trading and Speculators Tax Act – finding that 331 of the 383, or 86 percent, of lobbyists who have worked on these bills in the past two Congresses represent industry clients.

(Hat Tip: Citizens for Tax Justice.)

Yin: Joint Tax Committee Should Investigate the IRS

George K. Yin (Virginia), Former Chief of Staff Thinks JCT Should Investigate the IRS, 139 Tax Notes 1443 (June 107 2013):

House Ways and Means Committee Chair Dave Camp, R-Mich., has reportedly rejected use of a joint committee to investigate the IRS because such a committee would not be authorized to access confidential tax return information. Yet Camp already heads a joint committee (the Joint Committee on Taxation), which has that specific authority under sections 6103(f) and 8023. Moreover, the JCT was created for the express purpose of investigating the tax agency's administration of the tax laws, following a lengthy Senate investigation of corruption charges against the agency and possible favoritism towards companies associated with then-Secretary of the Treasury Andrew Mellon. Congress wanted a permanent organization to conduct future tax investigations, oversee the agency, and make sure it was administering the law in the manner Congress intended. Camp should make use of this valuable resource to streamline Congress's efforts and prevent the integrity of its investigation from being undermined by political squabbling.  

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

Fleischer: Using REITs to Avoid Corporate Tax

Following up on my previous posts:

• NY Times: REIT Conversions Skyrocket as Tax Avoidance Vehicle (Apr. 22, 2013)
• WSJ: IRS Puts Brakes on REIT Conversions (June 10, 2013)

New York Times DealBook:  Defining Real Estate Broadly to Avoid Corporate Taxes, by Victor Fleischer (Colorado; moving to San Diego):

Shares of the information storage company Iron Mountain dropped about 15% last week on the news that the IRS was “tentatively adverse” toward at least one aspect of its plan to convert into a Real Estate Investment Trust, or REIT. The primary legal issue appears to be whether Iron Mountain’s racking storage units qualify as real estate assets. ...

Even though it seems like a stretch, Iron Mountain’s legal argument is not bad. Iron Mountain argues that the racking units are properly thought of as real estate, as they are affixed to the foundation of the building shell and intended to remain permanently in place. ...

The problem for the taxing authorities is that as the definition of REITs has expanded over time, the corporate tax base has eroded as more companies that look and act like ordinary businesses avoid paying the corporate tax.... The erosion of the corporate tax base is a problem for Congress and the Treasury Department to address through tax legislation, not for the IRS to change through its ruling policy. Congress shares responsibility for the problem thanks to its decision to allow taxable REIT subsidiaries to conduct activities that would otherwise jeopardize the qualifying status of REITs.

Hungerford: Corporate Tax Rates and Economic Growth Since 1947

Economic Policy Institute:  Corporate Tax Rates and Economic Growth Since 1947, by Thomas L. Hungerford:

This brief examines corporate income-tax rates, and the argument linking low corporate tax rates with higher economic growth. The principal findings are:

• Claims that the United States’ corporate tax rate is uniquely burdensome to U.S. business when compared with the corporate tax rates of its industrial peers are incorrect. While the United States has one of the highest statutory corporate income-tax rates among advanced countries, the effective corporate income-tax rate (27.7 percent) is quite close to the average of rich countries (27.2 percent, weighted by GDP).
• The U.S. corporate income-tax rate is also not high by historic standards. The statutory corporate tax rate has gradually been reduced from over 50 percent in the 1950s to its current 35 percent.
• The current U.S. corporate tax rate does not appear to be impeding corporate profits. Both before-tax and after-tax corporate profits as a percentage of national income are at post–World War II highs; they were 13.6 percent and 11.4 percent, respectively, in 2012.
• Lowering the corporate income-tax rate would not spur economic growth. The analysis finds no evidence that high corporate tax rates have a negative impact on economic growth (i.e., it finds no evidence that changes in either the statutory corporate tax rate or the effective marginal tax rate on capital income are correlated with economic growth).

 

(Hat Tip: Citizens for Tax Justice.)

The IRS Scandal, Day 39

• Linda Beale (Wayne State):  "Getting Rid of the IRS" -- Detroit's Nolan Finley's Wrong Solution to the Wrong Problem
• Cincinnati Enquirer:  IRS Agents Used Keywords Differently, Official Says
• Forbes:  Congress Has a Duty to Delay IRS Funding to Block ObamaCare's Implementation
• Forbes:  The Biggest Turnaround Job of 2013: The IRS
• Fox News:  IRS Scandals Threaten Funding for President Obama's Health Care Law
• Fox News;  IRS Supervisor in DC Scrutinized Tea Party Cases
• Fox News;  Trump: The IRS Scandal Has Stopped Resonating With the Public
• Mediaite:  Cheney Rejects Obama’s IRS Story on Fox: ‘Cannot Conceive’ of Agents Acting on Their Own
• National Review:  The IRS vs. Pro-Israel Groups: Their Applications for Tax-Exempt Status Are Routed to an Antiterrorism Unit
• New York Times editorial:  Release the Facts About the IRS Scandal
• Politico:  Hill Focus Turns to Disciplined IRS Leader
• Politico:  IRS Scandal Could Change Rules for Nonprofits
• Reuters:  The Real IRS Scandal
• USA Today:  At IRS, 'Tea Party' Could Mean 'Liberal,' Official Says
• Wall Street Journal;  IRS Inquiry Finds Problems, Puzzles 
• Washington Examiner:  Attorney for IRS Agent: Holly Paz Now on Administrative Leave 
• Washington Post;  Cummings Challenges Issa on IRS Transcripts
• Washington Post:  IRS Supervisor in Washington Reviewed Earliest Tea Party cases, Contradicting Agency Claims

Prior TaxProf Blog Posts:

Continue reading "The IRS Scandal, Day 39"

TaxProf Blog Weekend Roundup

Saturday:

• Caron Presents Law Professor Blogs Network 2.0 Today at the CALI Conference at Chicago-Kent
• Washington University Law School Offers $145k Scholarships -- But Only If Applicants Accept Within 24 Hours
• The IRS Scandal, Day 37
• State & Local Property Tax Collections Per Capita

Sunday:

• InfiLaw Shelves Plans for Law School in Arlington, Virginia
• Father's Day
• Top 5 Tax Paper Downloads
• The IRS Scandal, Day 38

InfiLaw Shelves Plans for Law School in Arlington, Virginia

InfiLaw, the owner of for-profit law schools Charlotte School of Law, Florida Coastal School of Law, and Phoenix School of Law, has shelved plans for a law school in Arlington, Virginia:

In April, the Arlington County Board quietly approved a site plan amendment for the vacant National Gateway building at 3500 and 3550 S. Clark Street, along Jefferson Davis Highway near Potomac Yard. The amendment was granted to allow the office building to be used for educational purposes. Specifically, the building was to be occupied by a new 1,300-student law school, complete with 22 classrooms, a law library, a bookstore, a moot courtroom and a cafe. Since April, however, no construction permits have been issued for the building.

InfiLaw System, a Florida-based consortium of independent law schools that was planning to open the new school, now says that plans have fallen through, at least for now. “The InfiLaw System was exploring opening a law school in Arlington, Virginia,” confirmed Kathy Heldman, the organization’s vice president of marketing, via email last night. “We have decided to put the initiative on hold.” 

(Hat Tip: Above the Law.)

Father's Day

Jim Gaffigan, Dad Is Fat (2013):

In Dad is Fat, stand-up comedian Jim Gaffigan, who’s best known for his legendary riffs on Hot Pockets, bacon, manatees, and McDonald's, expresses all the joys and horrors of life with five young children—everything from cousins ("celebrities for little kids") to toddlers’ communication skills (“they always sound like they have traveled by horseback for hours to deliver important news”), to the eating habits of four year olds (“there is no difference between a four year old eating a taco and throwing a taco on the floor”). Reminiscent of Bill Cosby’s Fatherhood, Dad is Fat is sharply observed, explosively funny, and a cry for help from a man who has realized he and his wife are outnumbered in their own home.

Reviews:

• amazon
• Barnes & Noble
• CBS
• Good Reads
• Esquire
• Kirkus
• NPR
• USA Today

Wall Street Journal op-ed:  'Always Be a Gentleman' and Other Fatherly Advice, by Fay Vincent:

My father was definitely old school. He rarely swore, drank only an occasional beer in the high summer heat, and generally lived the solid decent life of what he called "a gentleman." From him I learned the values of decency, honor and pride.

During his lifetime I occasionally felt he was totally behind the times with his regular injunctions that I do my best and honor the family name. Yet now I realize the value of his legacy, which is summed up in the following set of commandments:

• Always be a gentleman
• Always keep your shoes shined
• Save your money
• Any week in which you do not put some money aside for a rainy day is a wasted week
• A car is the most expensive thing you can own
• A pension is important
• If your boss or employer is not making money on you, you will eventually lose your job
• It is more important to be able to write and speak well than it is to be able to succeed in athletics
• There is no such thing as an honest politician
• Don't get old
• The finest legacies are often not material things

Top 5 Tax Paper Downloads

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new #1 paper and new papers debuting on the list at #3, #4, and #5:

1.  [379 Downloads]  Through a Latte, Darkly: Starbucks' Window into Stateless Income Tax Planning, by Edward D. Kleinbard (USC)

2.  [246 Downloads]  Corporate Governance, Incentives, and Tax Avoidance, by Chris Armstrong (University of Pennsylvania, Wharton School), Jennifer L. Blouin (University of Pennsylvania, Wharton School), Alan D. Jagolinzer (University of Colorado, Leeds School of Business) &  David F. Larcker (Stanford University, Graduate School of Business)

3.  [187 Downloads]  Emerging Countries and the Taxation of Offshore Accounts, by Itai Grinberg (Georgetown)

4.  [167 Downloads]  The Good, the Bad and the Poor Man's Prenup: An Analysis of the Ohio Legacy Trust Act and What Asset Protection Trusts Will Mean for Ohio, by Kevin R. McKinnis (J.D. 2014, Cleveland State)

5.  [135 Downloads]  Taxes and Religion: The Hobby Lobby Contraceptive Cases, by Steven J. Willis (Florida)

The IRS Scandal, Day 38

• American Spectator:  The IRS Mess
• American Spectator:  The IRS Ten: The New Keating Five
• Baltimore Sun:  Why the IRS Scandal Is Worse Than the Others
• Chicago Tribune:  Threats Made to Figures at Center of IRS Controversy
• Daily Beast:  Elijah Cummings: House’s Tea Party-IRS Probe Far From “The Full Story”
• Forbes:  IRS Tale of Two Cities, Cincinnati and DC, by Robert W. Wood
• The Hill:  House Republicans See Long Slog Ahead for Probes of IRS Targeting
• The Hill:  Threats Made Against IRS Officials
• National Review:  Palin Warns of ‘Perhaps Armed IRS Agents’ Implementing Obamacare
• Reuters:  Threats Made to Figures at Center of IRS Controversy
• Roll Call:  Finding Congressional Solutions to the IRS Scandal
• Washington Post:  IRS Scandals Jeopardize Agency Funding to Put in Place Obama’s Massive New Health Care Law
• Washington Times:  FBI Director Fails to Provide Details to Congress on IRS

Prior TaxProf Blog Posts:

Continue reading "The IRS Scandal, Day 38"

Caron Presents Law Professor Blogs Network 2.0 Today at the CALI Conference at Chicago-Kent

I am presenting Law Professor Blogs Network 2.0: Faculty, IT and Vendor Collaboration at 11:30 a.m. EST today (video here) at the 23rd Annual Conference for Law School Computing at Chicago-Kent College of Law:

The Law Professor Blogs Network is the nation's only network of legal blogs edited primarily by law professors. The network owns and operates forty legal blogs, edited by leading scholars and educators who are committed to providing the web destination for law professors, practitioners, government and nonprofit lawyers, legal information professionals, and students in their respective fields. Since the launch of TaxProf Blog on April 15, 2004, the network’s influence has continued to grow with roughly ten million annual page views in recent years. After nine years of operation, the network is undertaking a major re-design to provide the premier legal blogging platform to our editors. The re-design will (1) optimize each blog for viewing across a variety of platforms (desktop, laptop, tablet, and smart phone); (2) better integrate social media; (3) provide more robust analytics with richer and more accurate readership data; and (4) strengthen our partnership with Wolters Kluwer Law & Business/Aspen Publishers and provide additional avenues for monetization.

Washington University Law School Offers $145k Scholarships -- But Only If Applicants Accept Within 24 Hours

Above the Law reprints an email from the Washington University School of Law (St. Louis):

We are excited to announce that additional scholarship funds have become available. As an outstanding applicant, Washington University School of Law is able to offer you a full tuition scholarship of $48,345 for your first year of law school with the same amount guaranteed for your 2L and 3L years for a total of $145,035 for the three years of law school.

We can only keep this opportunity open for 24 hours because these funds are limited. If you are interested in accepting this offer and matriculating at Washington U Law this year, you will need to let us know by June 13, 5pm CT.

If you have any questions, please do not hesitate to contact me. We look forward to hearing from you and seeing you here this fall!

The IRS Scandal, Day 37

• American Thinker:  Blaming Cincinnati for IRS Scandal Is So Wrong
• The Blaze:  First Head to Roll? New Report Claims Top IRS Official Fired, Has ‘Dropped Off the Edge of the World’
• Christian Science Monitor:  IRS Shakeup Needed After Scandal, Chairmen of Congress' Tax-Writing Panels Say
• CNN:  GOP Tries to Keep Focus on IRS Targeting Scandal
• Daily Caller:  Congressional Investigators Vow to Expand IRS Investigation
• Daily Caller:  FBI Hasn’t Contacted a Single Tea Party Group in IRS Probe
• Daily Caller:  IRS Official Holly Paz Reportedly Fired
• FactCheck.org:  A Botched Attack on IRS Budget
• FactCheck.org:  IRS Probe So Far Yields Partial, Partisan ‘Facts’
• Fox News:  Giuliani: FBI's Mueller "Terribly Disengaged" in IRS Scandal
• Huffington Post:  Darrell Issa's IRS Investigation Is Falling Apart
• Legal Insurrection:  Wag the IRS Scandal
• MSNBC:  It Looks Like the IRS Drama Is Not a ‘Scandal’ — More Like a ‘Screw Up’
• National Review:  Why the IRS IG Stopped with an Audit
• NPR:  More Information Emerges About IRS Targeting of Tea Party Groups
• Slate:  Finally a Campaign Ad Attacking the IRS for Enforcing "Obamacare"
• USA Today:  Tea Party Scandal Could Lead to IRS Restructuring
• Wall street Journal op-ed:  Think the IRS Is Bad Now? Just Wait, by Orrin Hatch (R-Utah)
• Washington Examiner:  Most IRS, Government Lawyers Donated to Obama Campaign
• Washington Times:  IRS Agent at Heart of Scandal Believed Fired

Prior TaxProf Blog Posts:

Continue reading "The IRS Scandal, Day 37"

State & Local Property Tax Collections Per Capita

Winn: MOOCs Are Overhyped

In response to yesterday's post, Jane K. Winn (University of Washington), my colleague on the CALI Board of Directors, graciously agreed to publish this op-ed on TaxProf Blog: MOOCs Are Over-Hyped: Why Assume Faculty Aren’t Smart Enough to Adapt to Changing Conditions?:

Phillip Schrag (Georgetown) has just published a jeremiad on SSRN about the grim future of legal education, highlighting the emergence of MOOCs as a challenge to traditional law schools. While I agree that all US faculty members in higher education need to redouble our commitment to improving learning outcomes and looking for ways to reduce the price that our students pay for their of education, I don’t think Schrag’s hyperbole is very well informed or helpful. Legal education in particular has operated for too long like a cartel that competed only by offering more services and never lowering prices. Combined with subsidized student loans, that’s how we got into this mess. Schrag seems to be suggesting that the alternative to that cartel mentality is lowering quality which is clearly false--competing by offering better value is another option. The most obvious application for technological innovations like MOOCs is improving the quality of human-mediated instruction in existing institutions, not lowering the quality of instruction in existing institutions, or the creation of competing for-profit machine-mediated instructional institutions. Here are some specific points of disagreement I have with his analysis (quoting from his abstract): 

Continue reading "Winn: MOOCs Are Overhyped"

Collegiality: Legitimizing Tenure's Fourth Rail

Inside Higher Ed:  Tenure's Fourth Rail:

Collegiality can be a dirty word in higher education -- particularly in regard to tenure or promotion, where it frequently becomes a catchall for likability and other subjective qualities that some faculty advocates say can be used to punish departmental dissenters. But two researchers are trying -- through data-based definitions and metrics -- to sanitize collegiality enough for it to be a viable, fourth criterion in personnel decisions.

In academic departments, “what we want is productive dissent,” Robert Cipriano, professor emeritus and former chair of the department of recreation of leisure studies at Southern Connecticut State University, and author of Facilitating a Collegial Department in Higher Education: Strategies for Success, said during the American Association of University Professors’ annual meeting Thursday (where their push to formalize the role of collegiality in faculty employment decisions drew some skepticism from the assembled professors). “As passionate as the discussion is, it has to be respectful. You go to lunch and it’s over.”

Cipriano and his colleague, Richard Riccardi, director of Southern Connecticut State’s Office of Management Information and Research, have conducted several studies and written numerous articles about how department chairs deal with their jobs, including difficult personalities. Some 83 percent of department chairs in their current, national study of 528 chairs reported having or having had an uncivil or non-collegial professor in their department; in another, earlier study of 451 chairs, 79 percent said they would be in favor of having collegiality as a criterion for tenure and promotion if there was an “objective, validated tool” for assessing collegial behavior.

Clearly, Riccardi said, collegiality matters -- an idea outside research supports. Belonging to a collegial department figured higher in faculty satisfaction than did work and family policies, clear tenure policies and compensation, according to one cited study. Having just one “slacker or jerk” in the group can bring down the team’s overall performance by up to 40 percent, according to another.

Fostering a culture of productive dissent means first developing operational definitions of collegiality and civility -- lest they be subject to the “I know it when I see it” test, coined by U.S. Supreme Court Justice Potter Stewart in reference to the hard-core pornography at issue in Jacobellis v. Ohio in 1964, Cipriano joked. As an adjective, “ 'collegial' indicates the way a group of colleagues take collective responsibility for their work together with minimal supervision from above.” Civility indicates politeness and courtesy, demonstrated by collaboration, speaking in a professional and respectful manner toward others and “stepping up” when needed, among other similar traits.

Yin: Comments on House Draft Reform on Taxation of Passthrough Entities

George K. Yin (Virginia), Comments on Selected Draft Reforms of the House Committee on Ways & Means on the Taxation of Passthrough Entities:

This paper is a slightly revised version of comments submitted to the House Committee on Ways & Means concerning four proposals to reform the taxation of passthrough entities. Among other things, the paper urges that passthrough entities be required to recognize gain on distributions of appreciated property to an owner of the entity. Adoption of this single proposal of the committee would be a meaningful step towards achieving the committee’s dual goals of simplification and reform.

Colinvaux: Charitable Contributions of Property

Roger Colinvaux (Catholic), Charitable Contributions of Property: A Broken System Reimagined, 50 Harv. J. Legis. 263 (2013):

On average, nearly $46 billion of property is given to charitable organizations each year, about twenty-five percent of the total charitable deduction. This makes the charitable contribution deduction for property a tax expenditure within a tax expenditure, yet it is rarely analyzed as such. It emerged as part of a noble effort to encourage contributions to worthy organizations. But the deduction for property has never worked well. The general rule allowing a deduction based on the fair market value of the property may have some intuitive appeal, but its implementation has yielded numerous exceptions and immense complexity. The Article argues that the extensive historical effort to allow a deduction for property contributions is a failure. Given the substantial direct and indirect costs involved, the uncertain benefit to the donee from property contributions, and the absence of any affirmative policy to favor property contributions as such, it is time to reverse the general rule and not allow a charitable deduction for property contributions. Reversing the general rule would provide many benefits — increased revenue, improved tax administration, fewer abusive transactions, a simpler and more equitable tax code, and a preference for cash. Exceptions to the general rule of disallowance may be warranted, but any exception should be analyzed and fashioned according to whether it provides a measurable benefit to the donee. By following a measurable benefit to the donee standard, emphasis will be placed on providing a tax benefit that is administrable and that is based on the goal — donee benefit. Any resulting complexity should be viewed as a cost of the incentive, and weighed accordingly in deciding whether it should be provided.

Senate Releases Tax Reform Option Paper on Tax-Exempt Organizations and Charitable Giving

The Senate Finance Committee  yesterday released its Ninth Tax Reform Option Paper on Tax-Exempt Organizations and Charitable Giving:

This document is the ninth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. ... The paper sets out the following broad goals for reform in this area:

• Maximize the efficiency and effectiveness of any incentives for charitable giving that are retained or reformed;
• Consider whether the availability of tax incentives for charitable giving should be broadened to more taxpayers;
• More tightly align tax-exempt status with providing sufficient charitable benefits;
• Closely examine the relationship between political activity and tax-exempt status;
• Reconsider the extent to which tax-exempt organizations should be allowed to engage in commercial activity; and
• Improve the accountability and oversight of tax-exempt organizations.

The paper outlines the following broad policy options with more specific proposals detailed in the paper:

I.  CHARITABLE DEDUCTION

1. Repeal the charitable contribution deduction
2. Fundamentally reform the charitable contribution deduction
3. Attempt to increase the effect of charitable incentives on charitable giving
4. Incrementally reform the charitable contribution deduction

II. TAXATION OF BUSINESS ACTIVITIES OF NONPROFITS

1. Tax all commercial activities of tax-exempt
2. Revise the requirements for tax-exempt status for organizations engaged in commercial activity
3. Revise the UBIT rules for organizations engaged in commercial activity
4. Tighten rules on conversion from tax-exempt to for-profit status
5. General reforms to tax-exempt entities

III. POLITICAL ACTIVITY AND LOBBYING OF TAX-EXEMPTS

1. Limit political activity of 501(c)(4), (c)(5) and (c)(6) organizations
2. Change the categories of tax-exempt organizations that may engage in political activities
3. Reform reporting and disclosure rules
4. Clarify that payments to 501(c)(4) organizations are excluded from the gift tax
5. Expand the prohibition on 501(c)(4) organizations engaging in lobbying from receiving any federal funds to include contracts.

IV. BROAD TAX-EXEMPT ISSUES

1. Reform the taxation of private foundations
2. Reform the taxation of endowments
3. Ensure that donor-advised funds and supporting organizations are directing resources for charities
4. Limit executive compensation by tax-exempt organizations
5. Reform reporting requirements
6. Develop enforcement methods other than revocation of tax-exempt status as the only penalty for noncompliance

Taxes and the NBA and NHL Finals

A reader sent me a note about the NBA Finals and NHL Stanley Cup Finals:

NBA Finals:  The Miami Heat (founded in 1988) and San Antonio Spurs (1976) are in two of the nine states without an income tax. I have previously mined this topic in:

• The Impact of Taxes on Lebron James' Decision (July 8, 2010)
• NBA Salary Cap Gives No-Tax Dallas and Miami an Unfair Advantage (June 23, 2011)
• NBA Salary Cap Gives No-Tax Dallas and Miami an Unfair Advantage (Sept. 28, 2011)

See also:

• Tax Foundation, The Facts on Florida's Tax Climate
• Tax Foundation, The Facts on Texas' Tax Climate

NHL Stanley Cup Finals:  The Boston Bruins and Chicago Blackhawks -- two of the NHL's Original Six franchises -- are in two of the highest tax states: Illinois and Massachusetts are tied with the fourth highest individual federal, state, and local tax burden.

• Boston Globe, Chicago vs. Boston: How We Match Up
• NESN, Super Bowl XX, Curses, 1918 World Series Highlight Top 10 Boston-Chicago Sports Moments
• Wall Street Journal, It’s Chicago vs. Boston for the Cup

See also:

• Tax Foundation, The Facts on Illinois' Tax Climate
• Tax Foundation, The Facts on Massachusetts' Tax Climate

California Bar Task Force Recommends Practical Skills Training, Pro Bono for New Lawyers

State Bar of California, Task Force Recommends Practical Skills Training, Pro Bono for New Lawyers:

The State Bar Task Force on Admissions Regulation Reform today recommended new competency skills training requirements for newly admitted lawyers that are designed to improve their readiness to practice law.

The draft proposal, which requires the approval of the State Bar Board of Trustees and possibly the California Supreme Court before adoption, calls for:

• 15 units of competency skills training during law school
• 50 hours of legal services devoted to pro bono or modest means clients, either pre- or post-admission
• 10 extra hours of post-admission Minimum Continuing Legal Education, specifically focused on competency skills training

The 22-member task force – comprised of academics, lawyers, judges and others – finalized the report today after holding eight public hearings in Los Angeles and San Francisco over the past year.

• ABA Journal, Want a California Law License? You Should Take 15 Units of Law-School Skills Training, Panel Says
• National Law Journal, Largest State Poised to Require Practical Skills Training

NY Times: Accessing Malibu's 'Public' Beaches: There's an App For That

Interesting articles about my new hometown of Malibu, California: New York Times:  In Battle Over Malibu Beaches, an App Unlocks Access:

The battle between Malibu beachfront homeowners and a less privileged public that wants to share the stunning coastline has been fought with padlocks, gates, menacing signs, security guards, lawsuits and bulldozers. There seems little question who is winning: 20 of the 27 miles of Malibu coastline are inaccessible to the public.

Yet this month, the homeowners — including some of the wealthiest and most famous people in the country, but also a hearty colony of surfers, stoners and old-fashioned beach lovers — are confronting what may be the biggest threat to their privacy yet.

The smartphone.

Jenny Price, an environmental writer who has pressed the battle to open hidden beaches, has developed an iPhone app offering a beach-by-beach battle plan for anyone wishing to explore what are, by design, some of the most secluded beaches around. It has maps to often hidden entry gates, house-by-house descriptions showing public property boundaries and spine-stiffening advice on dealing with counterfeit no-parking signs (“feel free to enjoy and then ignore”) and threatening property owners (“they’re welcome to call the sheriff”).

This latest escalation in a seemingly never-ending battle is stirring questions of land use, property rights and privilege that have long been a source of tension in Southern California, a fight made all the more alluring because long stretches of beachfront are owned by well-known Hollywood figures, including David Geffen, Michael D. Eisner and Jeffrey Katzenberg. ...

The release of the “Our Malibu Beaches” app has set off waves of anxiety among homeowners here, fearful that a high-tech weapon in a long-fought war will open the gates on what has been a largely secret world. The despair cuts across demographic lines. Malibu is a more complicated place than is commonly portrayed, a mixture of the very wealthy and people who bought relatively modest homes and cabins here a generation ago and hung on.

• Los Angeles Times, Scouting Out Malibu Beaches? There's an App For That
• Los Angeles Times, Malibu Residents: Not in My Front Beach
• Malibu Times, Malibu Beaches App Draws in Donors, Criticism

Lionel Messi: Tax Cheat?

Barcelona soccer star Lionel Messi and his father are accused of evading $5.3 million in Spanish taxes in 2007-09.

• Above the Law
• BBC
• Forbes
• The Guardian
• L.A. Times
• New York Times
• Reuters
• The Sun
• The Telegraph
• USA Today
• Wall Street Journal
• Yahoo! Sports

The IRS Scandal, Day 36

• American Thinker:  Voices Rise From Under the Cincinnati Bus
• Atlanta Journal-Constitution:  Why the Right's Behavior in the IRS Case is the True Scandal
• Bloomberg:  Help-Wanted Ad Posted by Obama For Thankless IRS Position
• Daily Beast:  New Twist in IRS Scandal: Is Darrell Issa Hiding Something?
• Daily Caller:  201 IRS Employees Work Full-Time on Union Business
• Fox News:  FBI Director in the Dark About IRS Probe
• Fox News:  IRS Targeting Goes Back Decades, Houses of Worship Have Been Main Targets
• The Hill:  Cummings Steps Up Push for Full IRS Transcripts
• Huffington Post:  House Panel Widens Investigation Of IRS Tea Party Targeting
• Media Research Center:  Too Taxing? Big Three Networks Abandon IRS Scandal
• National Review:  Did the IRS Fire Holly Paz?
• National Review:  IRS’s Blanket Denial About Lerner’s Computer Access False, Documents Show
• National Review:  When Your W-2 Meets an AR-15
• Politico op-ed:  The Cincinnati Lie, by Rich Lowry
• Politico:  Elijah Cummings Presses Darrell Issa for IRS Transcript Decision
• Politico:  The ‘Very Serious’ Tradition of the IRS: Our Tax-Collecting Agency Has Been Called “an Invitation to Corruption” for Decades
• PolitiFact:  Did 1913 Revenue Act Prohibit Political Organizations From Claiming Tax Exempt Status? False.
• Reason:  IRS Targeting Was Intentional Effort to Punish Political Opponents, Say Most Americans
• Reason:  Rep. Cummings Backs Off Claims the IRS Scandal is 'Solved'
• Think Progress:  Democrat Dares Issa To Allow Release Of Documents That Contradict IRS Conspiracy
• Town Hall:  There's A Lot the FBI Doesn't Know About the IRS
• Town Hall:  Two-Thirds of Americans See IRS as Targeting Conservatives, Media Drops Coverage of the Scandal
• Town Hall:  Yet More Mismanagement at the IRS
• Wall Street Journal:  The Sum of All Fears: The IRS Audits and NSA Surveillance Flow Into the Same National Anxieties, by Daniel Henninger
• Washington Examiner:  The Fine Tradition of the IRS
• Washington Post:  Calling Darrell Issa’s Bluff
• Washington Times:  What IRS Scandal? Broadcast News Covered It Only ONCE This Week
• Weekly Standard:  IRS Bad, NSA Good
• George Will:  Lois Lerner: The Scowling Face of the State

Prior TaxProf Blog Posts:

Continue reading "The IRS Scandal, Day 36"

Colombo: The Federal Tax Exemption Aspects of Law Schools Running Their Own Law Firms

John D. Colombo (Illinois), The Federal Tax Exemption Aspects of Law Schools Running Their Own Law Firms:

A current hot topic in legal education is the law-school-sponsored law firm. Bradley T. Borden and Robert J. Rhee introduced the idea in a short article published in the South Carolina Law Review [The Law School Firm, 63 S.C. L. Rev. 1 (2011):] and the concept was soon picked up by articles in the National Law Journal, the ABA Journal and others. The purpose of this essay is to explore the federal tax-exemption and UBIT questions raised by the law-school-sponsored law firm. I conclude that a law firm operated as a single-member LLC with the sponsoring law school as the single member offers the best protection for the law school's underlying exempt status, and also should avoid issues with the UBIT.  

Update: Deborah Jones Merritt (Ohio State), Organizational Form for Postgraduate Law Firms:

I can’t pretend to evaluate Professor Colombo’s assessment; I’ve figured out relevant parts of the personal income tax, but don’t have a clue about the taxation of businesses or other organizations. Colombo, however, is a pro in this area, and his analysis is cogent–even readable for those of us who don’t commune daily with the Internal Revenue Code. Tax treatment is only factor in choosing organizational form, but it’s a significant one. Any law school considering creation of a postgraduate law firm should read Colombo’s concise perspective on organizational form and tax exemption.

Schrag: MOOCs: The Final Nail in Legal Education's Coffin

Philip G. Schrag (Georgetown), MOOCs and Legal Education: Valuable Innovation or Looming Disaster?:

Massive open online courses (MOOCs) have spread across the landscape of higher education like an invasive plant species. Although few people had heard of MOOCs before 2012, these internet-based courses, taught by university professors, are now routinely offered simultaneously to tens of thousands or in some cases, hundreds of thousands of people. Most MOOCs are still provided free of charge, but the two companies and one non-profit entity that promote MOOCs and provide the software have recently created partnerships with institutions of higher education in order to realize substantial revenues by offering MOOCs for academic credit to tuition-paying students at colleges and universities. Despite resistance from professors at some institutions, MOOCs for credit are proliferating rapidly. This development has great significance for the future of legal education, because most law schools are experiencing an economic crisis and are searching for ways to cut costs and lower tuition so that they can fill their classes and remain viable. Already, some law schools are offering academic credit for distance learning, within limits permitted by the Section of Legal Education of the American Bar Association—limits that may soon be relaxed. Within ten years, MOOCs could replace traditional law school classes altogether, except at a few elite law schools that produce lawyers to serve large corporations and wealthy individuals. However, most law schools might survive by embracing rather than resisting internet-based learning. They could cut costs by reducing faculty and staff positions, using MOOCs for the delivery of most of the legal information that students need, hiring part-time lawyers to help students with exercises to supplement the MOOCs, and concentrating the remaining full-time faculty on first-semester offerings, writing seminars, and clinics. Sadly, the result will be a watered-down form of legal education compared to the three years of interactive experiences that law schools have offered students for the last century. But it may be the only way in which most law schools can survive.