TaxProf Blog

Balkin: Are You a Profound, Productive, or Nodal Scholar?

Following up on Friday's post, The Most-Cited Law Review Articles of All Time:  Balinization: The Most Cited Law Review Articles -- and the Rise of the Nodal Scholar, by Jack Balkin (Yale):

Since Shapiro's original articles in 1985 and 1996, the influence of citation counts on the legal academy has become, if anything, even more pronounced, and new statistics, like numbers of SSRN downloads, have joined the calculus.

One way of looking at these developments is through the lens of fetishism -- through which particular kind of representations (or in this case, measurements) displace the "real" things (influence, merit) that they merely purport to represent. Under this view, citations draw us away from what is real, and increasingly engage in a fetishism of what can be measured and counted. In offering this sort of critique, we might further distinguish between mere "influence," on the one hand, and true "merit" on the other. Influence is a measure of how much one's work has drawn the attention of others, while merit is a question of how good the work is on its own.

Yet another, equally interesting way of looking at the process is that merit and influence were never fully separable from representations of them -- they were always in part what people thought about what other people thought about other people's work. If that is so, then changes in representations of influence and merit produce -- at least in part -- changes in their content. Far from a numerical fetish, what we are witnessing are changing conceptions of merit itself.

This is, roughly speaking, the transition from the model of

• the profound scholar (i.e., one whose work is valued because it is "deep," regardless of -- and possibly even in inverse correlation to -- its popularity); to
• the productive scholar (i.e. one who is valued for producing a great deal, in the way that a better factory produces more widgets per unit of time); to
• the nodal scholar (i.e., the scholar who is valued because of their presence at the center of a network). I use the term "nodal," because you can imagine each citation to be a one-way link from one node in a network to another. The scholars with the most citations are the dominant nodes in the network.

We know the profound scholar by connoisseurship: experts read the work and judge the quality of mind as a wine expert judges the quality of wines. ...

The movement from the profound scholar to the productive scholar takes us, haltingly and tentatively, from the world of expert judgment into the world of numbers and what can be measured. ...

The movement from the productive scholar to the nodal scholar is a movement from measuring units of the scholar's own production to measuring units of production of other people that refer to the scholar. We judge the nodal scholar by measurement not of the quality of the mind, or of the quality of the work or even the amount of the work, but by number of links to the work. By links I merely mean measurable choices to point to the work, either measured through hyperlinks, downloads, or citations. Merit is constructed through what network scholars call preferential attachment-- i.e., that some nodes in the network get many more links than others. ...

Each conception of the scholar and scholarly merit is associated with a different conception of what authority is and how it is produced. In the case of the profound scholar, the authority comes from the judgment of a small number of connoisseurs, who know what merit is. In the case of the productive scholar, the authority is produced "objectively" by measuring units of production, which are countable. In the case of the nodal scholar, the authority is produced by measuring the structure of the network and systems of preferential attachment. In actual practice, these models of merit are not exclusive; they are layered on top of each other. ...

[W]e shouldn't forget that earlier models of merit based primarily on connoisseurship also used shortcuts and heuristics-- in the form of reputation, word of mouth, and gossip. People have always used shortcuts and heuristics for judging quality; they are simply using newer ones in addition to the older ones.

In short, people's judgments of scholarly merit have moved toward a complicated combination of connoisseurship, attention to production, and attention to citations, downloads, links, etc. People hope that these different forms of judgment will be mutually supporting, and converge in many cases. Whether or not that is the case, the layering of these different models of authority by itself subtly affects scholarly judgments, not only of influence but also of merit.

Update:

• Marc DeGirolami (St. John's), The Nasal Scholar
• Orly Lobel (San Diego), Citology

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 two new papers debuting on the list at #2 and #5. The #1 paper is now #28 in all-time downloads among 8365 tax papers:

1.  [1837 Downloads]  There’s No There There: Low Tax Rates and Economic Growth, by Filip Spagnoli (National Bank of Belgium)

2.  [1081 Downloads]  Death and Taxes and Zombies, by Adam Chodorow (Arizona State)

3.  [327 Downloads]  Corporate Shams, by Joshua D. Blank (NYU) & Nancy C. Staudt (USC)

4.  [283 Downloads]  Guide to the Internal Revenue Service Decision-Making Process Under Section 501(c)(3) for Journalism and Publishing Non-Profit Organizations, by Jeffrey P. Hermes (Berkman Center for Internet & Society)

5.  [153 Downloads]  Defined Value Clauses and Fair Market Value, by Wendy C. Gerzog (Baltimore)

True Financial Reform: Ending the Debt-Equity Distinction

Joseph B. Allen (J.D. 2012, William & Mary), Seeking True Financial Reform: Ending the Debt-Equity Distinction, 3 Wm. & Mary Bus. L. Rev. 243 (2012):

This Note identifies the failure of Congress to address tax incentives for leverage as a principal cause of the recent financial crisis and a fundamental flaw of recent financial reform legislation. Specifically, the Internal Revenue Code provides substantially disparate tax treatment for debt and equity financing by allowing firms to deduct interest payments on indebtedness, but not providing an equivalent deduction for equity funding. This “debt-equity distinction” artificially reduces the cost of capital for debt financing relative to equity financing and encourages firms to over-employ leverage in their capital structure. This in turn increases financial distress costs and externalities to the economy and increases the volatility of capital markets. Though some scholars have proposed to allow firms a deduction for dividends paid, such a scheme would create additional distortions and introduce the potential for corporate managers to substantially manipulate their taxable income. This Note offers an alternative solution by proposing: (1) that the deduction for interest on business indebtedness be eliminated, and (2) that policymakers return to the idea of the Cost-of-Capital-Allowance (COCA). A COCA deduction better aligns the incentives of firms with those of capital markets and economies writ large, and encourages managers to seek out the absolute cheapest sources of capital while removing tax shelter considerations from the decision-making process.

Osofsky Presents Getting Realistic About Responsive Tax Administration at Federalist Society Colloquium

Leigh Osofsky (Miami) presents Getting Realistic About Responsive Tax Administration, 66 Tax L. Rev. ___ (2012), today at the Federalist Society's Inaugural Junior Scholars Colloquium at the Airlie Center in Warrenton, VA. John Harrison (Virginia) is the Commenter.

Responsive Regulation is a popular regulatory theory across a broad array of disciplines. The influence of Responsive Regulation on tax administration has greatly increased over the past decade, producing a theory of “Responsive Tax Administration.” This work has proven powerful in the United States, causing scholars to advocate remodeling the tax compliance system under a Responsive Tax Administration framework. Extensive, scholarly focus on related areas of tax compliance research, such as reciprocity and service, has supplemented these calls for reform. The Internal Revenue Service (“Service”) has remodeled the large business tax compliance sphere under the influence of Responsive Tax Administration and the related research. The large business tax sphere has a crucial impact on tax revenues, making this remodeling especially significant during a time of fiscal crisis. Despite this crucial remodeling, there has been little critical analysis of this application of Responsive Tax Administration to the United States large business sector. This Article begins the overdue task of critiquing the application of Responsive Tax Administration to the United States large business sector by using the case-study of the Compliance Assurance Process (“CAP”). CAP is a revolutionary, pre-audit initiative that the Service has signaled may be the way of the future for large business tax administration. CAP finds its academic support in Responsive Tax Administration and is consistent with part, though, importantly, not all, of Responsive Tax Administration theory. This Article argues that CAP problematically leverages faith in the perceived transformative powers of Responsive Tax Administration programs to reduce accountability at the very time when increased accountability is needed, fails to use penalties meaningfully, potentially reducing transparency and resulting in a “test drive” effect for taxpayers that may undermine sound tax administration, and creates self-selection bias problems. The Article argues that these problems result from both a failure to appreciate the inherent weaknesses of Responsive Tax Administration and the related research, and the unfaithful application of the theory into practice. The Article suggests potential solutions to each of these problems and, more generally, serves as a first step in a broader critique of the application of Responsive Tax Administration in the United States. While the innovative nature of Responsive Tax Administration theory has much to offer, this Article counsels that we need to get more realistic about its potential limitations.

Edley: The Great American Public Law School of the Future

Christopher Edley, Jr. (Dean, UC-Berkeley), Fiat Flux: Evolving Purposes and Ideals of the Great American Public Law School, 100 Cal. L. Rev. 313 (2012):

This Essay describes the changing role of American law schools throughout the twentieth century and proposes a vision for the future’s Great American Law School. Since the founding of Berkeley Law, the definition of the legal profession has progressed from an interior orientation, which focused predominately on trial courts and appellate advocacy, to an exterior orientation with wide consideration of other forms of lawyering. Along a second axis, legal pedagogy has progressed from a careerist orientation, which focused on case analysis and advocacy skills, to a more academic orientation that integrates questions of theory and methodology. Analyzing these trends, this Essay suggests that the next century’s Great American Law School will: (1) embrace a curriculum that prepares law students for careers outside the law; (2) train cross-disciplinary societal problem solvers; and (3) contribute to a new global legal culture that will help bring nations closer together generally.

Abandoning Property Taxes Assessed on Fallow Nonprofit Property

Brittany L. Viola (J.D. 2012, Illinois), Note, Abandoning Property Taxes Assessed on Fallow Nonprofit Property, 2012 U. Ill. L. Rev. 287:

Financial distress has led to a rise in the shuttering of tax-exempt property owned by non-profit organizations. Typically, nonprofits are not subject to property taxes if they use their properties for charitable purposes. Because these now-fallow properties are no longer being used, a debate has emerged over whether to assess them a property tax. On one side of the debate are those who argue for a strict construction of “charitable use”—one that would exclude non-fallow properties from exemption. Proponents of this construction argue that fallow nonprofit property should be taxed to share the burden of cash-strapped local governments. On the other side of the debate are those who argue for a broad construction of “charitable use”—one that reflects the purposes of nonprofit tax exemptions by excluding fallow nonprofit property from taxation. Proponents of the broad exemption argue that taxing these properties only serves to further strain financially troubled nonprofits, leading to fewer services for the people these nonprofits serve, and in turn placing greater demand on the government. Further complicating the issue is the diverse construction of tax exemptions across the fifty states. This Note examines the varying constructions and purposes of property tax exemptions for nonprofits. The Note concludes by suggesting a simple, more uniform system of taxing nonprofit property under the broad construction of “charitable use” so that fallow nonprofit property remains exempt. This approach would best serve the purposes of nonprofit tax exemptions and the people nonprofits serve.

UC-Berkeley Hosts Northern California Tax Roundtable Today

UC-Berkeley hosts the Summer 2012 Northern California Tax Roundtable today with these papers:

• Heather Field (UC-Hastings), The Return-Reducing Ripple Effects of the ‘Carried Interest’ Tax Proposals
• David Gamage (UC-Berkeley), How the Affordable Care Act Will Create Perverse Incentives Harming Low and Moderate Income Workers
• David Hasen (Santa Clara), Partnership Allocations Involving Character Shifts
• Sarah Lawsky (UC-Irvine), How Tax Models Work
• Susan Morse (UC-Hastins), International Tax Reform and a Corporate Offshore Excise Tax

Brian Tamanaha's NY Times Op-Ed: Two Ways to Fix the Law School Mess

New York Times op-ed:  How to Make Law School Affordable by Brian Z. Tamanaha (Washington U.), author of the forthcoming Failing Law Schools (University of Chicago Press, 2012):

The economics of legal education are broken. The problem is that the cost of a law degree is now vastly out of proportion to the economic opportunities obtained by the majority of graduates. The average debt of law graduates tops $100,000, and most new lawyers do not earn salaries sufficient to make the monthly payments on this debt. More than one-third of law graduates in recent years have failed to obtain lawyer jobs. Thousands of new law graduates will enter a government-sponsored debt relief program, and many will never fully pay off their law school debt.

How did we get into this mess? And how do we get out?

Two factors have combined to produce this situation: the federal loan system and the ABA-imposed accreditation standards for law schools. Both need to be reformed.

First, consider the loan system. For more than three decades, law schools have steadily increased tuition because large numbers of students have been willing and able to pay whatever price the schools demanded. ... To restore some economic rationality, the federal loan system needs to demand greater accountability from law schools: those with a high proportion of recent graduates in financial trouble should lose their eligibility to receive money from federal loans. ... The money itself also needs to be reined in. One option is to cap the total amount that each law student can borrow from the government (at, say, a maximum of $125,000). ... [A]nother option is to cap the total amount of federal money that any individual law school can receive. ... Whichever cap is chosen, it will function properly only if the government refuses to guarantee private loans and if private loans can be discharged in bankruptcy, which would make banks leery of lending money to law students who are unlikely to repay. To make up for this, the law schools themselves would have to extend loans, thereby aligning their interests with the success of their students. 

Then there’s the problem of the ABA-imposed accreditation standards. ... [B]y imposing a “one size fits all” template, these standards ensure that there is little differentiation among law schools — no lower-cost options and no range of choices comparable to what exists at the undergraduate level among community colleges, teaching colleges and research universities. One solution to this problem is to strip away the accreditation requirements that mandate expenditures to support faculty scholarship — for example, deleting the requirement that the bulk of professors be in tenure-track positions, removing limits on teaching loads, not requiring paid research leaves for professors, not requiring substantial library collections and so forth. This would allow some law schools to focus on training competent lawyers at a reasonable cost while others remained committed to academic research. Law students would then be able to choose the type of legal education they desired and could afford.

If we don’t change the economics of legal education, not only will law schools continue to graduate streams of economic casualties each year, but we will also be erecting an enormous barrier to access to the legal profession: the next generation of American lawyers will consist of the offspring of wealthy families who have the freedom to pursue a variety of legal careers, while everyone else is forced to try to get a corporate law job — and those who fail will struggle under the burden of huge law school debt for decades.

 

Update:  Paul Campos (Colorado), And the New York Times Said Law Is Dead:

[L]et's consider what's going on ... in the legal sector. Over the last twelve months the legal sector has added a total of 4,800 jobs. Keep in mind that at best perhaps 70% of these jobs have been filled by attorneys, since the sector includes all support personnel (paralegals, administrative positions etc.). So we can estimate that there are about 3,000 more attorneys employed in America today than there were a year ago.

Now a certain number of people who were working as attorneys a year ago aren't today, because they've died, retired, moved into other lines of work, or have simply become unemployed. The BLS estimates the total annual "outflow" from the profession to be about 13,000 people at present. So that means that about 16,000 lawyer jobs have been filled over the last 12 months by people who weren't working as attorneys at the time they moved into these jobs.

Note this does not mean that 16,000 new law graduates got real legal jobs, since some unknown number of these jobs were filled by unemployed attorneys who moved back into the legal work force. It's true that the 2011 NALP stats claim that 25,654 of the nation's 44,258 2010 law graduates had a full-time job requiring a law degree nine months after graduation.  This blog has been dedicated to, among other things, explaining why that (atrocious) 42% functional unemployment rate for new lawyers is actually seriously understated.

The BLS statistics suggest that the real unemployment rate for new lawyers is more on the order of 63%, if "employment" is defined as having a real legal job, as opposed to the the almost unlimited number of fake legal and quasi-legal jobs the NALP statistics count as full-time employment requiring a law degree.

From L.A. Dodgers to Alleged Tax Dodgers

Forbes, From L.A. Dodgers to Alleged Tax Dodgers: The McCourt Saga Continues:

[T]he investigation is focused not only on your run of the mill fraud but on federal and state income tax issues (the MLB has already confirmed via the bankruptcy petition that the Dodgers owe the City of Los Angeles nearly a quarter of a million dollars in back taxes). ...

Jamie McCourt had previously alleged in the nasty, public – did I mention nasty? – divorce of the former owners that the couple had paid no federal or state taxes for at least six years, beginning 2004, the year the McCourts bought the Dodgers. That was as of last year. There’s no word on whether any taxes had been filed or paid for 2010 and/or 2011. Last year, Frank McCourt’s accountant confirmed that the McCourts and/or related entities were under examination for 2006, 2007 and 2008. That was confirmed by Major League Baseball (MLB) Commissioner Bud Selig last year. ...

The MLB alleges that Frank McCourt – who holds a degree in economics from Georgetown University – improperly converted as much as $189 million. If that’s true – and if he didn’t report it as income – that could result in a pretty sizable tax bill and potentially, criminal charges.

• Bloomberg, Feds Ask for Docucments From McCourts
• L.A. Times, Dodgers' McCourt-Era Finances Investigated by Federal Panel
• L.A. Weekly, Frank McCourt Under Federal Investigation For Possible Tax Evasion, Financial Wrongdoing

The Most-Cited Law Review Articles of All Time

Fred R. Shapiro (Yale) & Michelle Pearse (Harvard), The Most-Cited Law Review Articles of All Time, 110 Mich. L. Rev. 1483 (2012):

This Essay updates two well-known earlier studies [The Most-Cited Law Review Articles, 73 Calif. L. Rev. 1540 (1985); The Most-Cited Law Review Articles Revisited, 71 Chi.-Kent L. Rev. 751 (1996)] by the first coauthor, setting forth lists of the most-cited law review articles. New research tools from the HeinOnline and Web of Science databases now allow lists to be compiled that are more thorough and more accurate than anything previously possible. Tables printed here present the 100 most-cited legal articles of all time, the 100 most-cited articles of the last twenty years, and some additional rankings. Characteristics of the top-ranked publications, authors, and law schools are analyzed as are trends in schools of legal thought. Data from the all-time rankings shed light on contributions to legal scholarship made over a long historical span; the recent-article rankings speak more to the impact of scholarship produced in the current era. The authors discuss alternative tools and metrics for measuring the impact of legal scholarship, running selected articles from the rankings through these tools to serve as points of illustration. The authors then contemplate how these alternative tools and metrics intersect with traditional citation studies and how they might impact legal scholarship in the future.

• ABA Journal, Critical Race Theory Is Less Popular, While Interest in IP Rises, Law Review Citation Study Finds
• National Law Journal, The Most-Cited Law Reviews? Harvard Still Leads, but Yale Is Gaining Ground
• WSJ Law Blog, The Most-Cited Law Review Articles of All Time

Gerzog: Wandry and Defined Value Clauses

Wendy C. Gerzog (Baltimore), Wandering Far Afield With Defined Value Clauses, 135 Tax Notes 1171 (May 28, 2012):

The Wandry decision [T.C. Memo. 2012-88 (Mar. 26, 2012)] extends the application of defined value clauses beyond those family limited partnership cases that transfer any excess value to a charity. In Wandry, the Tax Court reads Procter [142 F.2d 824 (4th Cir. 1944)] narrowly and ignores the fundamental rationale of Robinette [318 U.S. 176 (1943)].

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Student Loans Held by the Federal Government

Mercatus Center, George Mason University:

(Hat Tip: Glenn Reynolds.)

House Holds Hearing on Small Business and the Estate Tax

The Subcommittee on Economic Growth, Tax and Capital Access of the House Committee on Small Business held a hearing yesterday on Planning for the Death Tax: Can Small Businesses Survive?:

The recession has been hard on small businesses, and many family-owned small firms may face yet another hurdle: business succession and the impact of the death tax, also known as the estate tax. If Congress fails to act, the current federal estate tax law will expire on December 31, 2012, and revert to the pre-2001 levels. At this hearing, Members will hear testimony on the impact of the estate tax on small businesses and the economy.

Neil D. Katz (Managing Partner, Katz, Bernstein & Katz, Syosset, NY)

• Testimony 
• Witness Disclosure

Karen Madonia (Chief Financial Officer, Illco, Inc., Aurora, IL) (testifying on behalf of the Heating, Air-Conditioning Refrigeration Distributors International)

• Testimony
• Witness Disclosure

Michael G. Flesher (Owner, Taylor Rental Center, Vestal, NY) (testifying on behalf of the American Rental Association)

• Testimony
• Witness Disclosure

Thala Taperman Rolnick (Owner, Thala T. Rolnick, CPA, Phoenix, AZ)

• Testimony 
• Witness Disclosure

Cincinnati Establishes $2m Victor E. Schwartz Chair in Tort Law

Blog of the Legal Times, Cincinnati College of Law Establishes Tort Chair Named After D.C. Partner:

The University of Cincinnati College of Law has created a tort law chair in honor of a Shook, Hardy & Bacon partner.

Victor Schwartz, who taught at the college from 1968 until 1977, is head of Shook Hardy’s public policy group and is known as a strong proponent of tort reform. He focuses his practice on appellate litigation, government affairs and public relations. He also maintains an appellate practice and advises manufacturers on liability prevention.

Funding for the endowment of the chair, the Victor E. Schwartz Chair in Tort Law, was organized by Schwartz’s former students. The endowment, which has a goal of $2 million, is to promote scholarship and the objective teaching of tort law, Schwartz said.

“Cincinnati now has an entity that will help attract and keep professors in tort law,” Schwartz said in an interview—one that would help funnel talented professors to Cincinnati who might otherwise be scooped up by other larger schools.

For more, see here.

Shu-Yi Oei: Justifying and Reforming the Offer-In-Compromise Procedure

Shu-Yi Oei (Tulane), Getting More By Asking Less: Justifying and Reforming Tax Law’s Offer-In- Compromise Procedure, 160 U. Pa. L. Rev. 1071 (2012):

The Offer in Compromise (OIC) is a procedure by which the IRS may agree to forgive a portion of the tax liabilities of certain taxpayers. This Article suggests a framework for evaluating the effectiveness of any proposed reforms to this pro- cedure. It presents three arguments that support forgiving tax debts through devices such as the OIC. These arguments are rooted in revenue-raising, fair- ness, rehabilitative, and socioeconomic considerations. Unfortunately, an analysis of the OIC’s recent history shows that its current structure tends to undermine its effectiveness. The power to effectuate the procedure is dispersed among four stakeholders with divergent interests: Congress, the IRS, the taxpayer, and finan- cial and other supporters of the taxpayer. Each of these players has conflicting and contradictory interests in OIC-procedure outcomes. Over time, the actions and decisions of each of these players can lead to conflicting and counterproduc- tive behaviors and responses by other players, and this undermines the program’s overall effectiveness. Given this dynamic among stakeholders, reforms that would minimize or eliminate such downward-spiraling interactions of divergent interests should be adopted. Conversely, reforms likely to provoke or exacerbate such interactions should be avoided. This Article provides examples of each type of reform.

Leff: The Case Against For-Profit Charity

Benjamin M. Leff (American), The Case Against For-Profit Charity, 42 Seton Hall L. Rev. ___ (2012):

This article argues that the so-called “Agency Theory” provides a coherent justification for limiting the federal income tax deduction to contributions to nonprofit providers of charity and withholding it from contributions to providers of charity whose owners or managers have a right to the profits from the firm. It does so by expanding the “Agency Theory” in a novel way — recognizing that when the government provides tax subsidies to the providers of charity, it ceases to be a neutral regulator of a market transaction, and becomes a participant in that transaction. As such, the government must examine its own agency costs to determine the most efficient structure of the transaction. In the case of the tax deduction for charitable contributions, the government’s agency-cost analysis counsels in favor of providing such subsidies only to nonprofit providers of charity.

This novel expansion of the Agency Theory has implications not only for whether the law should be changed to permit true for-profit firms to receive tax-deductible contributions (it should not), but also for shaping the law respecting various types of incentive-based compensation for managers of nonprofit organizations. This area of the law has been notoriously murky, with the IRS being especially hesitant to issue guidance on what kind of compensation structures are permitted and which are prohibited. The Agency Theory, as expanded in this article, provides some guidance as to how the government should proceed.

Do Law Schools Mistreat Women Faculty?

Dan Subotnik (Touro), Do Law Schools Mistreat Women? Or. Who's Afraid of Virginia Woolf?,  44 Akron L. Rev. 867 (2011):

After many years of invisibility, women are now prominent in all domains of law school life. They represent more than two-thirds of legal writing faculty and an ever-increasing percentage of deanships, now 23%. More important, they make up 49% of new tenure track faculty (a rate equal to their proportion as law school graduates), and apparently even have a substantial edge over men with equal credentials in getting these jobs. Thereafter, women faculty members are promoted at a rate that may be higher than that of men.

Do these data support the claim that for “both new and senior women faculty, gender bias is still a major fact of life” and should it concern the rest of us that, as Professor Richard Neumann has lamented, “women will not make up 40% of the professoriate until 2017 given the slow rate of women’s gains in law school employment”?

In evaluating this last question, the alternatives are worth considering. Should faculty men be pushed out to make room for women? Should men be removed from hiring pools? Those unhappy with current state of affairs dare not face the obvious implications. Some commentary may therefore be helpful. Firing faculty men, however beneficial in terms of gender proportionality, would start a war from which the academy would never recover. All-out struggle is, admittedly, not necessarily a bad idea. But is that what critics want? Giving a woman a leg up, moreover, is unfair to the innocent man searching for his own toe hold and is of no use to the woman who reached for the ladder twenty years ago only to have it pulled away. It will also raise troublesome questions about the qualifications of women who get tenure-track jobs. If there is no realistic alternative, would it not be better to allow law schools the freedom to decide who belongs on top and who on the bottom based on their own notions of merit? ...

I bring good news, and from a venerable source. Not mandating simply that we love our enemies,—a pill that gender critics discussed here would surely find hard to swallow—Jewish tradition is both pragmatic and morally transformative. It suggests that if women faculty can only agree that the moral standing of their male colleagues is at worst, ambiguous—at this point—, love can and perhaps should fill our law schools. Love? Yes, love. “Better,” Jewish tradition teaches, “to love in error than to hate in error.”

Kevin Downing, DOJ's Lead Offshore Tax Fraud Prosecutor, Resigns

Bloomberg, Tax Division’s Downing Said to Resign From Justice Department:

Kevin Downing, the Justice Department prosecutor who directed the U.S. crackdown on offshore tax evasion, resigned effective June 4, according to a person familiar with the matter. Downing, 46, was the lead prosecutor in the U.S. probe of UBS, Switzerland’s largest bank. In 2009, UBS avoided prosecution by paying $780 million, admitting it helped thousands of Americans evade taxes and turning over the names of 250 American clients to U.S. authorities. UBS later revealed another 4,450 accounts.

Federal Tax Crimes, Kevin Downing Resigning:

Kevin Downing, an attorney in DOJ Tax CES, has been a key player in the DOJ offshore juggernaut since the John Doe Summons proceeding against UBS ... Before stirring up trouble in the offshore account arena, Mr. Downing stirred up trouble over the KPMG tax shelters in SDNY which is where I first encountered him.  He has been busy in his DOJ Tax CES career.  I'll just say that I encountered Mr. Downing in the KPMG individual defendant criminal prosecution.  I observed that he is a zealous advocate and true believer in the righteousness of his cause.  At least in the KPMG matter, as the court ultimately held, the ends sought by the prosecution team on which Mr. Downing served did not justify the means the team chose to achieve the ends.  United States v. Stein, 541 F.3d 130 (2d Cir. 2008).

7th Annual Junior Tax Scholars Workshop Concludes Today at UC-Hastings

The Seventh Annual Junior Tax Scholars Workshop concludes today at UC-Hastings with these papers:

State / Local Government Tax

Randle Pollard (Indiana University, Business School), Tax Reform in the Municipal Bond Market – Eliminate Inefficient Tax-Exempt Bonds with Taxable Tax Credit Bonds
Commenters:  Morgan Holcomb (Hamline), Ben Leff (American)

John R. Brooks (Georgetown), Fiscal Federalism, Risk-Pooling, and Tax Progressivity
Commenters:  David Herzig (Valparaiso), Darien Shanske (UC-Hastings)

Andy Haile (Elon), Sales Tax Exceptionalism
Commenters:  Lily Faulhaber (Boston University), David Gamage (UC-Hastings)

International Tax

Susan Morse (UC-Hastings), A Corporate Offshore Profits Excise Tax
Commenters: Jason Oh (UCLA), Grace Lee (Alabama)

Lilian Faulhaber (Boston University), Disharmony and Harmonization: The Different Goals of European Union Institutions in Direct Taxation
Commenters: Susie Morse (UC-Hastings), Darien Shanske (UC-Hastings)

Itai Grinberg (Georgetown), The Battle over Taxing Offshore Accounts
Commenters: Andy Haile (Elon), Shu-Yi Oei (Tulane)

Collection Mechanisms

Darien Shanske (UC-Hastings), Property Tax Withholding: What, How, Why Now
Commenters: Grace Lee (Alabama), Shu-Yi Oei (Tulane)

Shu-Yi Oei, Collecting in the Shadow of the Bankruptcy Law
Commenters: Susie Morse (UC-Hastings), Jennifer Bird-Pollan (Kentucky)

Redistribution / Tax Impacts on Lower Income Individuals

Jennifer Bird-Pollan (Kentucky), Individual Responsibility and Redistributive Taxation
Commenters: Gary Lucas (Texas-Wesleyan), Samuel Brunson (Loyola-Chicago)

David Gamage (UC-Berkeley), How the Affordable Care Act Will Create Perverse Incentives Harming Low and Moderate Income Earners, 65 Tax L. Rev. ___ (2012)
Commenters: Stephanie McMahon (Cincinnati), David Herzig (Valparaiso)

Prior Junior Tax Scholars Workshops:

• 2006 (Colorado) (Day 1, Day 2)
• 2007 (Boston University) (Day 1, Day 2)
• 2008 (NYU) (Day 1, Day 2)
• 2009 (Brooklyn) (Day 1, Day 2)
• 2010 (Notre Dame) (Day 1, Day 2)
• 2011 (UC-Irvine) (Day 1, Day 2)

Cleveland Waitress Gets $434,712 Tax Refund Check From IRS

USA Today, Cleveland Waitress Receives Huge IRS Refund Check by Mistake:

A longtime Cleveland waitress got the surprise of her life this week when an enormous income tax refund check arrived in the mail.When Ginny Hopkins filed her tax return, she expected a refund of $754 — money she really needs to fix her car, among other things. Instead of that check, she found a check mistakenly issued for $434,712 in her mailbox. ...

Hopkins knew that cashing the check could get her in a whole lot of trouble. "They'll put me in Alactraz, waiting on the night shift at Alcatraz," she said. "They'll reopen the place." ...

Hopkins made arrangements Wednesday to return the check to the IRS office at the federal building in downtown Cleveland. Since Hopkins needs the money right away, her friends at the restaurant and WKYC-TV in Cleveland advanced her the money. The IRS said sometimes mistakes like this happen, but it happens less often as more people file their taxes electronically. Hopkins should get her correct refund check in six weeks, the IRS said.

Lavoie: Patriotism and Taxation -- The Tax Compliance Implications of the Tea Party Movement

Richard Lavoie (Akron), Patriotism and Taxation: The Tax Compliance Implications of the Tea Party Movement, 45 Loy. L.A. L. Rev. 39 (2011):

Given the rise of the tea party movement, which draws strength from the historical linkage between patriotism and tax protests in the United States, the role of patriotism as a general tax compliance factor is examined in light of the extant empirical evidence. The existing research suggests that patriotism may be a weaker tax compliance factor in the United States than it is elsewhere. In light of this possibility, the tea party movement has the potential to weaken this compliance factor even more. Further, when considered in light of the broader tax morale factors that contribute to tax compliance, the tea party movement also poses a risk of destabilizing the social contract framework that underlies our established taxpaying ethos. In order to strengthen the impact of patriotism on tax compliance and lessen any adverse impact of the tea party movement on the country’s taxpaying ethos, the government should take steps to disentangle American patriotism from its anti-tax roots. Important first steps in this regard are outlined in this Article, including the creation of a voluntary “Patriotic Remittance Tax.” Making such changes will strengthen the bond between taxpayers and the government and help promote a vision of American patriotism that is positively associated with taxation rather than antithetical to it.

Update:

• InstaPundit
• Tax Update Blog.

Multinationals and the High Cash Holdings Puzzle

Lee Pinkowitz (Georgetown University, McDonough School of Business), Rene M. Stulz (Ohio State University, Fisher College of Business) & Rohan Williamson (Georgetown University, McDonough School of Business), Multinationals and the High Cash Holdings Puzzle:

Defining as normal cash holdings the holdings a firm with the same characteristics would have had in the late 1990s, we find that the abnormal cash holdings of U.S. firms after the crisis represent on average 1.86% of assets. While U.S. firms held less cash than comparable foreign firms in the late 1990s, by 2010 they hold more. However, only U.S. multinational firms experience an increase in abnormal cash holdings during the 2000s. U.S. multinational firms had cash holdings similar to those of purely domestic firms in the late 1990s, but they hold over 3% more assets in cash than comparable purely domestic firms after the crisis. Further, U.S. multinationals increased their cash holdings since the late 1990s relative to foreign multinationals by roughly the same percentage as they increased their cash holdings relative to U.S. domestic firms. A detailed analysis shows that the increase in cash holdings of multinational firms cannot be explained by the tax treatment of profit repatriations, that it is intrinsically linked to their R&D intensity, and that firms that become multinational do not increase their abnormal cash holdings after they become multinational. There is no evidence that poor investment opportunities, regulation, or poor governance can explain the abnormal cash holdings of U.S. firms after the crisis.

NYU Tax Law Review Publishes New Issue

The Tax Law Review has published a new issue (Vol. 65, No. 1 (Fall 2011)):

• In memory: James S. Eustice, 1932-2011, 65 Tax L. Rev. 1-18 (2011)
• Noel B. Cunningham (NYU), A Friend and Colleague, 65 Tax L. Rev. 3 (2011)
• Harvey P. Dale (NYU), Teacher, Mentor, Colleague, Friend, 65 Tax L. Rev. 5 (2011)
• Laurie Malman (NYU), Memories of a Friend, 65 Tax L. Rev. 7 (2011)
• Deborah H. Schenk (NYU), Remembering Jim, 65 Tax L. Rev. 9 (2011)
• John P. Steines, Jr. (NYU), Travels with Jim, 65 Tax L. Rev. 15 (2011)
• David Gamage (UC-Berkeley) & Darien Shanske (UC-Hastings), Three Essays on Tax Salience: Market Salience and Political Salience, 65 Tax L. Rev. 19 (2011)
• Edward D. Kleinbard (USC), The Lessons of Stateless Income, 65 Tax L. Rev. 99 (2011)

IRS: 20,752 High Income Taxpayers Paid Zero Income Tax in 2009

Following up on Saturday's post, IRS Releases Spring 2012 SOI Bulletin:

• Accounting Today, 20,752 High-Income Taxpayers Had No Income Tax Liability
• ataxingmatter, One in Four of Those With $200,000 or More in AGI Paid No Federal Taxes in 2009
• Bloomberg, IRS Finds One in 189 High Earners Paid No 2009 U.S. Tax
• Huffington Post, New IRS Study: More Than 10,000 Wealthy American Households Paid No Income Tax In 2009 
• Political Capital, Top Half-Percent Who Pay No Taxes

Spring 2012 SOI Bulletin:  High-Income Tax Returns for 2009, by Justin Bryan:

The Tax Reform Act of 1976 requires annual publication of data on individual income tax returns reporting income of $200,000 or more, including the number of such returns reporting no income tax liability and the importance of various tax provisions in making these returns nontaxable. This article presents detailed data for the almost 4 million high-income returns for 2009, as well as summary data for the period 1977 to 2008. ...

For 2009, there were 3,924,489 individual income tax returns reporting AGI of $200,000 or more, and 3,975,288 with expanded income of $200,000 or more. These returns represent, respectively, 2.793% and 2.830% of all returns for 2009. ... For 2009, of the 3,924,489 income tax returns with AGI of $200,000 or more, 20,752 (0.529%) showed no U.S. income tax liability; and 10,080 (0.257%) showed no worldwide income tax liability. ...

Gender, the Tax Court, and the Tax Bar: 1938-1970

Legal History Blog:  Marion Janet Harron (1903-1972), by Dan Ernst (Georgetown):

Several women in her circle organized the Women’s Division of the Democratic National Committee, which, after FDR’s election in 1932, found government jobs for female professionals. ... [I]n June 1936, the Women’s Division landed her a presidential appointment to a twelve-year term on the U.S. Board of Tax Appeals.  She replaced the BTA’s first and only female member.

The BTA (renamed the U.S. Tax Court in 1942) was organized as an independent agency, distinct from the Treasury Department, to hear appeals from the Bureau of Internal Revenue (BIR; now known as the Internal Revenue Service).  It was a “legislative” or “administrative” court, not an “Article III” court in the federal judiciary.  Sitting alone, members of the BTA decided appeals on a record created before them by the lawyers for the taxpayer and the BIR under the procedures federal courts followed in equity cases.  As a tax lawyer explained in 1939, “Winning or losing a tax case before the Board is precisely the same as winning or losing a law suit before a court–no more, no less.  Both demand the same capacities and the same tactics.”  When Harron and the other members of the BTA heard cases outside Washington, they often used the courtrooms of the state and federal judiciary.

In 1945 a female lawyer at the BIR praised Harron “for the clarity of reasoning and breadth of knowledge of tax law revealed in her opinions.”  Yet when her term ended in 1948, the members of ABA’s tax section voted 104 to 57 against her renomination.  Senator Walter George (D. Georgia), one of the conservatives FDR targeted in the Democratic primaries of 1938, called a hearing to see whether, as the tax lawyers charged, Harron lacked “the temperament to sit as a judge.”
   
No one suggested that Harron’s written opinions were less than competent.  Instead, the case against her turned on her conduct in the “courtroom.”  “She handles her trials in a disgraceful fashion, insulting both attorneys and witnesses,” one lawyer complained.   Another, George Morris, charged that Harron had usurped “the privileges of counsel” by deciding the order in which the various parts of a case would be taken up.  Another lawyer testified that in one of his cases “the entire order was rearranged so that I could not remember what had gone in and what had not gone in, and when I got through with the trial I did not know whether I had proved my case or not.  I was uncomfortable and humiliated by being told that I was not proceeding properly with the case.”  Although the lawyer had appeared before the BTA and Tax Court for twenty years, Harron had “lectured [him] continually like a young school boy.”

Morris denied that the tax lawyers opposed Harron’s reappointment because of her sex.  “I am very much in favor of . . . recognizing the ability of the many able woman lawyers in this country,” he said.  Indeed, the ABA’s tax section had named two women to its list of sixteen candidates for vacancies on the Tax Court.  Still, Morris thought it “very important to the tax-collecting system of this country that the confidence of the people be maintained in the tax system and that the [taxpayer] . . . have his day in court.”  Further, the client’s counsel was “entitled to courteous treatment.”  Although Tax Court judges ought to follow “the best standards of judicial procedure,” that was not what lawyers had come to expect from Harron.  Indeed, Morris reported, several had used words he did not “care to repeat for the record” when they learned that they were to appear before her.

In reply, Harron acknowledged that she had pointed out when lawyers made mistakes, but she characterized her remarks as “observations” not “criticism.”  “I have never consciously embarrassed counsel,” she said, “and I have endeavored to avoid the appearance of being unduly critical or stern with any counsel in any proceeding.”  But, she continued, “it is the business of the judge to do nothing less than justice.  If that is to be attained, sometimes . . . the court itself must interrogate witnesses and ask questions which trial counsel might not have asked.”  If forced to choose between doing “exact justice” and hurting “the feelings or pride of some trial counsel,” Harron thought her duty plain.  “I am to obtain the facts.”

J.P. Wenchel, a former BIR General Counsel, spoke on Harron’s behalf.  He opined that other tax lawyers opposed Harron’s reappointment because “men do not like to be criticized by women. . . .  [B]eing criticized by a male judge is bad enough, but when a woman takes [a case] over, it is just adding insult to injury.”

Harron was reappointed, and she served on the Tax Court until 1970.

Bishop: Sectorization & L3C Regulatory Arbitrage of Joint Ventures with Nonprofits

Carter G. Bishop (Suffolk), Sectorization & L3C Regulatory Arbitrage of Joint Ventures with Nonprofits:

The raison d’etre for the nascent low-profit limited liability company (L3C) is to stimulate collaboration (“sectorization”) among government, private and charitable sectors in order to redirect for-profit capital models into the nonprofit sector. The hope is that the L3C will not only generate additional resources for charitable purposes, but also fundamentally transform business culture by signaling a more efficient way to “do good while doing well.” The L3C has been criticized for targeting only private foundation program related investments, a capital pipeline already exhausted by existing profit entity models. When compared to the existing nonprofit joint venture, the L3C emerges as a less efficient arbitrage model for stimulating profit sector investment in charitable enterprises. A comparative analysis yields instructive lessons regarding deficiencies in federal tax regulation of program related investments and joint ventures. In both cases, the federal tax rules utilize a differing “control test” to assure the exempt entity directs assets toward its charitable mission and away from private benefit to profit sector participants. This Article provides the first comprehensive comparative theory that the existing nonprofit-profit joint venture model is a more efficient solution to assuring compliance with the charitable mission when blending market returns to market capital investors. This theoretical framework exposes why L3C statutory operating procedures unnecessarily cripple profit efforts, undermine its effectiveness, and present policy dilemmas less prevalent in joint ventures where the nonprofit must exercise control over the business entity rather than simply an investment in the entity. As a result, program related investments should be scaled back and limited to determining only whether an investment jeopardizes a foundation’s exempt mission where the scale of the investment has a self-limiting role.

7th Annual Junior Tax Scholars Workshop Begins Today at UC-Hastings

The Seventh Annual Junior Tax Scholars Workshop kicks off today at UC-Hastings with these papers:

Tax Entities

David Herzig (Valparaiso), Foreign Investors, REITS, and Net Return: An Elective Tax on Inbound Real Estate Investment
Commenters: Itai Grinberg (Georgetown), Jennifer Bird-Pollan (Kentucky)

Samuel Brunson (Loyola-Chicago), Mutual Funds, Fairness, and the Wealth Gap
Commenters: Jake Brooks (Georgetown), Leigh Osofsky (Miami)

Tracey Roberts (Louisville), Building a Better Tax Expenditure for the Alternative Energy Industry 
Commenters: Phil Hackney (LSU), David Gamage (UC-Berkeley)

Gender, Families & Taxation

Stephanie McMahon (Cincinnati), What Innocent Spouse Relief Says About Women: And Why We Need a Ruled Exception to Joint and Several Tax Liability
Commenters: Phil Hackney (LSU), Lily Faulhaber (Boston University)

Morgan Holcomb (Hamline), Taxing Anxiety
Commenters: Gary Lucas (Texas-Wesleyan), Leigh Osofsky (Miami)

Grace Lee (Alabama), Home is Where the Heart Is (Unless You're the IRS)
Commenters: Andy Haile (Elon), Stephanie McMahon (Cincinnati)

Tax Planning / Efficiency

Leigh Osofsky (Miami), Meaningful and Meaningless Frictions on Social Waste
Commenters: John R. Brooks (Georgetown), Samuel Brunson (Loyola-Chicago)

Gary Lucas (Texas-Wesleyan), Paternalistic Sin Taxes and Psychic Taxes
Commenters: Ben Leff (American), Tracey Roberts (Louisville)

Jason Oh (UCLA), The Social Cost of Fundamental Tax Reform, 65 Tax L. Rev. ___ (2013)
Commenters: Randle Pollard (Indiana University, Business School), Itai Grinberg (Georgetown)

Tax Exempts

Philip T. Hackney (LSU), On Corporations, Honey Badgers, and the Rationale for Exempting Organizations from the Federal Income Tax
Commenters: Randle Pollard (Indiana University, Business School), Tracey Roberts (Louisvile)

Benjamin Leff (American), Tranche Investing in "Hybrid" Social Enterprises and Private Inurement
Commenters: Jason Oh (UCLA), Morgan Holcomb (Hamline)

Prior Junior Tax Scholars Workshops

• 2006 (Colorado) (Day 1, Day 2)
• 2007 (Boston University) (Day 1, Day 2)
• 2008 (NYU) (Day 1, Day 2)
• 2009 (Brooklyn) (Day 1, Day 2)
• 2010 (Notre Dame) (Day 1, Day 2)
• 2011 (UC-Irvine) (Day 1, Day 2)

Final Essay of Yale Student Who Died Five Days After Graduation

Marina Keegan, who graduated from Yale College on May 21, died in a car accident on Cape Cod on May 26. The Yale Daily News has reprinted Ms. Keegan's wonderful essay distributed at commencement, The Opposite of Loneliness. Here is the opening:

We don’t have a word for the opposite of loneliness, but if we did, I could say that’s what I want in life. What I’m grateful and thankful to have found at Yale, and what I’m scared of losing when we wake up tomorrow and leave this place.

It’s not quite love and it’s not quite community; it’s just this feeling that there are people, an abundance of people, who are in this together. Who are on your team. ...

Yale is full of tiny circles we pull around ourselves. A cappella groups, sports teams, houses, societies, clubs. These tiny groups that make us feel loved and safe and part of something even on our loneliest nights when we stumble home to our computers — partner-less, tired, awake. We won’t have those next year. We won’t live on the same block as all our friends. We won’t have a bunch of group-texts.

This scares me. More than finding the right job or city or spouse – I’m scared of losing this web we’re in. This elusive, indefinable, opposite of loneliness. This feeling I feel right now.

California Entrepreneur Loses $18.5 Million Charitable Deduction

Joseph Mohamed, a prominent Sacramento real estate broker, certified real estate appraiser, and entrepreneur, and his wife donated six properties worth at least $18.5 million to a charitable remainder trust in 2003 and 2004, but failed to read the instructions to Form 8283 (Noncash Charitable Contributions).  Although the Tax Court acknowledgef that "the property was quite likely more valuable than the Mohameds reported on their tax returns," the Tax Court denied the claimed charitable deduction for failure to comply with the substantiation requirements. Mohamed v. Commissioner, T.C. Memo. 2012-152 (May 29, 2012):

We recognize that this result is harsh—a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions—all reported on forms that even to the Court's eyes seemed likely to mislead someone who didn't read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.

For more, see here.  (Hat Tip: Bob Kamman.)

Call for Participants: FemTax Working Group

For anyone headed to the Law & Society Association Annual Meerting in Hawai'i on June 5-8:

The FemTax research group is holding a special preconference workshop on Applying Feminist Principles to Tax, Benefit, and Budgetary Policies: An Economic Justice Workshop on June 4, from 9:00 a.m. to 4:30. p.m.  This event is open to all those attending the LSA conference, and refreshments and meals will be provided on site.  The papers range from feminist theories of distributive justice to tax and economic policy analysis of specific tax, spending, and budgetary policies.  The event is designed to promote comparative and collaborative research, transnational networking, and interdisciplinary methods in addition to addressing core fiscal issues with differential sex/gender/sexualities and race-based effects.  If interested in attending, please send a completed participant form to Kathleen Lahey.

Johnson: Extend the Tax Life for Acquired Intangibles to 75 Years

Calvin H. Johnson (Texas), Extend the Tax Life for Acquired Intangibles to 75 Years, 135 Tax Notes 1054 (May 21, 2012):

Under current law, a taxpayer may amortize the cost of intangibles acquired in the taxable acquisition of a business over a composite life of 15 years. The 15-year period is too short. .A 75-year period would reflect the economic income of the acquirer and make the tax accounting consistent with debt financing. A 15-year life reduces the effective tax rate on a taxable acquisition of intangibles to 16%, and with debt financing, the acquirer’s tax becomes negative, adding 19% of revenue to the value of the acquisition. There is no justification for a negative tax on acquisitions.  

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

Jensen: The Individual Mandate and Tax Incentives

Erik M. Jensen (Case Western), The Individual Mandate and Tax Incentives, 135 Tax Notes 879 (May 15, 2012):

This article responds to an argument, made by economist Martin Sullivan [If Mandate Is Struck Down, Are Tax Incentives Next?, 135 Tax Notes 14 (Apr. 2, 2012)], that, if the Supreme Court strikes down the individual mandate in the Obamacare legislation, all sorts of tax incentives — which, he argues, are economically equivalent to the mandate — would suddenly be at risk constitutionally. The article argues that (1) mandates and incentives are not necessarily legally equivalent; (2) more generally, economic equivalence does not mean legal equivalence; and (3) as has always been the case, the constitutional merits of tax incentives should be evaluated on a case-by-case basis.

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

Christine Lagarde, Scourge of Greek Tax Evaders, Pays No Tax Herself

The Guardian, Christine Lagarde, Scourge of Tax Evaders, Pays No Tax:

Christine Lagarde, the IMF boss who caused international outrage after she suggested in an interview with the Guardian on Friday that beleaguered Greeks might do well to pay their taxes, pays no taxes, it has emerged. As an official of an international institution, her salary of $467,940 (£298,675) a year plus $83,760 additional allowance a year is not subject to any taxes....

The same applies to nearly all United Nations employees – article 34 of the Vienna convention on diplomatic relations of 1961, which has been signed by 187 states, declares: "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal." ...

For many years critics have complained that IMF, World Bank, and United Nations employees are able to live large at international taxpayers' expense. During the 1944 economic conference at Bretton Woods, where the IMF was created, American and British politicians disagreed over salaries for the bureaucrats. British delegates, including the economist John Maynard Keynes, considered the American proposals for salaries to be "monstrous", but lost the argument.

Officials from the various organisations have long maintained that the high salaries are a way of attracting talent from the private sector. In fact, most senior employees are recruited from government posts.

(Hat Tip: Bob Kamman.)

Update:  From Bruce Bartlett:   "IMF officials pay taxes just like everyone else. But the IMF grosses up their salaries to compensate them for the taxes they pay. Ask Tim Geithner, who got in trouble for not paying taxes on his IMF income. My understanding is that the IMF assumes that all its staff pay taxes to their home countries and are compensated based on some estimate of what those taxes are. Thus someone from a high tax country will be paid more than someone from a low tax country. The idea is to equalize after-tax incomes regardless of the tax levels in your home country."

Steinbuch: A New Method of Ranking Law Faculty and Law Schools

Robert Steinbuch (Arkansas-Little Rock), On the Leiter Side: Developing a Universal Assessment Tool for Measuring Scholarly Output by Law Professors and Ranking Law Schools, 45 Loy. L.A. L. Rev. 87 (2011):

With varying results, many scholars and commentators have focused their attention on judging the quality of law professors, as measured by their scholarly output. First, this Article explains the methods respectively developed by Brian Leiter and Roger Williams University School of Law for top-tier and second-tier law schools, and it considers other works of scholarship that measure academic publication. Then, this Article explicates a protocol (the “Protocol”) for measuring all of the scholarly output of any law school faculty member. Building on the Leiter and Roger Williams methods, the expanded Protocol accounts for a wider breadth of faculty publications and includes weighting factors based on law-journal rankings. Finally, this Article concludes by applying the Protocol to its Author and his colleagues. In sum, the Protocol that this Article develops and applies will provide a significantly more objective set of data with which to evaluate the scholarly performance of legal academics.

It must be a bit awkward in the Arkansas faculty lounge this summer:

Gamage: How ObamaCare Will Create Perverse Incentives, Harming Low- and Moderate-Income Workers

David Gamage (UC-Berkeley), How the Affordable Care Act Will Create Perverse Incentives Harming Low and Moderate Income Earners, 65 Tax L. Rev. ___ (2012):

Called “Obamacare” by some, the Affordable Care Act (or “ACA”) is the most extensive reform to the American healthcare system since the creation of Medicare and Medicaid in 1965. The ACA promises many improvements to American health care. While recognizing the importance of these improvements, this Essay focuses on how the ACA’s tax provisions will also create perverse incentives harming low- and moderate-income workers.

This Essay argues that – once key tax-related provisions of the ACA come into effect in 2014 – the ACA will create perverse incentives with respect to a number of important decisions affecting low- and moderate-income Americans, including: the ACA will deter low- and moderate-income taxpayers from accepting jobs with employers that offer “affordable” health insurance; the ACA will discourage many low- and moderate-income taxpayers from attempting to increase their household incomes; the ACA will penalize many low- and moderate-income taxpayers who choose to marry and will incentivize many low- and moderate-income taxpayers to divorce; the ACA will dissuade employers from hiring low- and moderate-income taxpayers and will encourage employers to reduce the salaries paid to some low- and moderate-income employees; the ACA will prompt employers to shift some low- and moderate-income employees from full-time positions to part-time positions; the ACA will tempt employers to implement a number of other costly strategies for circumventing the ACA’s employer mandates and penalties; the ACA will induce employers to stop offering “affordable” health insurance to at least some low- and moderate-income employees, and – if this occurs to a significant enough degree – the budgetary cost of the ACA may greatly exceed the official projections issued by the Congressional Budget Office.

Tragically, these perverse incentives could have been avoided. We ought perhaps to accept these perverse incentives were they a necessary cost of achieving the ACA’s many positive goals. Yet this Essay explains how the ACA could be reformed so as to to attain its desirable ends without creating most of the perverse incentives discussed in this Essay.

Schenkel: Exposing the Hocus Pocus of Trusts

Kent D. Schenkel (New England), Exposing the Hocus Pocus of Trusts, 45 Akron L. Rev. 63 (2012):

A trust beneficiary may receive substantial benefits to property, and perhaps even virtual control over that property, yet the trust shields that property from costs associated with beneficiary’s commission of a tort, or a default on unsecured debt obligations, or the failure to provide for the surviving spouse at death, to give a few examples. While the outright owner of property must hold that property subject to the valid claims of these other parties, no participant in the trust arrangement undertakes these burdens. Instead, in an act of hocus pocus, they seem to simply vanish.

Unfortunately, the magic of trusts turns out to be a chimera, as the costs do not really disappear; they merely resurface elsewhere, falling on those outside the trust relationship. For example, burdens placed on outsiders as a result of property held in trust lead to litigation over rights of tort creditors as against trust beneficiaries and increase the cost of insurance and credit. This article serves as a call for recognition of what it terms these “elective externalities,” as well as a search for a practical approach to reducing them.

Christians: Do We Need to Know More About Our Public Companies?

Allison Christians (McGill), Do We Need to Know More About Our Public Companies?, 66 Tax Notes Int'l 843 (May 28, 2012):

Allison Christians comments on whether the tax affairs of multinational corporations should be made more transparent and, if so, how that could be accomplished.

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

Call for Papers: Critical Perspectives on Tax Policy Workshop

Critical tax scholars ask why the tax structure is the way it is and what impact tax policies, politics and rhetoric have on historically disempowered groups.  Particularly in an election year, attention to the interdisciplinary ways in which social meaning is created through tax policy and inclusion of "outsider" perspectives on the study of public finance are crucial.  This is a call for individual paper presentations or incubator ideas that look at taxation from a critical perspective. Critical perspectives on tax policy for this workshop will be limited to a focus on at least one of the following topics: race, ethnicity or immigration status, socio-economic status, gender or gender identity/expression, sexual orientation, family status, or disability.  Those examining tax policy in a critical way from a legal, social science, humanities, or comparative/international perspective are all encouraged to participate.  This second annual workshop will connect scholars working on problems of inequality and public finance across the academy, welcome new members into the critical perspectives community, provide collaborative support for our research, and transmit our ideas to a wider audience.  The conference will take place at the University of Washington Law School in Seattle, WA on September 14-15, 2012.  Professor Dorothy Brown of Emory Law School will be the conference's keynote speaker.

There is no registration fee, and some meals will be provided by the University of Washington, including a Friday night keynote reception; each participant will be responsible for their own transportation costs and hotel expenses, which will be available at a lower conference rate.  Abstracts no longer than 500 words including name, affiliation, and contact information should be submitted no later than June 30, 2012 via e-mail to Camille Walsh.  Participants will be notified whether their proposal was accepted no later than July 15, 2012.

The inaugural Critical Perspectives on Tax Policy Conference was held at Emory Law School on September 16-17, 2011.

Lipshaw: Don't Blame Faculty for Legal Education's Problems

The Legal Whiteboard:  Mild Epiphanies While Re-Reading The Reflective Practitioner, by Jeff Lipshaw (Suffolk):

I've started working on an essay for a symposium on the future of legal education ... I decided to re-read a work I have cited in the past, Donald A. Schön's The Reflective Practitioner: How Professionals Think in Action. 

All professions, in Schön's view, demonstrate this tension between rigor (of research in technical disciplines) and relevance (of the application of knowledge to practice). ... The role of legal academy scholarship in practice falls somewhere in between the role of research in laporscopic surgical practice and the role of research in barbering practice. I will leave others to speculate on precisely where it falls. But in terms of how much pure or applied university-based research we actually need, I have a feeling our profession is closer to barbers than surgeons. ...  

Nevertheless, demonizing law professors in modal schools (the vast majority of which take seriously their obligation to train lawyers for non-academic careers) is like demonizing bankers or CEOs. It scratches an atavistic urge to attribute misfortunate to the gods. ... I don't particularly care for the U.S. tort system and its effect on product and medical costs, but attributing the crisis of legal education to current law professors because they get paid well or write theoretical "law and ..." articles is like attributing defensive medicine to the plaintiffs' medical malpractice bar because of the standard one-third contingent fee. People naturally do what they get measured on and paid well for.  And it's perfectly legal to boot.

In short, blaming law faculty for responding precisely to the incentives the system creates is understandable but unreflective in its own way. Rather, the current problem is institutional and structural, as Brian Tamanaha, the late Larry Ribstein, Bill Henderson, and others have observed. Because of regulatory and accreditation restraints, almost all schools are similarly modal, so almost every law school, even well down in the lower rankings, consists of faculty with the same career drivers and motivations.

If one's school can't support and doesn't need a Department of Jurisprudence alongside the history, sociology, economics, and philosophy departments, maybe it shouldn't have one. Going that route would take some real cojones, and no doubt create more human candidates for status as gods or demons.

TaxProf Blog Holiday Weekend Roundup

Saturday:

• State Trend:  Independent Tax Courts
• Mitt Romney, David Petraeus, and Tax Lawyers: 'Incredibly Boring White Guys'
• IRS Releases Spring 2012 SOI Bulletin

Sunday:

• WSJ:  New Taxes for 'Renouncers'?
• Top 5 Tax Paper Downloads
• Block:  A Continuum Approach to Systemic Risk

Monday:

• Memorial Day at Exit 149
• Memorial Day Tax Resources for U.S. Armed Forces (and Their Families, Employers)
• June-December 2012:  A Golden Time of Gift Giving

Memorial Day at Exit 149

My wife and I spent the Memorial Day weekend at the Holiday Inn Express at Exit 149 off I-74 in Le Roy, Illinois, which is exactly halfway between Cincinnati, Ohio and Grinnell, Iowa. Our son drove up from Grinnell College, where he is spending the summer doing research for a math professor before starting his senior year. He was in a minor car accident in March, and we swapped cars so we can get his car repaired back in Cincinnati. We had not seen him for four months, so it was great to catch up. I am a man of simple needs -- give me my family, wi-fi, flat screen TV, exercise room, free breakfast, in-room refrigerator, and a nearby Olive Garden (in that order), and I'm good to go.

Memorial Day Tax Resources for U.S. Armed Forces (and Their Families, Employers)

Continuing a TaxProf Blog Memorial Day tradition, I want to pass along links to the Tax Information for Members of the U.S. Armed Forces material maintained on the IRS web site:

The tax laws provide some special benefits for active members of the U.S. Armed Forces, including those serving in combat zones. For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel may qualify for certain tax deadline extensions because of their service in a combat zone.

For dozens of links to military tax resources, see below the fold.

Continue reading "Memorial Day Tax Resources for U.S. Armed Forces (and Their Families, Employers)"

June-December 2012: A Golden Time of Gift Giving

Wall Street Journal, A Golden Age of Gift Giving:

With the government's $5.12 million gift-tax exemption set to fall to $1 million at year-end, more families are using the current leeway to do some financial housekeeping, experts say. "Cleanup gifts," as estate planners call them, can be used to forgive intrafamily loans, equalize gifts to children or grandchildren, pass along an interest in a family business or preload a life-insurance trust, among other strategies. ...

But before families start writing checks, the most important thing to consider is whether or not they should make gifts in the first place. "Everybody is trying to save taxes to the extent that they can, but at the end of the day they want to make sure there is money in their bank account for themselves," says Hilary Pierce, a partner and head of the estate-planning group at Sideman & Bancroft in San Francisco.

If you still feel comfortable with the idea of making gifts after subjecting yourself to that gut check, here are some ways to tidy up your planning:

• Forgive and forget. Well-off families who used up the former exemption of $1 million would sometimes turn to low-interest family loans to continue transferring assets to children and grandchildren. Forgiving such a loan now makes it possible to take advantage of the current exemption without shelling out cash. ...
• Even out the score. If your grandchildren span a wide age range, your children have different numbers of children or you have been married more than once, the cumulative value of gifts you have made to various family members to help pay for education, weddings, homes or other items might vary widely. ...To fix those problems, clients often include language in a will or trust to "equalize" gifts to grandchildren. ...
• Give away the store. With the current gift-tax exemption and valuation discounts for minority stakes in a business, you could move at least part of a family enterprise out of your estate. ...
• Set up a backstop. It is a longtime, plain-vanilla estate-planning tool: an irrevocable trust with your children, grandchildren and spouse as beneficiaries.Now, with a sexy new acronym, so-called spousal limited-access trusts, or SLATs, are getting a lot of attention from people "who are worried about taxes but also about giving too much away," says Robert Morrill, managing partner at Gilmore, Rees & Carlson, a Wellesley, Mass., law firm that specializes in trusts and estates.Such trusts can get assets out of a husband's or wife's estate while taking advantage of the full gift-tax exemption.Mr. Morrill encourages clients to assume the surviving spouse isn't going to reclaim any assets from the trust, though there is an escape hatch: The trustee could make distributions for the surviving spouse "if fortunes change after the trust is funded," he says.

WSJ: New Taxes for 'Renouncers'?

Following up on my prior posts (links below):  Wall Street Journal Tax Report, New Taxes for 'Renouncers'?, by Laura Saunders:

On Capitol Hill, there is new interest in connecting taxes and passports. ...

Sens. Schumer and Casey want to change the law to raise the overall penalty on renouncers, unless they can prove they didn't decamp for tax reasons. Those who can't prove otherwise would owe a new 30% tax on all future investment gains earned in the U.S., even though they no longer are citizens and no longer live here. Failure to pay the tax would keep them from re-entering the country.

Will this proposal get traction? Clint Stretch, a veteran tax expert at Deloitte Tax in Washington, doesn't think so. "There's always a tension when the IRS gets involved with affairs usually handled by the State Department, and this does that," he says. Michael Graetz, a law professor at Columbia University and former top Treasury official, hopes the proposal goes nowhere: "This is a good example of bad anecdotes making bad legislation."

A different proposal is further along in the pipeline. It would allow federal officials to revoke or deny passports to delinquent taxpayers who owe the IRS $50,000 or more. The provision passed the Senate in February and is before the House now. Revenues it generates would be used to help fund a highway-transportation bill that extends provisions set to expire on June 30.

The measure comes on the heels of a 2011 Government Accountability Office study [Potential for Using Passport Issuance to Increase Collection of Unpaid Taxes]. ... The GAO report found that for the year it studied—2008—the State Department issued passports to more than 224,000 citizens who owed about $6 billion in tax. ... Mr. Stretch says he thinks this provision has a far better chance of passage than the Schumer-Casey bill. "This is akin to shutting off the cellphone if you don't pay your bill," he says, "and it prevents the IRS from having to send folks with guns and badges to collect the money."

Prior TaxProf Blog Posts:

• Facebook Co-Founder Renounces U.S. Citizenship in Advance of IPO, Saving Millions in U.S. Taxes (May 11, 2012)
• Will Facebook Co-Founder's Renunciation of U.S. Citizenship Increase His U.S. Tax Bill? (May 12, 2012)
• Seto, Kleinbard Explain Tax Consequences of Facebook Co-Founder's Renunciation of U.S. Citizenship (May 13, 2012)
• Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship:  $67 Million (May 16, 2012)
• Sen. Schumer Proposes 30% Tax on Facebook Co-Founder, Others Who Renounce U.S. Citizenship for Tax Purposes (May 17, 2012)
• WSJ:  New Ex-Patriot Tax on Facebook Co-Founder 'Isn't Worthy of America' (May 18, 2012)
• Estate & Gift Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship Dwarf Income Tax Savings (May 19, 2012)
• Should You Renounce Your U.S. Citizenship Like Facebook Co-Founder Eduardo Saverin? (May 20, 2012)

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. The #1 paper is now #29 in all-time downloads among 8347 tax papers:

1.  [1808 Downloads]  There’s No There There: Low Tax Rates and Economic Growth, by Filip Spagnoli (National Bank of Belgium)

2.  [290 Downloads]  Corporate Shams, by Joshua D. Blank (NYU) & Nancy C. Staudt (USC)

3.  [253 Downloads]  Recent Developments in Federal Income Taxation: The Year 2011, by Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston) & Daniel L. Simmons (UC-Davis)

4.  [222 Downloads]  Guide to the Internal Revenue Service Decision-Making Process Under Section 501(c)(3) for Journalism and Publishing Non-Profit Organizations, by Jeffrey P. Hermes (Berkman Center for Internet & Society)

5.  [215 Downloads]  Zotero -- A Manual for Electronic Legal Referencing, by John Prebble & Julia Caldwell (both of Victoria University of Wellington, Faculty of Law)

Block: A Continuum Approach to Systemic Risk

Cheryl D. Block (Washington U.), Letting Go of Binary Thinking and Too-Big-To-Fail: Preserving a Continuum Approach to Systemic Risk, 6 Brook. J. Corp. Fin. & Com. L. 1 (2012):

This Article highlights differences between principle and practical implementation of prudential regulation and resolution rules pertaining to financial institutions. In principle, even though general prudential regulatory rules reflect a gradual risk-based continuum approach, their implementation with respect to large systemically important institutions has often been through regulatory forbearance. Particularly when confronted with lobbying pressure from very large banks, regulators have opted for inaction. In ironic contrast, statutory and regulatory resolution rules over time have increasingly restricted regulators’ options, often apparently leaving regulators to make a binary choice between letting the entity fail and providing a major government rescue or “bailout.” In reality, however, regulators have adopted a range of government strategic responses to imminent or actual large private business failures. Resolution authority is binary in principle, but actually implemented along a private-public continuum. Despite Dodd-Frank’s attempt to limit this “reality,” regulators are likely to continue to exercise their resolution authority in a more flexible manner along this continuum than might otherwise appear from formal and statutory rules.

Such a continuum-based approach is important for both regulation and resolution. On the regulation side, this approach suggests better implementation of the risk-based principles already in place and assurance that new enhanced prudential regulatory rules will be properly implemented. On the resolution side, it means understanding that resolution authority reflects government policy with respect to allocating large financial entity failure risks. Rather than pretend to rid the system of bailouts, regulators should acknowledge the range of existing and potential government responses to risk allocation, and work toward developing an equitable and transparent process and substantive criteria for making allocative choices in the case of systemically important financial institution failures.

State Trend: Independent Tax Courts

Thomson Reuters Legal, Heard in More States: See You in Tax Court!:

Six states have established or considered establishing independent tax tribunals in the last two years, a trend supported by the business community, but one which also is stirring debate about the need for these new tribunals.

Eighteen other states have well-established tax courts, and another nine states and the District of Columbia offer independent tax courts or forums that do not have to be staffed by tax experts. Twenty-one states, including Alabama, do not have independent tax courts at all, among them are three of the largest states -- California, Texas and Florida.

Some critics say independent tax tribunals layer costs and complexity onto systems that already are slow and cumbersome, helping tax lawyers perhaps more than their clients. States set them up nonetheless, in part because the systems make them appear friendlier to business at a time of high unemployment and interstate rivalry for jobs.

(Hat Tip: Francine Lipman.)

Mitt Romney, David Petraeus, and Tax Lawyers: 'Incredibly Boring White Guys'

PJ Tattler, Could a Romney/Petraeus Ticket Be a Game Changer?:

According to Politico, the phrase “incredibly boring white guy” is now part of the search criteria needed to qualify one for a place on Mitt Romney’s VP short list.

Of course, Romney’s desire for a running mate bearing this awkward description stems from the negative backlash suffered by Senator John McCain in 2008 after he selected Governor Sarah Palin as his “game-changing” VP candidate and then was pounded for the choice by the mainstream media.

Several very competent “incredibly boring white guys” (IBWGs) such as Ohio Senator Rob Portman, Virginia Governor Bob McDonnell, and South Dakota Senator John Thune have all had their national profiles raised recently, guaranteeing them a spot on the VP short list, but precisely because they are a group of IBWGs, the needle on the media excitement meter has scarcely moved a millimeter.

In seems that IBWGs are only exciting when one is in desperate need of an experienced heart surgeon or tax attorney — or if your name is George Clooney.

However, there is someone who holds high national stature and also happens to be an IBWG and who, if he agreed to be Romney’s running mate, might actually qualify as a “game changer.”

That person is David Petraeus.

IRS Releases Spring 2012 SOI Bulletin

The IRS's Statistics of Income Division yesterday released (IR-2012-58) the Spring 2012 SOI Bulletin (Vol. 31, No. 4), with these articles:

• High-Income Tax Returns for 2009 (p.6), by Justin Bryan:  For 2009, there were 3,924,489 individual income tax returns reporting AGI of $200,000 or more, and 3,975,288 with expanded income of $200,000 or more. These returns represent, respectively, 2.793% and 2.830% of all returns for 2009.
• Individual Noncash Contributions, 2009 (p. 62), by Pearson Liddell & Janette Wilson:  For Tax Year 2009, 21.9 million individual taxpayers who itemized deductions reported $31.8 billion in deductions for noncash charitable contributions.
• Accumulation and Distribution of Individual Retirement Arrangements, 2008 (p.89), by Victoria L. Bryant:  The year-end fair market value of all IRAs fell from $4.7 trillion in 2007 to $3.7 trillion in 2008, a 22.5% decrease.
• Foreign Recipients of U.S. Income, 2009 (p.105), by Scott Luttrell:  U.S.-source income payments to foreign persons and taxes withheld declined across nearly all categories of income in Calendar Year 2009, as the U.S. economy was in the midst of the Great Recession. Some $546.5 billion in U.S.-source income payments were made to foreign recipients in 2009, a decrease of 20.7% from the 2008 total. Taxes withheld on U.S.-source income paid to foreign persons experienced a similar decline to $7.2 billion, down 21.4% from 2008.
• The Distribution of Corporate Income: Tabulations from the Schedule M-3, 2004-2008 (p.128), by Caitlin Bokulic, Erin Henry & George Plesko:  Corporations determine the amount of income earned during a year using a variety of reporting standards. These differences in reporting standards have led to differences in the amount of book and taxable income that is reported by firms.  To investigate the patterns and sources of these differences, this article examines a sample of firms that filed a Form 1120 Schedule M-3 during  2004-2008.  The sample was disaggregated into statutory tax brackets to show the magnitude of aggregate measures of both financial statement worldwide and domestic income and taxable income to better understand the population of corporate tax filers.
• 2009 Gifts (p.142), by Melissa J. Belvedere:  There were 223,093 [gift tax] returns filed during 2010, reporting a total of $37.9 billion in assets, which were transferred to 867,507 gift recipients, mostly children and grandchildren.  The majority of gifts given were in the form of cash, although real estate and stock also comprised significant percentages of total assets.
• The Income and Wealth of 2007 Estate Tax Decedents (p.151), by Barry Johnson, Brian Raub & nd Joseph Newcomb:  21% of estate tax decedents who died in 2007 reported income in the top 1% of the adjusted gross income distribution for Tax Year 2006.