TaxProf Blog

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

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

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

Prior TaxProf Blog coverage:

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

When a Wife Earns More Than Her Husband

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

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

French Tax Rate on Wealthy Exceeds 100%

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

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

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

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

Hymel: Environmental Tax Policy in the U.S.

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

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

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

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

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

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

Marineau: International Corporate Tax Reform

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

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

Bergin: The IRS Is in Big Trouble

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

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

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

The IRS Scandal: Really?!

(Hat Tip: Ann Murphy.)

The IRS Scandal, Day 11

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

Prior TaxProf Blog coverage:

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

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

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

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

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

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

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

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

TaxProf Blog Weekend Roundup

Saturday:

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

Sunday:

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

SNL on the IRS Scandal

The IRS Scandal, Day 10

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

Prior TaxProf Blog coverage:

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

Top 5 Tax Paper Downloads

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

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

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

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

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

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

Benefit Corporations and the Business Expense Deduction

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

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

Sense and Sensibility: Estate Planning Lessons From Jane Austen

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

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

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

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

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

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

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

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

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

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

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

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

The IRS Scandal, Day 9

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

Prior TaxProf Blog coverage:

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

FATCA: Toward a Multilateral Automatic Information Reporting Regime

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

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

UC-Hastings Hosts Northern California Tax Roundtable Today

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

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

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

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

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

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

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

Lang: Tax Malpractice -- Issues and Avoidance

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

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

AEI: Taxing Individuals Rather Than Families

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

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

Yin: The Role of Nonpartisan Staff in the Legislative Process

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

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

The IRS Scandal, Day 8

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

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

Prior TaxProf Blog coverage:

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

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

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

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

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

House Holds Hearing Today on IRS Targeting of Conservative Groups

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

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

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

Fleischer: The IRS Scandal as Bleak House

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

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

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

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

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

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

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

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

British Lawmakers Charge Google With Tax Dishonesty

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

Virginia Tax Review Publishes New Issue

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

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

The Most Racially Diverse Law School Faculties

The Most Racially Diverse Law School Faculties, Lawyers of Color Law School Diversity Issue:

• Charlotte
• Florida A&M
• Florida International
• Hawaii
• Howard
• Inter American
• John Marshall (Atlanta)
• Liberty
• New Mexico
• North Carolina Central
• Puerto Rico
• Southern
• Texas Southern

For more, see:

• Lawyers of Color, Why Faculty Diversity in Law Schools Is Important
• Lawyers of Color, Minority Law Faculty Directory of 200 Law Schools
• JD Journal, Survey Shows US News’ Leading Law Schools Lack Diversity
• National Law Journal, 'U.S. News' Top Law Schools Fall Short on Diversity

Gillers: The Two-Year Law Degree: Undesirable but Unavoidable

Stephen Gillers (NYU), The Two-Year Law Degree: Undesirable but Perhaps Unavoidable, 2013 N.Y.U. J. Legis. & Pub. Pol'y Quorum 4:

Professor Stephen Gillers responds to Professor Estreicher’s proposal for a two-year law degree that will qualify a graduate to take the bar examination [The Roosevelt-Cardozo Way: The Case for Bar Eligibility After Two Years of Law School, 15 N.Y.U. J. Legis. & Pub. Pol'y 599 (2012)]. Professor Gillers states that while two years of law school may be sufficient to practice many types of legal work, it will put two-year graduates at a professional disadvantage. The lower knowledge base of two-year graduates will make them less attractive candidates in an already tight job mar-ket. Furthermore, even if New York allows a two-year degree to qualify for the bar exam, it will limit two-year graduates to practicing in New York only, as reciprocity from other states is not expected.

Avi-Yonah: Virtual PE: International Taxation and the Fairness Act

Reuven S. Avi-Yonah (Michigan), Virtual PE: International Taxation and the Fairness Act:

Congress may be about to enact the Marketplace Fairness Act of 2013, which overrules the Supreme Court's 1992 decision in Quill that banned states from requiring remote vendors to collect use tax on their behalf unless the vendor had a physical presence in the state. This paper explores the international tax implications of such a move given that the Permanent Establishment threshold is similar to the physical presence requirement that the Fairness Act seeks to abolish. It argues that the small business exception in the Fairness Act is a good model for international tax to follow in re-evaluating the PE threshold.

Lucas: The Paternalistic Use of Cigarette Taxes

Gary Lucas, Jr. (Texas-Wesleyan), Saving Smokers from Themselves: The Paternalistic Use of Cigarette Taxes, 80 U. Cin. L. Rev. 693 (2012):

Governments at all levels have significantly increased cigarette taxes in recent years. Under the framework traditionally used by tax policy analysts, these tax increases are justified (1) if they are necessary to force smokers to internalize the harm that smoking causes others or (2) if they are a fair and efficient way to fund the government. But economists have generally concluded that on net, smokers do not impose large costs on third parties. In addition, heavily taxing cigarettes places a significant financial burden on low-income smokers and their families, which raises fairness concerns. As a result, scholars who support cigarette tax increases have begun to rely less on conventional tax policy arguments and to instead invoke novel arguments based on paternalism.

Continue reading "Lucas: The Paternalistic Use of Cigarette Taxes"

Gabilondo Named One of 50 Most Influential Minority Law Professors

José Gabilondo (Florida International) is the only Tax Prof named to Lawyers of Color's 2013 50 Under 50 List ("The Most Influential Minority Law Professors 50 Years of Age or Younger") in its Law School Diversity Issue:

José Gabilondo joined the College of Law after working in financial market regulation at the U.S. Department of the Treasury, the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the World Bank. He served as Associate Dean for Academic Affairs from 2009-2011. Professor Gabilondo teaches tax and corporate finance. He is co-author of Corporate Finance Debt, Equity, and Derivatives Markets and their Intermediaries in the American Casebook Series. He is a nationally recognized commentator in the Spanish-language media on financial and economic matters.

For the complete list of the 50 Under 50, see here.

The IRS Scandal, Day 7

• The Atlantic:  'Angry' Obama: IRS Chief Is Out, and New Safeguards Are Coming
• Bloomberg:  Congress Focuses on IRS Delay in Disclosing Tea Party Scrutiny
• Bloomberg:  IRS Says Concerns About Some Tea Party Groups Prompted Label
• Boston Globe editorial:  In Targeting Conservative Groups, IRS Violated Core Principles
• Cato Institute:  The IRS Scandal: Hiding In Plain Sight, by Walter Olson
• Columbia Journalism Review:  The Other IRS Scandal: Required Context for a Controversy, by David Cay Johnston
• CNN:  Source: Two 'Rogue' Workers Principally Behind IRS Targeting of Conservatives
• Daily Caller:  Scandal-Plagued IRS Official Will Give Speech, Receive Award at College Commencement
• Forbes:  Suit Alleges IRS Improperly Seized 60 Million Personal Medical Records
• Human Events:  Left-Wing Groups Sailed Past the Politicized IRS
• L.A. Times:  The Real Scandal: IRS Gives Tax Exemptions to Political Partisans
• Legal Ethics Forum:  IRS Scandal: Why Reveal at the ABA Conference? (The Answer Isn't Flattering to the IRS), by John Steele
• National Law Journal:  Scandal Could Change How IRS Regulates Political Groups
• National Review:  Defending the Taxman: Debunking the IRS Excuses and Evasions
• National Review:  Director of IRS Tax-Exempt Determinations Office is Obama Donor
• National Review:  IRS Employees Disproportionately Donate to Obama: Statistics Reveal an Imbalance in a Nominally Nonpartisan Agency 
• National Review:  IRS Source: Cincinnati Told to Lock Down Data
• New York Times:  Acting Chief of IRS Forced Out Over Tea Party Targeting
• New York Times editorial:  Take Politics Away From the IRS
• New York Times op-ed:  The Real IRS Scandal
• New York Times Opinionator:  The Taxman Cometh, by David Brooks & Gail Collins
• Reuters:  US Senator Probing Why IRS Revealed Mistakes at Lawyer Meeting
• The Right Sphere:  Speaking of Shady 501(c)(4) Non-Profits…
• Slate:  It’s About Disclosure, Stupid: The Larger Failing Behind the Terrible IRS Treatment of Tea Party Groups, by Richard L. Hasen (UC-Irvine)
• Wall Street Journal editorial:  Your Next IRS Political Audit:  The Tax Agency Is Getting Vast New Power in Health Care
• Wall Street Journal editorial:  Democrats and the IRS: Chuck Schumer Wanted the Agency to Probe Tax-Exempt Political Groups
• Wall Street Journal op-ed:  The Senate Roots of the IRS Scandal: High-ranking Democrats in 2010 Began Egging the Agency to Investigate Conservative Nonprofits
• Wall Street Journal:  A Brief History of IRS Political Targeting: One Survey Found That 75% of IRS Respondents Felt Entitled to Deceive or Lie to Congress
• Wall Street Journal:  The 'Independent' Revenue Service: President Obama Has a Strange View of IRS Political Accountability
• Wall Street Journal:  Tax Scandal Fells IRS Chief 
• Washington Post:  Acting Director of IRS Resigns Amid Furor Over Targeting of Conservative Groups
• Washington Examiner:  IRS Exec Got $42K in Bonuses in Three Years

IRS, Exempt Organization Field Examination Flowchart:

Lederman & Sichelman: Enforcement as Substance in Tax Compliance

Leandra Lederman (Indiana-Bloomington) & Ted Sichelman (San Diego), Enforcement as Substance in Tax Compliance, 71 Wash. & Lee L. Rev. ___ (2013):

It is well known that the government’s complete failure to enforce a law can nullify that law. But what are the effects of partial enforcement? This Article shows that imperfect enforcement can alter the de facto content of the written law in predictable and beneficial ways. Specifically, in the tax compliance context, even if perfect enforcement were costless, it would not always be socially optimal. When improving the substantive law is infeasible, the enforcement agency can effect beneficial changes in the law by adopting a probabilistic enforcement scheme that varies according to the category of taxpayer and type of transaction. Our model shows that properly “measuring” enforcement in this manner can increase overall social welfare without reducing tax revenues. Unlike case-by-case discretionary enforcement, which often results in costly uncertainty, measured enforcement operates via systemic, published policies that legal actors can respond to predictably. Accordingly, measured enforcement can offer substantial benefits not readily obtained through traditional lawmaking or enforcement schemes.

Senate Releases Tax Reform Option Paper on Economic and Community Development

The Senate Finance Committee yesterday released its Sixth Tax Reform Option Paper on Economic and Community Development:

This document is the sixth 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 lists the following broad goals in this policy area:

• Simplify the law in order to reduce the cost to businesses and individuals of complying with the tax code;
• Carefully consider whether and how to address any positive or negative externalities;
• If policy makers choose to include incentives in a reformed tax code, make such tax expenditures more equitable and efficient; and
• Carefully consider how to treat different parts of the country and industries equitably.

On housing, the paper includes the following options:

• Gradually repeal the mortgage interest deduction;
• Limit the mortgage interest deduction;
• Convert the mortgage interest deduction to an above-the-line deduction;
• Convert the mortgage interest deduction to a credit;
• Phase out exclusion for capital gains on sale of principal residence;
• Make permanent the deduction for mortgage insurance premium payments;
• Extend exclusion from income for cancellation of certain home mortgage debt;
• Repeal the Low-Income Housing Tax Credit (LIHTC);
• Replace the LIHTC with an equivalent reduction in tax on rental income;
• Reform or expand the LIHTC; and
• Create a non-refundable tax credit for low-income renters.

The paper lists other policy options for state and local financing, tribal financing, community development, and state and local tax uniformity.  

The Ohio Legacy Trust Act

Kevin R McKinnis (J.D. 2014, Cleveland State), Note, The Ohio Legacy Trust Act: The Good, the Bad and the Poor Man’s Prenuptial: An Analysis of What Asset Protection Trusts Will Mean for Ohio, 60 Cleve. St. L. Rve. ___ (2013):

This law review note, forthcoming in The Cleveland State Law Review, provides an in-depth analysis of the Ohio Legacy Trust Act and explores the potential effects the Act will have on Ohio. This note also explores the requirements to establish a Legacy Trust and the potential federal income and estate tax consequences. In the latter portion of the note, the possible ethical implications for Ohio attorneys is examined, as well as the arguments creditors will make when attempting to void a disposition to a Legacy Trust.

Kleinbard: Starbucks and Stateless Income Tax Planning

Edward D. Kleinbard (USC), Through a Latte, Darkly: Starbucks' Window into Stateless Income Tax Planning:

This paper uses Starbucks Corporation, the premier roaster, marketer and retailer of specialty coffee in the world, as an example of stateless income tax planning in action. “Stateless income” comprises income derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group’s ultimate parent company, but which is subject to tax only in a jurisdiction that is neither the source of the factors of production through which the income was derived, nor the domicile of the group’s parent company.

The paper reviews both Starbucks’ recent U.K. tax controversy (including a parliamentary inquiry), which revolved around the intersection of its consistent unprofitability in the United Kingdom with large deductible intragroup payments to Dutch, Swiss and U.S. affiliates, and its more recent submission to the U.S. House Ways and Means Committee. The paper draws from this review two lessons.

First, if Starbucks can organize itself as a successful stateless income generator, any multinational firm can. Starbucks follows a classic bricks and mortar retail business model, with direct customer interactions in thousands of “high street” locations in high-tax countries around the world. Moreover, Starbucks is not a firm driven by hugely valuable identifiable intangibles that are separate from its business model, which it employs whenever it deals with those retail customers. Nonetheless, it appears that Starbucks enjoys a much lower effective tax rate on its non-U.S. income than would be predicted by looking at a weighted average of the tax rates in the countries in which it does business.

Second, The Starbucks story – in particular, its U.K. experience – demonstrates the fundamental opacity of international tax planning, in which neither investors in a public firm nor the tax authorities in any particular jurisdiction have a clear picture of what the firm is up to. It is not appropriate to expect source country tax authorities to engage in elaborate games of Twenty Tax Questions, in turn requiring detailed knowledge of the tax laws and financial accounting rules of many other jurisdictions, in order simply to evaluate the probative value of a taxpayer’s claim that its intragroup dealings necessarily are at arm’s-length by virtue of alleged symmetries in tax treatment for expense and income across the group’s affiliates. U.S.-based multinational firms owe a similar duty of candor and transparency when dealing with the Congress of the United States.

The remedy begins with transparency towards tax authorities and policymakers, through which those institutions have a clear and complete picture of the global tax planning structures of multinational firms, and the implications of those structures for generating stateless income. National governments should recognize their common interest in this regard and promptly require their tax and securities agencies to promulgate rules providing a uniform world-wide disclosure matrix for actual tax burdens by jurisdiction. As a first step the United States should enforce the current rule requiring U.S. firms to quantify the U.S. tax cost of repatriating their offshore “permanently reinvested earnings."

American Lawyer: There Are Two Law School Grads For Every Available Law Job

The American Lawyer:  Most States Saw Lawyer Surplus Grow From 2009 to 2011, by Matt Leichter:

[I]n 2011 there were more than two ABA law school graduates and three new lawyers for every job opening in the United States.

STATE/BEA REGION	No. ABA Law School Graduates		No. Bar Admits		Ratio ABA Grads to Annual Lawyer Jobs		Ratio Bar Admits to Annual Lawyer Jobs
	2009	2011	2009	2011	2009	2011	2009	2011
Alabama	405	416	522	548	2.03	1.73	2.61	2.28
Alaska	0	0	93	106	0.00	0.00	3.10	5.30
Arizona	378	490	418	689	1.35	1.09	1.49	1.53
Arkansas	249	269	278	307	2.26	2.07	2.53	2.36
California	4,688	4,964	6,766	6,627	1.99	1.99	2.87	2.66
Colorado	518	462	1,055	1,256	1.57	1.36	3.20	3.69
Connecticut	531	526	841	559	2.79	2.77	4.43	2.94
Delaware	237	252	154	122	3.95	4.20	2.57	2.03
D.C.	2,129	2,116	4,082	3,164	2.19	1.48	4.21	2.21
Florida	2,787	2,998	2,990	3,646	2.03	1.53	2.18	1.86
Georgia	896	896	1,112	1,288	1.18	1.30	1.46	1.87
Hawaii	88	101	176	208	1.47	1.68	2.93	3.47
Idaho	93	104	249	210	1.03	1.49	2.77	3.00
Illinois	2,166	2,183	3,085	2,928	1.92	2.25	2.73	3.02
Indiana	828	818	666	643	2.44	3.03	1.96	2.38
Iowa	341	342	351	431	2.44	2.63	2.51	3.32
Kansas	297	309	470	395	1.75	2.21	2.76	2.82
Kentucky	385	455	533	645	2.14	2.39	2.96	3.39
Louisiana	811	797	723	744	3.24	2.95	2.89	2.76
Maine	93	90	166	163	1.86	1.29	3.32	2.33
Maryland	548	594	1,373	1,653	2.03	1.49	5.09	4.13
Massachusetts	2,316	2,288	2,328	2,416	5.39	3.27	5.41	3.45
Michigan	2,016	2,072	1,099	1,099	4.29	6.48	2.34	3.43
Minnesota	962	887	1,034	923	2.60	2.77	2.79	2.88
Mississippi	347	316	281	284	2.31	10.53	1.87	9.47
Missouri	898	890	1,062	965	4.08	2.02	4.83	2.19
Montana	77	84	153	192	1.28	1.20	2.55	2.74
Nebraska	280	283	112	245	2.80	4.04	1.12	3.50
Nevada	140	128	392	542	0.93	0.98	2.61	4.17
NH	144	147	300	296	2.88	2.45	6.00	4.93
New Jersey	791	783	2,691	2,844	1.46	1.04	4.98	3.79
New Mexico	112	106	278	287	1.60	1.51	3.97	4.10
New York	4,776	4,703	10,194	9,855	2.81	2.92	6.00	6.12
North Carolina	1,055	1,123	1,140	1,101	2.34	2.44	2.53	2.39
North Dakota	83	81	115	195	2.77	2.03	3.83	4.88
Ohio	1,495	1,411	1,117	1,324	3.25	2.57	2.43	2.41
Oklahoma	494	462	450	465	2.35	1.71	2.14	1.72
Oregon	531	537	682	795	3.32	2.98	4.26	4.42
Pennsylvania	1,715	1,739	1,666	2,404	2.68	2.35	2.60	3.25
Puerto Rico	554	678	506	557	5.54	6.78	5.06	5.57
Rhode Island	184	158	209	185	2.30	2.63	2.61	3.08
South Carolina	405	418	475	508	2.13	2.09	2.50	2.54
South Dakota	73	55	115	96	N/A	1.38	N/A	2.40
Tennessee	445	472	903	821	2.12	N/A	4.30	N/A
Texas	2,337	2,343	3,395	3,476	1.56	1.44	2.26	2.13
Utah	281	285	458	606	1.00	1.36	1.64	2.89
Vermont	191	175	74	109	3.18	3.50	1.23	2.18
Virginia	1,429	1,350	1,430	1,452	1.96	1.78	1.96	1.91
Washington	694	657	1,090	1,148	1.58	1.43	2.48	2.50
West Virginia	149	125	254	307	2.48	1.56	4.23	3.84
Wisconsin	487	484	855	920	2.56	1.94	4.50	3.68
Wyoming	71	73	151	112	2.37	0.91	5.03	1.40
U.S.A. (States)	44,000	44,495	61,112	62,861	2.26	2.09	3.14	2.95
U.S.A. (BLS)					1.83	2.10	2.54	2.97
New England	3,459	3,384	3,918	3,728	4.02	2.99	4.56	3.30
Mideast	10,196	10,187	20,160	20,042	2.44	2.04	4.82	4.02
Great Lakes	6,992	6,968	6,822	6,914	2.70	2.95	2.63	2.93
Plains	2,934	2,847	3,259	3,250	2.85	2.41	3.16	2.75
Southeast	9,363	9,635	10,641	11,651	2.01	1.92	2.28	2.33
Southwest	3,321	3,401	4,541	4,917	1.61	1.41	2.20	2.03
Rocky Mtn	1,040	1,008	2,066	2,376	1.32	1.31	2.62	3.09
Far West	6,141	6,387	9,199	9,426	1.92	1.91	2.87	2.82

Top Tax Court Judge to be Suspended 9 Months Without Pay for Submitting Late Opinions

Following up on my previous post, Minnesota Tax Court Chief Judge Accused of Missing Deadlines, Evading Work:  ABA Journal, Top Tax Court Judge Should be Suspended 9 Months Without Pay, Review Panel Says:

A review panel has recommended that the chief judge of the Minnesota Tax Court be censured and suspended without pay for nine months, because he routinely exceeded the three-month deadline for submitting his opinions and falsified dates to try to obscure his noncompliance.

Nonetheless, Judge George Perez was known for not filing timely tax opinions, suggesting "a lack of oversight, both organizationally and technologically.” the Board on Judicial Standards wrote. Its recommendation, which includes monthly reports by Perez on the status of his cases and a requirement that he seek permission for extensions from the new chief judge, once he is back on the bench, now goes to the state supreme court for a final decision, the Star Tribune reports.

AEI: Tax Policy and the Nobel Prize

American Enterprise Institute Podcast:   Tax Policy and the Nobel Prize:

What will you do with your Nobel Prize Money? On the latest episode of Banter, AEI economist Aparna Mathur discusses the tax policy surrounding academic, scientific, and philanthropic prize winnings. America is the only country that taxes these earnings and as a result, many give their winnings to charity. Should these winners, who’ve contributed so much to society already, be allowed to keep the fruits of their labor or should they be encouraged to contribute to further social good? Plus, Stu and Andrew play a round of “guess the feminist critique.”

Two More Schools Join Rankings Hall of Shame

Robert Morse (Director of Data Research for U.S. News & World Report), Updates to 2 Schools' 2013 Best Colleges Ranks:

Two schools – University of Mary Hardin-Baylor and York College of Pennsylvania – recently advised U.S. News that they submitted inflated data that were used in the 2013 Best Colleges rankings, resulting in their numerical ranks being higher than they otherwise might have been. In both cases, the same incorrect data were also reported to many other parties including the U.S. Department of Education.

University of Mary Hardin-Baylor, a Texas school in the Regional Universities (West) rankings category, advised U.S. News that it reported an acceptance rate (which accounts for 1.5% of the overall ranking) of 27.4%, rather than the actual 89.1% rate.

York College, a Pennsylvania school in the Regional Universities (North) rankings category, advised U.S. News that it reported average SAT scores (which account for 7.5% of the overall ranking) of 545 (math) and 532 (critical reading), rather than the actual 527 (math) and 516 (critical reading) SAT scores. York College admitted that it has been misreporting SAT scores for more than a decade.

Other members of the Rankings Hall of Shame:  Bucknell, Claremont McKenna, Emory, George Washington, Illinois, Tulane, and Villanova.

Aprill: The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report

Ellen Aprill (Loyola-L.A.), The TIGTA Report on the IRS Scandal: Questions about the IRS and About the Report:

We now have the report from the Treasury Inspector General for Tax Administration, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (the Report). The Report details certain problems that have already been made public, such as the Exempt Organization’s Determination Unit relying on names such as “Tea Party” or “Patriot” to identify potential cases of excessive campaign intervention or asking inappropriate questions of applicants, such as names of donors and the intention of officers, directors, etc. to run for political office. There is also new and disquieting information. We discover, for example, that it took the Director, Rulings and Agreements, three months to learn that the reviewers of these applications had in January 2010 changed the criteria being applied. Moreover, processing of cases stopped in October 2010, but the Determination Unit Program thought the cases were still being processed, and draft written guidance was not received from the Technical Unit until November 2011, 13 months after the Determinations Unit stopped processing cases. At the same time, the Report documents that the Director, Exempt Organizations acted promptly when, however belatedly, problems did come to her attention.

Nonetheless, the quality of some aspects of the Report troubles me. Figure l on page 2 of the Report purports to display “Characteristics of Certain Common Types of Tax-Exempt Organizations.” According to the Figure, section 501(c)(3) organization do not have to publicly disclose the identity of their donors. That is simply wrong.

Continue reading "Aprill: The TIGTA Report on the IRS Scandal: Questions About the IRS and About the Report"

Hackney: The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts

Phillip Hackney (LSU), The TIGTA Report on the IRS Scandal: Be on the Lookout for False Partisan Witchunts:

The TIGTA report on the IRS Teaparty scandal pretty much confirmed my expectations which is that the claim that the IRS "targeted" conservative groups to the exclusion of others is false.  This is the most explosive charge that everyone had been expecting.  Additionally, the IRS did not single out conservative groups alone to send ridiculously long and inappropriate questions -- it did it to everyone caught in the net of political advocacy. Interestingly, the report identifies that 96 of 298 cases were related to conservative tea party, patriot or 9/12 groups.  I don't know what that leaves for the allegiances of the other 68%, but it would have been nice to know. If the other greater than 2/3s amount had liberal or democratic allegiances, we have a much different scandal on our hands -- Obama is targeting liberals, why? -- but TIGTA does not provide this information.

The report is well-written and gives some good recommendations, but it acts like a knee surgeon examining an elderly sick patient.  The doctor tells her that her problem is a bad knee and if he gives her a new knee, she will be like new again.   It's all good and well to tell the IRS to beef up its work on political advocacy, but that ignores the real problem, which is that it gets in over 60,000 paper applications a year that it somehow has to both quickly and with accuracy review with too small of a staff. 

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The IRS Scandal, Day 6

• The Atlantic, The IRS' Role in Campaign Finance Is an Awkward, Unhappy Accident
• Bloomberg, Carney Says White House Not Involved in IRS Targeting Groups
• Bloomberg, IRS Focus on Tea Parties Stirs Dissent on Health Care Law
• Bloomberg, IRS Sent Same Letter to Democrats That Fed Tea Party Row
• Breitbart:  Progressive Group: IRS Gave Us Conservative Groups' Confidential Docs
• CNN, The Real Risk of the IRS Scandal
• Daily Caller:  IRS Official Lerner Speedily Approved Exemption for Obama Brother’s ‘Charity’
• The Guardian, The IRS Should Do More, Not Less, Scrutinizing of Political Groups
• Human Events, More IRS Abuses of Power Against Conservative Groups
• National Law Journal, Scandal Could Leave IRS 'Gun Shy' With Political Groups
• New York Times editorial, The IRS Audits Are Condemned 
• New York Times, Uneven IRS Scrutiny Seen in Political Spending by Big Tax-Exempt Groups
• Politico:  Franklin Graham: IRS Targeted Us, Too
• Time, New IRS Scandal Echoes a Long History of Political Harassment
• Townhall, Partisan Obama Culture Spawned a More Abusive IRS
• USA Today:  IRS Approved Liberal Groups While Tea Party in Limbo
• Wall Street Journal editorial, The IRS Wants You: The Scandal Over Politicized Tax Enforcement Is Growing
• Wall Street Journal, How Obama Learned to Love the IRS
• Wall Street Journal, The IRS's Nonprofit Helper: A Tax-Exempt Charity Disseminated Confidential Tax Information 
• Washington Examiner:  IRS Scandal Raises Fears About Enforcing Obamacare
• Washington Examiner:  Jay Carney Walks Back Denial of White House Involvement in IRS Scandal
• Washington Post:  IRS Has Been Too Lax on Tax-Exempt Status
• Weekly Standard:  McConnell: 'We’ve Only Started to Scratch the Surface of This Scandal'

Prior TaxProf Blog coverage:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)
• Schmalbeck on the IRS 'Targeting' of Conservative Groups (May 12, 2013)
• The Deepening IRS Scandal (May 13, 2013)
• The IRS Scandal, Day 5 (May 14, 2013)
• Jon Stewart and Vic Fleischer on the IRS Scandal (May 14, 2013)
• Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups (May 14, 2013)

House Holds Hearing Today on Small Business and Pass-Through Entity Tax Reform

The Subcommittee on Select Revenue Measures of the House Ways & Means Committee holds a hearing today on Ways and Means Small Business and Pass-Through Entity Tax Reform Discussion Draft:

The hearing will focus on the Ways and Means small business discussion draft released on March 12, 2013. For purposes of this hearing, the Subcommittee is interested in comments and analysis relating to the basic architecture of the draft proposals including, in particular, the implications of the changes to the cash accounting rules, the questions that must be answered in designing a workable unified pass-through regime, and the real-world ramifications of the incremental proposals to modify the rules governing S corporations and partnerships.

• Roger Harris (President, Padgett Business Services, Athens, GA)
• Willard Taylor (Former Partner, Sullivan & Cromwell, New York)
• Blake Rubin (Partner, McDermott Will & Emery, Washington, D.C.)
• Thomas Nichols (Partner, Meissner Tierney Fisher & Nichols, Milwaukee)

Inspector General: Ineffective IRS Management Allowed Agents to Target Conservative Groups

The Treasury Inspector General for Tax Administration today released Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (2013-10-053):

Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention. Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future.

• Bloomberg:  Ineffective IRS Management Led to Targeting, Report Says
• Bloomberg:  Obama Calls IRS Actions Outlined in Internal Report Intolerable
• Fox News:  Watchdog Report Describes Massive Delays as IRS Slow-Walked Tea Party Groups
• Huffington Post:  Inspector General: IRS' Ineffective Management Allowed Tea Party Targeting
• New York Times:  Management Flaws at IRS Cited in Tea Party Scrutiny
• Politico:  5 Takeaways From IRS Report
• Wall Street Journal:  Inspector General’s IRS Report
• Washington Post:  Inspector General Says Ineffective Management at IRS Allowed Agents to Target Tea Party Groups
• Washington Times:  IRS Audit Found Political Bias Against Conservatives; Groups Gave Up After Application Delay

(Hat Tip: Ellen Aprill.)

Jon Stewart and Vic Fleischer on the IRS Scandal

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New York Times DealBook:  Congress’s Role in the IRS Focus on Conservative Groups, by Victor Fleischer (Colorado; moving to San Diego):

Outrage continues to escalate over the revelation that IRS employees focused on conservative groups applying for tax-exempt status. The indignation is understandable: political targeting is an abuse of power, and the idea of using the IRS to go after one’s enemies is a classic dirty trick. Unfortunately, the incident provides a new fuel source for the paranoid style in American politics.

The reality is that this is a story of institutional incompetence. And Congress should share the blame.

The root of the problem is poor institutional design, not a political conspiracy. Current law forces the IRS to enforce a vague set of campaign finance laws that have next to nothing to do with raising revenue. The conservative groups at issue were applying for tax-exempt status as “social welfare” organizations rather than Section 527 tax-exempt political organizations. The chief benefit of becoming a social welfare organization is the ability to keep the names of one’s donors private. These social welfare organizations may engage in issue advocacy, and may do some lobbying, but are not supposed to engage in political campaigning. How much political activity is too much? No one really knows.

The IRS is supposed to enforce the tax code, not administer a byzantine campaign finance system. It is good at gathering and processing enormous amounts of data that help the nation raise revenue. Under current law, however, it has little choice but to exercise discretion in the constitutionally dangerous waters of campaign finance.

As Lloyd Mayer, a law professor at the University of Notre Dame, explained, “because Congress and the Treasury have left both the definition of political activity and, for [social welfare organizations], the amount of permitted political activity uncertain, the I.R.S. is required to make broad inquiries and to use politically sensitive criteria to decide if a given organization qualifies for tax-exempt status.” ...

For further reading, see

• Donald B. Tobin [Ohio State], Campaign Disclosure and Tax-Exempt Entities: A Quick Repair to the Regulatory Plumbing, 10 Election L.J. 427 (2011)
• Ellen P. Aprill [Loyola-L.A.], Why the I.R.S. Should Want to Develop Rules Regarding Charities and Politics, 62 Case Western Res. L. Rev. 643 (2011)
• Brian D. Galle [Boston College], Charities in Politics: A Reappraisal [, 54 Wm. & Mary L. Rev. ___ (2012).