TaxProf Blog

Tax Technical Corrections Act of 2009

House Ways & Means Committee Chair Charles B. Rangel (D-NY) and Ranking Member Dave Camp (R-MI) today introduced H.R. 4169, the Tax Technical Corrections Act of 2009.  The Joint Committee on Taxation has released its description of the 25 technical corrections to five pieces of legislation:

• The 2009 economic stimulus law (Pub. L. No. 111-5)
• The 2008 financial bailout law (Pub. L. No 110-343)
• The 2008 military tax law (Pub. L. No. 110-245)
• The 2008 economic stimulus law (Pub. L. No. 110-185)
• The 2007 tax technical corrections law (Pub. L. No. 110-172)

If Hitler Were a 2L at UC-Berkeley

(Hat Tip: Above the Law.)

House to Vote Tomorrow on Permanent Estate Tax Fix

In advance of tomorrow's expected House vote on permanently extending the estate tax (with a $3.5 million exemption and 45% top rate):

• Center on Budget and Policy Priorities, House Bill to Make Current Estate Tax Permanent Is More Than Reasonable
• Citizens for Tax Justice, Latest State-by-State Estate Tax Data Show Why We Need a Strong Estate Tax
• Don't Mess With Taxes, The Estate Tax, a Dickens of a Law
• Huffington Post, Of Death Panels and Tax Policy
• Reuters, Congress Grapples With Estate Tax
• Wall Street Journal, Estate Tax Battle Could Go Down to Wire
• Wall Street Journal, U.S. Business Groups Split Over Democrats' Estate-Tax Efforts

More on Blogs as Legal Scholarship

In 2006, I organized a conference at Harvard Law School on Bloggership: How Blogs Are Transforming Legal Scholarship, with the papers published in a symposium issue of the Washington University Law Review (84 Wash. U. L. Rev. 1025-1261 (2006)).  Among the particpants were Orin Kerr (George Washington) and Douglas A. Berman (Ohio State), who offer on their blogs their current observations on the subject:

• Orin Kerr, Rethinking Blogging-as-Scholarship (The Volokh Conspiracy):

Back in 2005 and 2006, a lot of law-professor bloggers wondered whether blog posts could and would serve as ways to advance scholarly ideas about law. At the time, I was very skeptical. ...

Fast forward to the present, and I now think my old self was wrong. Or at least a bit off. I now think blogging actually does provide an effective way to present new scholarly ideas in many cases. In this post, I want to explain why my view has changed. ...

I think we’re seeing a shift in how law professors and legal journal editors view blogs. The old lines have blurred. Blogs have become a significant part of the scholarly conversation. I didn’t expect this to happen, at least so soon. And I don’t know whether the trend will continue. But I think the trend is a real one.

• Douglas A. Berman,  Orin Kerr Gamely (and Finally) Admits that Blogs Can be Legal Scholarship (Sentencing Law & Policy):

Way back in 2006, I had the joy of participating in an exciting conference at Harvard Law School entitled "Bloggership: How Blogs Are Transforming Legal Scholarship." The papers for the conference, which were all absolutely fascinating, can still be accessed here. In my contribution, which was titled "Scholarship in Action: The Power, Possibilities, and Pitfalls for Law Professor Blogs," I made the argument that blogs can be a new and useful form of legal scholarship. But Orin Kerr was part of a group of "traditionalists" who contended that, though valuable for other purposes, blogs were not (and should not be seen as) a form of legal scholarship.

I remind everyone of this history of blogs as scholarship debate as a prelude to linking to Orin's new post ... he commentors to Orin's post usefully note that it seems what has really changed is how blogs are perceived as much as whether this medium of expression has changed. Thus, I will stick to my view that thoughtful blogs always were (or could be) a form of scholarship, just like any other form of communication can be a form of scholarship if deployed effectively to that end.

Though I share Orin's sense that the perception of blogs have evolved in recent years, I have been largely disappointed that blog technology has not advanced much to better enable blogging to serve as a truly sophisticated and effective academic medium.

Update:  Stephen Bainbridge (UCLA), Blogging as Scholarship Redux:  "I think Orin's right that "blogging actually does provide an effective way to present new scholarly ideas in many cases," but it's also fun. And I wouldn't do it if it weren't fun."

Tax Law Review Colloquy on Hines, Reconsidering the Taxation of Foreign Income

James R. Hines, Jr. (Michigan) has published Reconsidering the Taxation of Foreign Income, 62 Tax L. Rev. 269 (2009).  Here is the abstract:

This paper evaluates the efficiency and distributional consequences of taxing foreign income, noting that home country taxation, as practiced by countries such as the United States, distorts the ownership of business assets, thereby reducing productivity and aggregate income, without advancing the distributional goals underlying most of the tax system. The alternative of exempting foreign income from domestic taxation would significantly influence patterns of capital ownership. In order to exempt foreign income from taxation in a way that does not distort capital ownership it is necessary to avoid making domestic expense deductions contingent on the allocation of investment and other income-producing activity between domestic and foreign locations. Thus it is not only the taxation of active foreign income, but also the expense allocation rules, that create the inefficient ownership incentives in the current U.S. tax system.

The efficiency and fairness arguments typically advanced to justify taxing foreign income also imply that countries should subject foreign sales to domestic sales taxation, foreign value added to domestic value added taxation, foreign property to domestic property taxation, and similarly subject any and all foreign activities to the corresponding domestic taxes. In practice, however, no country attempts to apply its sales, value added, property, and all other non-income taxes to the foreign activities of its resident companies, reflecting the obvious associated economic distortions and lack of any clear justification for such extraterritorial taxation. Since the efficiency and fairness considerations are the same whether taxes are imposed on income or they are imposed on sales or value added, it is difficult to understand the rationale for taxing foreign income but not taxing foreign sales or value added.

The Tax Law Review published two commentaries in response:

• Mitchell A. Kane (NYU), Considering "Reconsidering the Taxation of Foreign Income," 62 Tax L. Rev. 299 (2009):

In his article Reconsidering the Taxation of Foreign Income, James Hines further develops his position, first presented in earlier work co-authored with Mihir Desai, that the design of an efficient tax regime for the income of multinational corporations must accord paramount importance to considerations of capital ownership (as opposed to capital location, as has been the norm in much prior analysis).  For purposes of this Commentary I focus on the discrete policy implications, particularly for the United States, that Hines suggests follow from his analysis. As I read the article there are two central policy implications. First, the United States ought to abandon its decades-long attempt to tax the foreign income of its resident multinationals. Rather, it should adopt a territorial regime under which foreign source income of U.S. multinationals is exempt from U.S. taxation. Second, in implementing an exemption system, the United States should not disallow general interest expenses allocated to foreign source income. Rather, the United States should abandon interest allocation altogether and permit U.S. multinationals to deduct all general interest expense at the U.S. rate. While Hines has argued for the superiority of an exemption system in prior work, his arguments regarding interest expense allocation are new. His claim, however, is that the two policy prescriptions are not separable. Any approach other than a full deduction for interest expense at the U.S rate, Hines argues, is tantamount to a tax on foreign income, and thus inconsistent with the mandate for an exemption system. Hines' suggested treatment of interest expense would represent a radical departure from the current U.S. approach (which generally disfavors interest expense allocated to foreign source income through the operation of the foreign tax credit limitation. In this Commentary I consider Hines' arguments for exemption first and then turn to the new arguments regarding interest expense allocation.

• Stephen E. Shay (Deputy Assistant Secretary for International Tax Affairs in the U.S. Treasury Department), Ownership Neutrality and Practical Complications, 62 Tax L. Rev. 317 (2009):

Hines, and his frequent co-author Mihir Desai, have by criticizing traditional neutrality standards and introducing ownership neutrality to the debate, advanced the discussion of neutrality norms in relation to international income. Nonetheless, Hines has not surmounted continued questions regarding the explanatory power of ownership efficiency and does not directly address whether developments in the marketplace call into question looking to ownership neutrality as a policy guide. In this context, failing to allocate deductions to foreign income seems particularly risky. Moreover, the complications of transfer pricing and size of income shifting even under today's deferral regime suggest that these are considerations that cannot be ignored in prescribing exemption of foreign income.

W&L Dean Smolla is Finalist for Furman Presidency

Dean Rodney A. Smolla, the driving force behind Washington & Lee's innovative 3L curriular reform which is scheduled to begin in the 2010-2011 academic year, is one of three finalists for the presidency of Furman University.  Here is the email sent yesterday by Dean Smolla to the W&L community:

Dear Members of the Law School Community:

Yesterday evening Furman University announced that I am among three finalists for the position of President of Furman.  Later this week I will be on the Furman campus participating in campus-wide interviews.  I was flattered to be invited to apply for this position.  I have often been approached about leaving Washington and Lee, and until this invitation was extended, had always declined.  The opportunity to lead a university such as Furman, which has values of engaged learning very much like the values for which I have been an advocate here, was so rare and unique that I decided to become a candidate.  There are three strong finalists, and my chances are simply 1 in 3.  Even so, I know that it can be discouraging or disheartening to learn that your Dean has entertained the possibility of leaving.  I can simply say that I am honored to serve as Dean, have great affection for Washington and Lee, and believe very strongly in its future, including its leadership as a beacon for the very best in legal education, whatever turns my own career may take.  I hope that students will concentrate on the challenges of preparing for exams in the coming weeks, and wish everyone in the Law School community the best as we bear down at the end of this semester and approach the holidays.

Sincerely,

Rod Smolla

Georgia State Seeks to Hire Tax Visitor

The Georgia State University College of Law seeks to fill a visiting tax professor position for Fall 2010. The visitor would teach Basic Tax and another tax course. Interested applicants should contact Ron Blasi, Chair of the Faculty Recruitment Committee.

Foundation Press Publishes Study Problems & Teacher's Manual for Federal Wealth Transfer Taxation

Just in time for Christmas, Foundation Press has published the new Study Problems book and Teacher's Manual to accompany the new 6th edition of our casebook, Federal Wealth Transfer Taxation:

The Sixth Edition continues the comprehensive, yet flexible, presentation of prior editions. It explores both the technical and policy issues associated with wealth transfer taxation. It is adaptable for use in a single course covering basic wealth transfer taxation or a sequence of courses dealing with wealth transfer taxation at either the J.D. level or LL.M. level, while presenting selected in-depth coverage of advanced issues. Within each section, the book moves from the straightforward to the more complex rules associated with the topic so that each professor can decide the level of complexity he or she wishes to reach in the course. The Sixth Edition thoroughly integrates all relevant amendments to the Code enacted through January 1, 2009. This casebook is unrivaled in scope and depth of analysis and in its flexibility for use in different courses using any teaching technique.

The casebook is available from the publisher as well at booksellers like Amazon, Barnes & Noble, Barrister Books, and LawBooks.com.

Here is the Preface to the new Study Problems book:

This problem set is designed to accompany our casebook, Federal Wealth Transfer Taxation (6th ed. 2009), although the problems can be used with any other casebook in the field. The problems are organized to correspond with the chapter and section headings of our casebook, and we have included with the problems corresponding page numbers of the casebook to simplify cross-referencing. There are over 275 problems that cover each chapter of the casebook (other than certain introductory chapters of Part One).

We have found the problems enormously helpful in teaching the Estate and Gift Tax course. Our casebook, like other casebooks in the field, contains an enormous amount of technical detail. We have designed the problems to help the students master the important material in each chapter. In our experience, the problems help focus classroom discussion and provide a helpful roadmap of the course to students.

Here is the Preface to the new Teacher's Manual:

We have designed Federal Wealth Transfer Taxation: Cases and Materials (6th ed. 2009), and the accompanying Study Problems and Teacher’s Manual, as a complete teaching package suitable for use either in a basic course or in a series of courses covering wealth transfer taxation, at either the J.D. or LL.M. level. The 890-page Casebook has been revised to reflect developments from Congress, the courts, and the Internal Revenue Service as of January 1, 2009. The Study Problems contain over 275 problems that cover each chapter of the Casebook (other than certain introductory chapters). This Teacher’s Manual provides detailed answers to the Study Problems, as well as comments on the material in our Casebook.

Faculty can request complimentary copies of the Casebook, Study Problems, and Teacher's Manual here.

GOP Introduces Geithner Penalty Waiver Act

Congressmen John Carter (R-TX) and Lynn Westmoreland (R-GA) yesterday introduced the Geithner Penalty Waiver Act, requiring that the IRS assess the same penalty against U.S. taxpayers that came forward in the UBS tax fraud investigation as paid by Treasury Secretary Timothy Geithner for failing to pay taxes on his IMF income -- zero.  From Congressman Carter's press release:

Carter says the Equal Protection Clause of the 14th Amendment to the U.S. Constitution mandates equal penalties for similar offenses, and that the failure of the IRS to assess any penalties against Geithner demands similar penalties for all taxpayers with substantially equivalent cases. “This bill seeks to codify what is now established by the law of precedent,” says Carter. “The Geithner case has established a legal precedent for the determination of penalties by the IRS, and that precedent can be cited in all federal tax courts. The penalty is now set at zero.” “Taxpayers who willfully attempt to evade paying their fair taxes should pay a penalty, or our tax code becomes unenforceable,” says Carter. “This bill is not to reward tax evaders, but to defend the Rule of Law itself. If we as a nation choose not to enforce the law against the politically privileged, then we cannot enforce the law against others without undermining respect for the law itself.”

Update:

• Legal Insurrection
• The Tax Lawyer's Blog

7th Cir. Joins 5th Cir. & 11th Cir. in Ruling for Taxpayer in Ballard - Kanter - Lisle, Orders Tax Court to Adopt Special Trial Judge's Report

The 7th Circuit yesterday joined the 5th Circuit (Estate of Lisle v. Commissioner, 541 F.3d 595 (5th Cirr. 2008)) and 11th Circuit (Ballard v. Commissioner, 522 F.3d 1229 (11th Cir. 2008)) in the long-running Ballard, Kanter, and Lisle saga in reversing tha Tax Court and remanding the case back to the Tax Court with instructions to adopt the Special Trial Judge's decision. Kanter v. Commissioner, Nos. 08-1036 to 08-1042 (7th Cir. Dec. 1, 2009).

• National Law Journal, Late Tax Attorney Escapes Final Levy Thanks to 7th Circuit

Federal Judge Orders IRS to Release Documents Held by Whistleblower Office

Forbes, IRS Ordered To Surrender Informant Documents; Federal Judge's Ruling in California Monex Case Undercuts IRS Whistleblower Office:

In an unusual decision, a federal judge on Tuesday said he would order the IRS Service to give 25 boxes of whistleblower-provided documents to lawyers for a California precious-metals firm fighting an old but large tax bill.

Magistrate Judge Robert N. Block said the IRS "immediately" would have to stop going through the paperwork, return the originals to the company that generated them and not keep any copies. Eventually, the agency would get back documents not deemed to be protected by legal privileges. ...

The ruling represents a noteworthy setback for the IRS. Last year, the agency sued a group of companies known as Monex, a Newport Beach, Calif., metals dealer, seeking to collect on a decade-old tax assessment that had grown to $378 million. The lawsuit said the Carabini family, which controls Monex, fraudulently moved assets into other companies to avoid the tax bill. Monex has denied liability.

But the case took a convoluted turn this spring, nearly a year after the suit was filed. That's when longtime Monex accounting employee Vincent A. Spondello, invoking a 2006 law requiring the IRS to pay informants a minimum reward of 15% of the back taxes collected as a result of their information, filed a claim with the IRS Whistleblower Office for what could be $57 million or more for himself . Ten days later he and his lawyers sent the IRS 25 boxes of Monex records dating back to the mid-1990s. In court filings, Spondello also disclosed that in the 1990s he had anonymously informed on Monex to the IRS. Even one of Spondello's own lawyers has called him "a rat." ...

The IRS Whistleblower Office, set up to implement the new whistleblower law, aims to receive tips and documents in confidence, weed out any legally privileged information and forward the remainder to other IRS units for possible audit or even criminal investigation.

The IRS argued that this procedure should be followed in the Monex case. "The government is opposed to Whistleblower [Office] turnover of the documents," said Assistant U.S. Attorney Andrew Pribe, a U.S. Justice Department employee who is the lead lawyer for the IRS in the case.

However, Judge Block's order Tuesday strips the Whistleblower's Office in this case of both its document gatekeeper function and its ability to keep informant information secret.

Lawmakers Seek IRS Approval of Casualty Loss Deduction for Chinese Drywall

Following up on my prior post, IRS: Defective Chinese Drywall May Qualify for Casualty Loss Deduction: Sens. Bill Nelson (D-Fla.), David Vitter (R-La.), Mark Warner (D-Va.), Jim Webb (D-Va.), and Rep. Glenn Nye (D-Va.) sent a letter to IRS Commissioner Douglas Shulman last week arguing that individuals and businesses should be able to take a casualty loss deduction for the expense of replacing toxic Chinese-made drywall.

• ABC News, Homeowners with Chinese Drywall Could Get Tax Relief

Posner & Shaviro on the War Tax

Following up on my prior posts:

• Democrats Propose Afghanistan War Tax -- "Pay As You Fight" (Nov. 24, 2009)
• Sarah Palin, Bruce Bartlett & Joe Thorndike on the War Tax (Nov. 27, 2009)

Two heavyweights weign in:

• Eric Posner (Chicago), Against the War Tax:

It is possible that the Afghanistan War is a bad idea; if so, the remedy is to end the war, not to raise taxes. If it is a good idea, the benefits will accrue to the inhabitants of the future, who will be protected from terrorists and other baddies, not us. We perform a benefit for the future, and we charge them for our costs; what is there to object to? Deficit spending for what is in effect a capital investment—as opposed to spending on current consumption—is justified. If the War Tax is imposed, we simply transfer additional wealth from ourselves—including the soldiers and others already making the sacrifices—to the future.

Just as the war must be evaluated on its own merits, so must taxation. If the real goal of the tax is to reduce the deficit, that’s fine; just don’t call it a “war tax” (as long as we are explaining things to the American people); call it a “tax.” If, as many economists believe, now is the time for further stimulus; a tax is a bad idea. We’ll have to borrow even more to offset the demand-suppressing effects of the tax. Whatever the case, the possibly good fiscal reasons for raising taxes are independent of the war in Afghanistan.

• Daniel Shaviro (NYU), War Tax?:

From that perspective, any tax increase helps by narrowing the gap a bit, and the fact that it's targeted to Afghanistan war expenses is mere detail.

But the counter-argument, to my view decisive for now, is that this is the wrong time for implementing a move towards budgetary balance. Just as FDR taught us the hard way in 1937 that returning to budgetary balance needed to wait until the economy had fully recovered, so we would learn the same lesson now. ...

But keep in mind the key word in the above paragraph -- now (including 2011) is the wrong time for IMPLEMENTING, not for enacting, tax increases. I believe that tax increases moving us back towards fiscal balance are an inevitable part of what's needed, and that the sooner they are enacted the better. Only, the implementation needs to be a bit more delayed -- not to the extent of making it clearly hypothetical and politically unrealistic, but sufficiently to permit recovery, and indeed to encourage moving economic activity up in time so that it will precede the effective date of pre-announced tax increases.

Update:

• CBS News, Ben Nelson Floats Paying for Afghanistan Surge with War Bonds
• The Week, A War Tax on the Rich?
• Linda Beale (Wayne State), War Taxes?
• Jim Maule (Villanova), The Obey War Tax Proposal: Sensible?

61-Year Old Law Grad Can't Pass Bar or Find Job, Tries to Discharge $82k Student Loan Debt in Bankruptcy

National Law Journal, Mixed Decision for Law Grad on Expunging Student Debt, by Leigh Jones:

When she graduated four years ago with a law degree at the age of 61, Denise Megan Bronsdon likely did not foresee bankruptcy court in her future. But that's where she ended up — as a debtor.

The former farmer's wife who operated a tractor before going to Southern New England School of Law in 2002, convinced a Massachusetts bankruptcy court in January that repaying the more than $82,000 she owed in student debt would create an undue hardship. However, the U.S. District Court in Massachusetts, considering an appeal by the lender, Educational Credit Management Corp., found on Nov. 20 that Bronsdon's decision not to participate in a loan repayment assistance program should be part of the bankruptcy court's undue hardship analysis. ...

Bronsdon, who represented herself, filed for bankruptcy after she could not get a job following her graduation in 2005 from the Dartmouth, Mass., law school. Although she graduated in the top half of her class, she failed the Wisconsin bar exam three times and was unable to pay for test preparation materials and to take the exam again.

Gerzog: Linton and the Step Transaction Doctrine

Wendy C. Gerzog (Baltimore) has posted Linton Family LLC and the Step Transaction Doctrine, 125 Tax Notes 1027 (Nov. 30, 2009), on SSRN.  Here is the abstract:

This article discusses Linton [v. United States, 638 F.Supp.2d 1277 (W.D. Wash. July 1, 2009)], a district court decision about a family limited liability company, indirect gifts, and the step transaction doctrine.

WSJ on Pittsburgh's Proposed 1% Tuition Tax

Following up on my prior post, Pittsburgh Mayor Proposes 1% Tuition Tax:  the Wall Street Journal picks up the story in Pittsburgh Pushes Tax on College Students:

Facing big unfunded pension liabilities for city workers, Pittsburgh is proposing what appears to be a one-of-a-kind 1% tuition tax on local university and college students, who claim the tax is illegal and unfair.

More than 100 students filled Pittsburgh City Council chambers Monday morning, many bearing signs like "No Taxation Without Representation" to protest the tax, which, if passed this week, could become effective next year. ...

The tuition tax, which would raise an estimated $16 million, threatens to drive a wedge between the city and its universities, which have been credited with fueling much of Pittsburgh's economic transformation from an industrial city to an education and medical-services center.

 

Update:  Jim Maule (Villanova), Funding City Services to Tax-Exempt Schools: Impose User Fees, Not Taxes.

Funding for Grads Pursuing Public Interest Jobs: Up at UC-Berkeley & Georgetown, Down at Harvard

• National Law Journal, Law Schools Pick Up Loan Tab for Graduates Pursuing Public Interest:

Public interest graduates from several high-profile law schools won't be have to pay anything toward their student loans under recently revamped loan repayment assistance programs. [UC-Berkeley and Georgetown] have announced improved forgiveness programs that will cover all law school loan debt for many of their graduates who go on to work in public interest law for at least 10 years, making their legal education essentially free. ...

The loan forgiveness programs at Georgetown and Berkeley are designed to complement the College Cost Reduction & Access Act — a federal program intended to help borrowers manage their student debt that went into effect in July. The federal program is especially helpful for public interest workers, because the government will forgive the loan balance after the borrower has made payments for 10 years. Loan forgiveness applies to lawyers working at nonprofit organizations, government agencies and legal aid organizations.

Under the income-based repayment portion of the new federal program, monthly loan payments are capped at about 10% of the borrower's income, which is important because public interest lawyers generally make far less than their counterparts at law firms. A survey last year by the National Association for Law Placement found that public interest attorneys can expect starting salaries of about $41,000

Both Berkeley and Georgetown will pay the entirety of those capped monthly payments for 10 years, until the federal government forgives the debt. ... Some public interest lawyers who graduate from Berkeley and Georgetown and make relatively high salaries won't be eligible for full loan coverage, however. Berkeley's revamped program will pay all loan costs for graduates making up to $65,000 a year. Graduates earning between $65,000 and $100,000 will receive loan assistance on a sliding scale. At Georgetown, the new program covers all loan payments for those making $75,000 or less. Graduates making more than $75,000 will receive loan assistance on a sliding scale. [See also ABA Journal, Georgetown Antes Up $1M to Offer ‘Free’ Tuition to Public Interest Grads.]

• Harvard Crimson, Harvard Law School To Reduce Public Service Funding:

The latest round of financial readjustments hit Harvard Law School yesterday when Law School Dean Martha Minow announced a mix of cuts and expansions to programs that assist students interested in pursuing public interest careers.

In an e-mail to the student body, Minow announced the suspension of the Public Service Initiative, a program launched in 2008 that waives third-year tuition for students if they commit to five years of public service after graduation. The school also plans to decrease the amount of per-student funding for summer public interest work but will further expand loan repayment assistance for graduates. [See also ABA Journal, Harvard Law Students Clamor for Public Interest Jobs, Forcing Program Cuts; Above the Law, The Harvard Law Financial Aid Situation (With Emails); American Lawyer, Harvard Scrapping Public Service Reimbursement Program.) 

TaxProf Blog Named Top 100 Law Blog by ABA Journal

 

I am thrilled that, for the second year in a row, TaxProf Blog has been named to the ABA Journal's list of "the 100 best Web sites by lawyers, for lawyers, as chosen by the editors of the ABA Journal" -- the 2009 Blawg 100, selected from more than 2,500 blawgs. TaxProf Blog is one of fifteen blogs nominated in the Legal Theory category:

For those looking for more than just casual musings and rants, these academics provide substance over sensation.

Here is the ABA Journal's description of TaxProf Blog:

At TaxProf Blog, University of Cincinnati law professor Paul Caron covers tax law and policy, with forays into law school news. Taxgirl blogger Kelly Phillips Erb says Caron “writes with authority and a clear understanding of the tax code.” It’s not all academic. He may digest a complicated tax proposal in one post and link to a news story on a tax-evading celebrity in the next."

Quick Take: Caron generates buzz with his regular rankings of the top 35 law professor blogs with public analytics. (TaxProf was No. 6 in the rankings released in October.)

I am thrilled that two other members of our Law Professor Blogs Network also were named to the Blawg 100:

• Legal Profession Blog (one of 15 blogs nominated in the Legal Theory category)
• Sentencing Law and Policy (one of 5 blogs nominated in the Justice category)

Kudos to TaxGirl, one of 16 blogs nominated in the Practice category.

To vote, go here. (Voting ends December 31.)

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The Tax Lawyer Publishes New Issue

The Tax Lawyer has published Vol. 62, No. 4 -- The State & Local Tax Edition (Summer 2009):

• Report of the Task Force on Business Activity Taxes and Nexus of the ABA Section of Taxation State and Local Taxes Committee, 62 Tax Law. 935 (2009)
• Colin Douglas Campbell, Jr. (Office of the Legislative Counsel, U.S. Senate), MeadWestco Corp. v. Illinois Department of Revenue: A States-Based Approach to Establishing Consistency in the Apportionment of Liquidation Income, 62 Tax Law. 1007 (2009)
• Robert F. van Brederode (NYU), A Normative Evaluation of Consumption Tax Design: The Treatment of Sales of Goods Under VAT in the European Union and Sales Tax in the United States, 62 Tax Law. 1055 (2009)
• Michael H. Salama (Senior Tax Counsel, Walt Disney Co.), State Film Tax Incentives and the Related Potpourri of Federal Income Tax and Tax Accounting Considerations, 62 Tax Law. 1085 (2009)
• Reid S. Okimoto (KPMG, Seattle; U. of Washington), Close but No Cigar: Is a Use Tax Valid in a Gross Receipts Tax State Under the Supreme Court's Compensating Tax Doctrine?, 62 Tax Law. 1113 (2009)
• Donald Roth (J.D. 2010, Georgetown), Note, Building a House in the Sand: The Intersection of Good Law and Bad Policy in First American Title Insurance Co. v. Combs, 62 Tax Law. 1137 (2009)
• Katie Stewart (J.D. 2010, Georgetown), Note, Property Tax Exemptions for Nonprofit Hospitals: The Implications of Provena Covenant Medical Center v. Department of Revenue, 62 Tax Law. 1157 (2009)

Tax Problems of White House Party Crashers

• CNN, White House Crashers Named in 16 Civil Suits
• Don't Mess With Taxes, White House Party Crashers Owe IRS
• Tax Girl, White House Party Crashers Forgot Invites… And Tax Returns

Today Is Deadline for Law & Society Annual Meeting Call for Tax Papers & Panels

Today is the deadline to respond to the call for tax papers and panels for next year's annual meeting of the Law & Society Association in Chicago (May 27-30, 2010) issued by Neil H. Buchanan (George Washington):

I have been organizing tax sessions at the Law & Society Association's annual meetings for the past several years. We now operate as an official Collaborative Research Network within the association: Law, Society, and Taxation:

This CRN provides a forum for scholars who are interested in the effects on society of the taxing and spending policies adopted at all levels of government (international, national, state, and local). Subjects of inquiry involve any aspect of government policy with respect to taxing or spending, including distributional effects of government programs, theoretical issues of equity and justice, comparative and international issues, and all other aspects of fiscal policy. Participants are encouraged to apply multi- and interdisciplinary approaches to questions across the range of tax-related scholarship: issues of social and economic inequality, international competition and coordination, comparative aspects of tax law, family issues, sexual orientation and tax law, and so on.

The Call for Participation from the association has been released for the next annual meeting, which will be held in Chicago from May 27-30 of next year.

I will accept proposals for individual papers as well as complete paper sessions, roundtables, and author-meets-reader sessions. For individual paper submissions, I will attempt to organize papers into coherent thematic sessions and propose a slate of sessions to Law & Society. In order to do that, I need to receive your submissions one week before the official deadline for submissions.

Therefore, please submit proposals to me by December 1, 2009. You need only submit a title and a very short description (one or two sentences) of the proposed paper. The paper need not yet be written, and the only requirement is that you have at least something that can be circulated to your session chair by about 30 days before the meetings (April 27 or so).

Take special note of this rule: "Participants are limited to ONE appearance in one of the following roles: Paper Presenter, OR a Roundtable Participant, OR a Reader or Author on a book session." You may also be a chair, discussant, or chair/discussant on two panels. If you would like to volunteer to be a chair/discussant, please tell me.

Kentucky Seeks to Fill Endowed Distinguished Visiting Professorship

The University of Kentucky College of Law seeks applications and nominations for the James and Mary Lassiter Endowed Distinguished Visiting Professor for one semester of the 2010-11 academic year:

The Lassiter Distinguished Visiting Professor recognizes a faculty member who has demonstrated outstanding achievement in his or her field and is not limited by subject matter. ...

Review of candidates will begin upon receipt. Expressions of interest and nominations should be submitted no later than January 22, 2010 and should be directed to Mary J. Davis, Associate Dean for Administration and Chair of Lassiter Committee.

UConn Hosts Panel Discussion Today on Macroeconomic Stabilizing Effects of Tax Expenditures

Lily Batchelder (NYU), Yair Listokin (Yale), Ruth Mason (UConn), and Christian Zimmermann (UConn, Department of Economics) are participating in a panel discussion today on Macroeconomic Stabilizing Effects of Tax Expenditures at the University of Connecticut School of Law today as part of its International Tax Lecture Series:

The discussion will bring together Prof. Batchelder's writings on the stabilizing effects of refundable credits like the EITC [Efficiency and Tax Incentives: The Case for Refundable Tax Credits, 59 Stan. L. Rev. 23 (2006) (with Fred T. Goldberg, Jr. & Peter R. Orszag)] and Prof. Listokin's recent criticisms of certain tax expenditures for their destabilizing effects [Stabilizing the Economy Through the Income Tax Code,123 Tax Notes 1575 (June 29, 2009); Tax Expenditures and Business Cycle Fluctuations].

President's Tax Reform Task Force to Miss Dec. 4 Deadline to Issue Report

In typical Washington, D.C. fashion, the President's Tax Reform Panel (President's Economic Recovery Advisory Board (PERAB)) announced at 4:07 p.m. on Friday of Thanksgiving week that it will miss its December 4 deadline to deliver its report:

Statement from PERAB Chairman Paul Volcker on Tax Task Force

The tax subcommittee of the PERAB was scheduled to release its report on December 4th. But we have received more than 500 submissions of serious tax reform ideas from the public both in person and on our website and we had to cut them off to meet the original deadline.

I want us to review as many suggestions as possible and to have sufficient time to fully consider the hundreds of suggestions that have come in already. I have asked the Administration to extend our deadline and to reopen the website for submissions so that we can hear the widest possible range of ideas.

We still have the same specific mandate: to discuss the pros and cons of a spectrum of reform ideas relating to tax simplification, enforcement of existing tax laws and reform the corporate tax system without considering policies that would raise taxes on families making less than $250,000.

The PERAB is not tasked with providing its own policy recommendations for the Administration and the final report will be an almanac of options from a broad range of viewpoints.

We will be reopening the web submission form and extending the deadline for any suggestions in keeping with our mandate (suggestions may also be submitted via email) and will be scheduling more public meetings over the coming weeks. We expect to report back to the Administration after the holidays.

• Reuters
• Web CPA

Paging Billy Beane: Scholarly Productivity Lowers Reputation But Raises Salary

Daniel S. Hamermesh (University of Texas, Department of Economics) & Gerard A. Pfann (Maastricht University, Faculty of Quantitative Economics) have posted Markets for Reputation: Evidence on Quality and Quantity in Academe on NBER.  Here is the abstract:

We develop a theory of the market for individual reputation, an indicator of regard by one’s peers and others. The central questions are: 1) Does the quantity of exposures raise reputation independent of their quality? and 2) Assuming that overall quality matters for reputation, does the quality of an individual’s most important exposure have an extra effect on reputation? Using evidence for academic economists, we find that, conditional on its impact, the quantity of output has no or even a negative effect on each of a number of proxies for reputation, and very little evidence that a scholar’s most influential work provides any extra enhancement of reputation. Quality ranking matters more than absolute quality. Data on mobility and salaries show, on the contrary, substantial positive effects of quantity, independent of quality. We test various explanations for the differences between the determinants of reputation and salary.

Professor Hamermesh asks today on the New York Times Freakonomics Blog, Why Don’t Reputations and Salaries Rise Together?:

Our new study poses a conundrum: in a professional market (for economists), having more scholars pay attention to your research raises your reputation and your salary. Conditional on that attention, though, writing more papers lowers your reputation — but it raises your salary! The question is why writing more (essentially ignored) papers has opposite effects on reputation and salary? Are university administrators ignorant, rewarding something visible that in fact reduces the scholar’s quality, as measured by his/her colleagues? We tested lots of explanations for the anomaly, but none described it well. The results suggest that there might be room for a Billy Beane (see Moneyball) of academe.

Update: Stephen Bainbridge (UCLA), Deans Really Can't Read but Can Count:

It is an age-old academic aphorism that your dean can't read but he can count. In other words, at least insofar as internal matters like promotions and raises are concerned, quantity matters more than quality.

Now we have some empirical evidence that the old saying is true. Paul Caron passes along an NBER paper, which finds that:

Using evidence for academic economists, we find that, conditional on its impact, the quantity of output has no or even a negative effect on each of a number of proxies for reputation .... Data on mobility and salaries show, on the contrary, substantial positive effects of quantity, independent of quality.

In other words, prolific publication--even of crap--has a positive effect on an academic's salary. Which means deans really can count but can't read.

Tax Whistleblowers Gone Wild

Following up on Saturday's post, Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes: the cover story of this week's Forbes is Tax Informants Are on the Loose, by Janey Novack & William P. Barrett:

For years the IRS grudgingly paid stingy rewards to squealers who brought it mostly small cases; during 2004 and 2005, 428 informants received a total of $12 million--only 7% of the paltry $168 million all their leads brought in. But in 2006, hoping to entice insiders to rat out big-dollar cheats and corporate tax shelters and games, Congress directed the IRS to pay tipsters at least 15% and as much as 30% of taxes, penalties and interest collected in cases where $2 million or more is at stake.

The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants "often provide extensive documentation to support their claims,'' the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged. ...

Joseph R. (Joe) Francis, the Girls Gone Wild video impresario, last year was convicted of child abuse and prostitution charges in Florida. He just pleaded guilty in Los Angeles to nonfelony charges of filing false tax returns, was fined $10,000 and paid $250,000 in back taxes but got no new jail time. Light punishment? In a pending civil lawsuit filed in the name of his company, Francis claims three now-ex-executives plotted to embezzle money from his company and "began contacting" the IRS on an informant basis hoping Francis would be convicted and jailed and their own frauds would go undiscovered. Francis' pleading says one defendant e-mailed another a copy of a news story headlined, "IRS Pays Informants to Squeal on Tax Cheats." With that civil case still in its early stages, defendants have not answered in court and couldn't be contacted. ...

Are you ready for the new world of tax snitching? If you are chiseling, you can't trust anybody.

Morse: Making Offshore Account Holders Disclose

Susan C. Morse (Santa Clara) has posted Making Offshore Account Holders Disclose on SSRN.  Here is the abstract:

This Article considers the compliance issues raised by individual taxpayer investment in offshore bank and similar accounts. Offshore account holders have historically had a high rate of tax evasion and have contributed significantly to the tax gap. However, investors in offshore accounts are subject to an ingenious self-reporting regime – the Report of Foreign Bank and Financial Accounts, or FBAR – that the IRS has recently begun to effectively enforce.

The Article frames the FBAR requirement as a penalty default information-forcing mechanism. This mechanism currently applies directly to taxpayers and could also apply to third-party banks. Characterizing the requirement in this way yields several proposals for the continued development of the FBAR rules and the qualified intermediary and nonqualified intermediary rules applicable to non-U.S. banks.

Projected Revenues From Marijuana Tax

There has been much commentary on the revenue that could be raised by legalizing and taxing marijuana:

• American Journal of Economics and Sociology, Potential Tax Revenue From a Regulated Marijuana Market: A Meaningful Revenue Source
• Business Week, Legalize Marijuana for Tax Revenue
• Christian Science Monitor, A Marijuana Tax as the Next New Revenue Stream?
• Slate: A Toke and a Tax:  If Governments Legalize Marijuana, How Much Revenue Can They Raise From It?
• Sloshspot, If Marijuana Production Were Legal: Projected Tax Revenues, by State

CNN has published a 50-state ranking of the potential tax revenues that could be raised by legalizing and taxing marijuana, based on state-by-state marijuana consumption, from Jeffrey Miron (Harvard University, Department of Economics), Budgetary Implications of Marijuana Prohibition.  The study projects $778.2 million from taxing marijuana; here are the Top 20 states:

1. California ($105.4 million)
2. New York ($65.5 million)
3. Florida ($48.2 million)
4. Texas ($46.6 million)
5. Ohio ($34.8 million)
6. Michigan ($32.4 million)
7. Illinois ($31.6 million)
8. Pennsylvania ($30.5 million)
9. Washington ($22.0 million)
10. Virginia ($20.9 million)
11. North Carolina ($20.6 million)
12. Georgia ($19.3 million)
13. New Jersey ($19.3 million)
14. Massachusetts ($18.4 million)
15. Indiana ($17.8 million)
16. Colorado ($17.6 million)
17. Missouri ($15.6 million)
18. Minnesota ($14.3 million)
19. Oregon ($14.1 million)
20. Maryland ($13.9 million)

(Hat Tip:  The Tax Lawyer's Blog.)

How the Tax Law Fuels the College Sports Arms Race

New York Times op-ed, The Department of Lucrative Athletics, by Gilbert M. Gaul:

Another key element fueling the [college sports] arms race is the increasingly indefensible tax treatment of sports revenues. Decades ago — before the lucrative television contracts, Internet marketing, Nike sponsorships and luxury boxes — Congress essentially exempted colleges from paying taxes on their sports income. The legislators’ reasoning now appears shockingly quaint: that participation in college sports builds character and is an important component of the larger college experience.

Many booster clubs are recognized as charities under the federal tax code. At Florida and Georgia, to name just two universities, the athletic departments are set up as charities. Universities also have access to tax-exempt financing when building ever-larger stadiums and arenas. Boosters and donors benefit from generous tax deductions when they buy the best seats or endow an athletic scholarship. That’s right: colleges now endow their quarterbacks and linebackers the same way they do a distinguished chair of American literature.

If college presidents really wanted to halt the college sports machine, they could try two options. They could insist that athletic departments operate within their university budgets, like the English or biology departments; or they could ask Congress to rescind the tax breaks on the commercial income earned by athletic programs.

Congressional Budget Office, Tax Preferences for Collegiate Sports (blogged here):

Long viewed as an integral component of higher education, sports in many universities have become highly commercialized. Successful athletic programs are very rewarding financially: The NCAA men’s basketball tournament alone garnered about $143 million in revenue for athletic departments in 2008, and college football bowl games generated a similar amount.

Such large sums raise the questions of whether those sports programs have become side businesses for schools and, if they have, whether the same tax preferences should apply to them as to schools in general. This CBO paper compares athletic departments’ share of revenue from commercial sources with that of the rest of the schools’ activities to assess the degree of their commercialization. It also discusses some of the issues that might arise if the Congress decided to alter the treatment of intercollegiate sports programs in the tax code. ...

The study also examines the issues that might arise if policymakers decided that some or all of the activities of the schools’ athletic programs were primarily commercial rather than educational—a decision that would greatly reduce or eliminate the rationale for giving those activities preferential tax treatment. The Congress could change the tax treatment of revenue from those activities in several ways, for example, by limiting the deduction for contributions, limiting the use of tax-exempt bonds, or limiting the exemption from income taxation. ...

[R]emoving the major tax preferences currently available to university athletic departments would be unlikely to significantly alter the nature of those programs or garner much tax revenue even if the sports programs were classified, for tax purposes, as engaging in unrelated commercial activity. As long as athletic departments remained a part of the larger nonprofit or public university, schools would have considerable opportunity to shift revenue, costs, or both between their taxed and untaxed sectors, rendering efforts to tax that unrelated income largely ineffective. Changing the tax treatment of income from certain sources, such as corporate sponsorships or royalties from sales of branded merchandise, would be more likely to affect only the most commercial teams; it would also create less opportunity for shifting revenue or costs.

(Hat Tip: Ann Murphy.)

House to Vote Wednesday on Permanent Estate Tax Fix ($3.5m Exemption, 45% Top Rate)

Wall Street Journal, ·US House to Vote on Permanent Estate Tax Bill Next Week, by Martin Vaughan:

The U.S. House of Representatives next week will vote on legislation to extend current estate tax rates permanently, but when and what action the Senate might take on the bill remains unclear.

The House will vote next week, Wednesday at the earliest, on estate tax legislation from Rep. Earl Pomeroy (D., N.D.), according to a schedule released by House Democratic leaders. The Pomeroy bill (H.R. 4154) would make permanent a 45% rate on inherited wealth, with the first $3.5 million exempt from the tax. Without congressional action, the tax will be repealed in 2010 and return in 2011 at a 55% rate with a $1 million exemption.

The Pomeroy legislation, backed by President Obama, would cost $233 billion over the next 10 years since it represents a tax cut when compared to current law.

• Christopher Bergin, Death Watch on the Death Tax
• Washington Times editorial, Death Tax Redux: Democrats Won't Release Their Grip on the Dead's Money

More on NY Times Estate Tax Op-Ed

Following up on last week's post on a New York Times op-ed, Estate Tax Reform to Protect Family Farms and Business ($10m Exemption), Not Wealthy Heirs ($1-2m Exemption):  the Sunday New York Times ran four letters to the editor in response, My Estate Tax, Your Family Business, which are discussed on Future of the Federal Estate Tax Blog. 

TaxProf Blog Holiday Weekend Roundup

Thursday:

• Thanksgiving Estate Planning
• What Tax Profs Are Thankful For
• Yale:  Investment Risk and the Tax Benefit of Deferred Compensation
• Lehavi:  The Taking/Taxing Taxonomy

Friday:

• Sarah Palin, Bruce Bartlett & Joe Thorndike on the War Tax
• ABC News:  Tough Market for Law School Grads
• Michigan Coach Rodriguez and the Tax Man
• Walker & Fleischer:  Book/Tax Conformity and Equity Compensation

Saturday:

• IRS Files $79k Tax Lien Against Gov. Schwarzenegger
• Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes
• Tax Court Awards $323k in Attorneys' Fees to Two Kersting Tax Shelter Investors Because of IRS Misconduct
• More on the Tobin Tax

Sunday:

• Taxes and Private Sector GDP Growth
• Top 5 Tax Paper Downloads
• ABA Tax Section Submits Comment Letters
• NYSBA Releases Tax Reports

Taxes and Private Sector GDP Growth

Taxes and Private Sector (Angry Bear):

[I]t’s easy to cheat on GDP. GDP includes Government Spending, so an irresponsible administration can artificially goose GDP simply by borrowing a fortune (thus making the national debt explode) and spending the money. ...  We can pull the government consumption and expenditures ... out of GDP ..., giving us something we can describe as the “private sector component of GDP.” Next, we can divide the amount the government collects in taxes ... at all levels – federal, state and local – by the private sector component of GDP. ...  That gives us the percentage that the private sector (at all levels, from the lowliest panhandler to the most magnificent maharajah in the business world) pays in taxes in each year. If it isn’t obvious, there’s no point in including the government portion of GDP there since the government doesn’t pay taxes.

 

[See data here.]  [S]ince Ike took office, only three administrations (JFK, LBJ and Clinton) increased the percentage of the private sector GDP that goes to taxes; they make up three out of the four administrations with the fastest increases in the annualized real private GDP. ... The annual average increase in real private GDP is about 2.4% for administrations that cut share of private sector GDP going to taxes, and 4.2% to the administrations that increased it.

Go figure. Now, I dislike paying taxes as much as a Glenn Beck does, but the story line about big bad taxes choking off the private sector doesn’t add up. The “biggest government” president in our sample was LBJ with his Great Society and War on Poverty, and he’s the guy under whom the private sector grew the fastest. JFK was second on both counts. The reason is, without the government, and the taxes that fund it, there is nobody to build roads, provide a decent legal system or combat epidemics, and without things like this, the private sector grinds to a halt, the efforts of Anthony Mozillo and Paris Hilton notwithstanding.

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 new papers debuting on the list at #3 and #5.  The #1 paper is now the #23 tax paper in all-time downloads out of 6185 tax papers:

1.  [1266 Downloads]  To Roth or Not to Roth: Analyzing the Conversion Opportunity for 2010 and Beyond, by Richard L. Kaplan (Illinois)

2.  [292 Downloads]  2009 Federal Tax Update, by Samuel A. Donaldson (U. Washington)

3.  [192 Downloads]  The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest, by Dennis J. Ventry, Jr. (UC-Davis)

4.  [161 Downloads]  Miller: Effective FLP Line Drawing, by Wendy C. Gerzog (Baltimore)

5.  [143 Downloads]  Am I the Only Person Paying Taxes? The Largest Tax Loophole for the Rich -- Exchange Funds, by David Herzig (Valparaiso)

ABA Tax Section Submits Comment Letters

The ABA Tax Section has submitted comment letters on:

• Build America Bonds
• Stripping Tax Credits
• Regulations Implementing the Redesigned Form 990 for Tax-Exempt Organizations and Revising the Public Support Test Under §§ 170(b)(1)(A)(vi) & 509(a)(2)

NYSBA Releases Tax Reports

The New York State Bar Association Tax Section has issued tax reports on:

• Temporary Suspension of AHYDO Rules Under § 163(e)(5)(F)(i) (No. 1196)
• Announcement 2008-115 on FIRPTA Treatment of Rights Granted by a Governmental Unit (No. 1195)
• Reports on Transactions with Foreign Financial Agencies (FBARs) (No. 1194)
• Nonqualified Deferred Compensation Under § 457A (No. 1193)
• Temporary Regulations on the Hot Stock Rules Under § 355(a)(3)(B) (No. 1192)

IRS Files $79k Tax Lien Against Gov. Schwarzenegger

The IRS has slapped a $79,064 tax lien against California Governor Arnold Schwarzenegger:

• TMZ, Arnold Schwarzenegger: I'll Be Back Taxes
• TMZ, Notice of Federal Tax Lien
• L.A. Times, IRS Files $79,000 Tax Lien Against Schwarzenegger
• San Francisco Chronicle, IRS Says Schwarzenegger Owes $79,000
• San Jose Mercury News, Schwarzenegger's Office Blames $79,000 Tax Lien on "Paperwork" Snafu

(Hat Tip: Don't Mess With Taxes.)

Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes

Bradley C. Birkenfeld, the UBS banker who was sentenced to 40 months in prison for helping rich Americans dodge their taxes through offshore Swiss acounts, is seeking billions from the federal government under the whistleblower statute.

• New York Times, Ex-UBS Banker Seeks Billions for Blowing Whistle, by Lynnley Browning
• Wall Street Journal, From Snitch to Rich? The Case of UBS’s Brad Birkenfeld, by Ashby Jones

Tax Court Awards $323k in Attorneys' Fees to Two Kersting Tax Shelter Investors Because of IRS Misconduct

The Tax Court on Wednesday awarded $322,693 in attorneys' fees (after a 33.3% reduction for "overlawyering") and $15,290 in expenses under § 6673(a)(2)(B) to two Kersting tax shelter investors (Kersting v. Commissioner, T.C. Memo. 1999-197 (June 17, 1999)) for expenses incurred during the remand proceedings stemming from IRS misconduct. Hongsermeier v. Commissioner, T.C. Memo. 2009-273 (Nov. 25, 2009). Prior TaxProf Blog coverage:

• IRS Attorneys Disbarred for Misconduct in Tax Shelter Case (Aug. 23, 2004)
• WSJ: Judge Orders Government to Repay $36 Million to Airline Pilots in Tax Shelter Cases Because of IRS Misconduct (May 24, 2006)
• Tax Court: IRS Attorneys Committed Fraud on the Court (May 2, 2008)
• Hartman: "137 Pages of Utter Scandal" (May 8, 2008)

More on the Tobin Tax

More on the Tobin Tax --  a securities transfer tax imposed to discourage currency speculation and to penalize short-term trading -- first proposed by the late Yale Nobel laureate economist James Tobin in 1972:

• ataxingmatter, Financial Transactions Tax, by Linda Beale
• Don't Mess With Taxes, The Investment Tax Is Back!, by Kay Bell
• Future of Capitalism, House Democrats Ready a Tobin Tax, by Ira Stoll
• The Hill, Democrats Push $150B Stock Tax on Wall Street, by Silla Brush
• New York Times op-ed, Taxing the Speculators, by Paul Krugman
• Greg Mankiw's Blog, Is a Tobin Tax Feasible?, by Greg Mankiw
• Times Online, Congressmen Float Trades Tax, by Christine Seib
• Wall Street Journal, Government Deficits and Private Growth, by George Mellon 

Sarah Palin, Bruce Bartlett & Joe Thorndike on the War Tax

Following up on Tuesday's post, Democrats Propose Afghanistan War Tax -- "Pay As You Fight": 

• Sarah Palin, Facebook:

Really? A tax on national defense? I hear liberal Congressional proposals and I, like most Americans, wonder if they’re serious. We’re going to put a price tag on security?

With Congress and President Obama spending money on everything at breakneck speed, it’s interesting that they are only now getting nervous about spending – but only when it comes to providing the necessary funds to complete our mission in Afghanistan . They don’t need a new “war tax” to fund a strategy for victory in the war zone. They simply need to prioritize our money appropriately.

I find it telling that the Pelosi-Reid Congress is only cost-conscious when it comes to our national defense. Scary. Nonsensical. Unacceptable.

• Forbes: The Cost Of War: Are Americans Willing to Pay It?, by Bruce Bartlett:

In recent years, Republicans have been characterized by two principal positions: They like starting wars and don't like paying for them. George W. Bush initiated two major wars in Iraq and Afghanistan, but adamantly refused to pay for either of them by cutting non-military spending or raising taxes. Indeed, at his behest, Congress actually cut taxes and established a massive new entitlement program, Medicare Part D.

Bush's actions were unprecedented. During every previous major war in American history, presidents demanded sacrifices from rich and poor alike. ...

The White House has given no indication of how it plans to pay for expanding the war in Afghanistan. More than likely, it will follow the Bush precedent and just put it all on the national credit card. But at least some members of Congress believe that the time has come to start paying for war. On Nov. 19, Rep. David Obey, D-Wis., introduced H.R. 4130, the "Share the Sacrifice Act of 2010." It would establish a 1% surtax on everyone's federal income tax liability plus an additional percentage on those with a liability over $22,600 (for couples filing jointly), such that revenue from the surtax would pay for the additional cost of fighting the war in Afghanistan.

It's doubtful that this legislation will be enacted. But that's not Obey's purpose. He will probably offer it as an amendment at some point just to have a vote. Republicans in particular will be forced to choose between continuing to fight a war that they started and still strongly support, or raising taxes, which every Republican in Congress would rather drink arsenic than do. If nothing else, it will be interesting to see those who rant daily about Obama's deficits explain why they oppose fiscal responsibility when it comes to supporting our troops. ...

If it takes the threat of a tax increase to get people to think seriously about whether it's worth continuing to fight wars far from home--wars that have only the most tenuous connection to the national interest--then it's a good idea. History shows that wars financed heavily by higher taxes, such as the Korean War and the first Gulf War, end quickly, while those financed largely by deficits, such as the Vietnam War and current Middle East conflicts, tend to drag on indefinitely.

If Americans aren't willing to follow John F. Kennedy and "pay any price, bear any burden, meet any hardship" to fight a war, then we shouldn't be fighting it.

• tax.com, Finally, Some War Tax Talk, by Joseph J. Thorndike:

Will wonders never cease. After ignoring moral and economic imperaives for the better part of a decade, policymakers are finally talking about a war tax. New legislation proposed by Rep. David Obey, D-Wisc., would impose a modest, graduated surtax to help fund the war in Afghanistan. Obey offered an obvious -- and obviously compelling -- argument for the proposal: “Regardless of whether one favors the war or not, if it is to be fought, it ought to be paid for.” ...

No, I'm not kidding myself: This tax has the proverbial snowball's chance in hell. But it's a fine thing to see at least a few well-placed few politicians step up to the plate. War taxes are one of the great moral issues in taxation. Historically, they have been a near constant of American politics (see my book for more on that argument). Only the post-9/11 wars have broken categorically with the American tradition of wartime sacrifice. It's time to rediscover a more noble past.

• The Daily Beast, Why We Need a War Tax
• The Hill, Will Dick heney Support a War Tax?
• Reuters, The Afghanistan War Surtax Gambit
• Web CPA, Do We Need an Afghanistan War Tax?

ABC News: Tough Market for Law School Grads

ABC News, Tough Market for Law School Grads:  Law Students Across the Country Try to Adapt in a Struggling Economy, by Emily Watkins:

For the first time in decades, the promise of a profitable law career for top students is uncertain, as law schools report significantly reduced hiring rates. ...

Law schools across the country are seeing a reduction in the number of firms participating in the recruitment process. Harvard reported a 20% reduction in the number of employers participating in recruitment, according to assistant dean for career services Mark Weber, while NYU, Georgetown and Northwestern reported on their Web sites that on-campus interviews are down by a third to a half when compared with recent years. Texas experienced a 45% decrease in on-campus interviews....

Michigan Coach Rodriguez and the Tax Man

Douglas A. Kahn (Michigan) & Jeffrey H. Kahn (Washington & Lee) have posted Will the Tax Man Cometh to Coach Rodriguez?, 120 Tax Notes 474 (Aug. 4, 2008), on SSRN.  Here is the abstract:

When Richard Rodriguez moved from West Virginia University to the University of Michigan. Coach Rodriguez had a contract with his former employer that required him to pay $4 million dollars to West Virginia if he left for another coaching position. After a suit was filed, it was reported that the parties agreed that the $4 million dollars will be paid to West Virginia, of which Rodriguez will pay $1.5 million dollars in installments, and the University of Michigan (his new employer) will pay the remaining $2.5 million. How tax law applies to that buyout and whether Coach Rodriguez will incur federal income tax liability because of Michigan’s payment of $2.5 million are interesting questions. Simply put, will Michigan’s payment of 62.5 percent of the buyout obligation cause the taxman to cometh to Coach Rodriguez?

We conclude that a payment of a buyout fee to terminate an employment contract is a deductible expense, and that the employee does not incur income tax liability when the new employer pays all or part of his buyout obligation.

Walker & Fleischer: Book/Tax Conformity and Equity Compensation

David I. Walker (Boston University) & Victor Fleischer (Colorado) have published Book/Tax Conformity and Equity Compensation, 62 Tax L. Rev. 399 (2009). Here is the abstract:

Should we require companies to report the same amount of income to the IRS as they report to their shareholders? The idea behind "book/tax conformity" is that managers' desire to increase reported earnings would act as a check on their desire to minimize taxable income, and vice versa. Some scholars have proposed a comprehensive approach, adopting financial income as the basis for corporate taxation. Legislators, meanwhile, have offered a targeted approach that singles out equity compensation, which has historically been a significant source of the "gap" between book income and taxable income.

This Article argues that book/tax conformity carries unexplored costs that reduce its attractiveness, at least in the context of equity compensation (and quite possibly in other areas as well). Conforming the employer's tax treatment of stock and options with the accounting rules creates a paradox for employee-level taxation. Either employee taxation is also conformed to book, which raises liquidity, fairness, and other concerns, or we must diverge from section 83(h), which limits the employer's deduction to the amount included by the employee as income. Severing this link between the employer's deduction and the employee's inclusion would eliminate an important check on tax gamesmanship that is analogous to the check that book/tax conformity proponents seek to create. Conforming tax deductions for options with book, in other words, may simply trade one form of gamesmanship for another.

More broadly, book/tax conformity must be evaluated in light of (1) the cost of other gamesmanship that may result from conformity, (2) the availability of other means of combating manipulation, (3) potential distortions in compensation design, and (4) effects on the decision to be a private or public company. We conclude that equity compensation should be excluded from comprehensive book/tax conformity regimes, and one-off proposals to conform employer taxation of stock and options with book are probably misguided. On the other hand, we suggest that if targeted conformity of equity compensation is desired, revising the accounting rules for options to match those of stock appreciation rights, which would yield conformity at the tax end of the spectrum, possibly could improve upon the status quo.

Thanksgiving Estate Planning

Thanksgiving humor from our sister Wills, Trusts & Estates Prof Blog (via Legal History Blog).

What Tax Profs Are Thankful For

• H. Beau Baez (Charlotte):  "As the pilgrims before me, I thank God for all that he has provided. A nation where I am free to worship God, a home with a loving wife and children, and for His grace in providing me with the ability to work in a field that is personally rewarding."
• Linda Beale (Wayne State):  "I am thankful for my students in advanced tax courses, because they are willing to take hard courses, do a considerable amount of work day in and day out, and risk being treated as tax nerds by their peers, in order to learn something that is vitally important to the future of the society we live in. My tax students’ commitment to learning, rather than being provided “law on a platter”, is truly inspiring. The fact that we can actually have fun in the process (well, at least some of the time) is awesome."
• Paul Caron (Cincinnati): "I am thankful for my wonderful wife and children, the best job in the world, our church community (particularly the men in my Friday morning accountability group), and the God that makes it all possible."
• Mark Cochran (St. Mary's):  "Call it corny, but I'm thankful for my TaxProf colleagues and the opportunity to be part of the virtual community."
• Bridget Crawford (Pace):  "Tax Notes Today and Steve Leimberg."
• David Hasen (Penn State):  "I am thankful that God blessed me with the best job in the world -- a job that allows me not only to research and write, but to teach students about a great profession and to help them understand the privileges and responsibilities that come with being a lawyer, especially the privilege of helping others less fortunate."
• Francine Lipman (Chapman):  "I am very thankful that I have been privileged to be a part of many wonderfully diverse communities in 2009, including Polk County Township in rural Wisconsin and the Tenderloin where we have been living during our visit at UC Hastings College of the Law. And, of course, the cyberspace community of TaxProf Blog. Many, many thanks to Paul and all... "
• Jim Maule (Villanova):  [see here]
• Peter Prescott (Indiana-Indianapolis):  "I’m simply thankful to be a new tax professor at IU-Indianapolis. Who could ask for more than the opportunity to spend time interacting with students while learning and teaching about tax law? It sure beats private practice!"

Yale: Investment Risk and the Tax Benefit of Deferred Compensation

Ethan Yale (Virginia) has published Investment Risk and the Tax Benefit of Deferred Compensation, 62 Tax L. Rev. 377 (2009).  Here is the abstract:

Deferred compensation is thought to generate significant tax savings compared to current compensation in certain circumstances. The standard model used to support this conclusion does not consider investment risk and therefore overstates the tax benefit of deferred compensation significantly. This paper describes three alternative, risk-neutral approaches to measuring the tax benefit of deferred compensation. Each of these approaches avoids misclassifying increases in expected value attributable to increases in investment risk as a tax preference.

Lehavi: The Taking/Taxing Taxonomy

Amnon Lehavi (Interdisciplinary Center Herzliyah, Radzyner School of Law) has posted The Taking/Taxing Taxonomy, 88 Tex. L. Rev. ___ (2010), on SSRN.  Here is the abstract:

Takings jurisprudence is engaged in a constant paradox. It is conventionally portrayed as chaotic and “muddy,” and yet attempts by the judiciary to create some sense of order in it by delineating this field into distinctive categories that apply to each a different set of rules are often criticized as analytically incoherent or normatively indefensible.

This Essay offers an innovative approach to the taxonomic enterprise in takings law, by examining what is probably its starkest and most entrenched division: that between taking and taxing. American courts have been nearly unanimous in refusing to scrutinize the power to tax, viewing this form of government action as falling outside the scope of the Takings Clause. Critics have argued that the presence of government coercion, loss of private value, and potential imbalances in burden sharing mandate that the two instances be conceptually synchronized and subject to similar doctrinal tests.

The main thesis of the Essay is that this dichotomy, and other types of legal line-drawing in property, should be assessed not on the basis of a “pointblank” analysis of allegedly-comparable specific instances, but rather on a broader view of the foundational principles of American property law and of the way in which takings taxonomies mesh with the broader social and jurisprudential understanding of what “property” is.

Identifying American property law as conforming to two fundamental principles-formalism of rights and strong market propensity-but at the same time as devoid of a constitutional undertaking to protect privately-held value against potential losses as a self-standing “strand” in the property bundle, the Essay explains why prevailing forms of taxation do seem to be disparate from other forms of governmental interventions with private property. Focusing attention on property taxation, the Essay shows why taxation is considered a “lesser evil” type of government coercion, how the taking/taxing dichotomy better addresses the public-private interplay in property law, and why taxation is often viewed as actually empowering property rights and private control of assets.

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