Friday, December 31, 2004
Since our launch on April 15, I have been proud of our coverage of tax colloquia, conferences, and scholarship, as well as our coverage of tax issues in the 2004 Presidential Campaign (including the many tax aspects of the red state-blue state divide). I would like to think that our coverage of these issues is what attracted our partners Foundation Press, LexisNexis, Tax Analysts, and West. But I also am fond our less high-brow content, such as our Book Club and our coverage of various Tax Prof moves and our weekly Tax Prof Spotlight, as well as our navel-gazing About This Blog. Yet what really got our site meter spinning in 2004 was our occasional coverage of tax issues involving the rich and famous. So here, in my 1,318th (!) and last post of 2004, is a recap of the year's Celebrity Tax Lore on TaxProf Blog:
- Mel Brooks
- William F. Buckley
- Sandra Bullock
- Jack Kent Cooke
- Sheryl Crow
- The Day After Tomorrow Movie
- Detroit Pistons-Indiana Pacers Brawl
- Extreme Makover TV I
- Extreme Makeover TV II
- Extreme Makeover TV III
- Frasier TV Finale
- Friends TV Finale
- Mark Guthrie
- Incredible Hulk
- Mike Krzyzewski
- David Letterman I
- David Letterman II
- Jennifer Lopez
- Courtney Love
- James McGreevey
- Bill O'Reilly
- Dan Rather
- Pete Rose
- Arnold Schwarzenegger
- Britney Spears I
- Britney Spears II
- Jon Stewart
- Oprah Winfrey I
- Oprah Winfrey II
- Oprah WInfrey III
- Oprah Winfrey IV
In addition, in October we ran a post on From Liberace to Tupac Shakur: Using Celebrity Wills in the Classroom, which included links to the wills of these celebrities from the old and new zeitgeist:
- John Belushi
- Humphrey Bogart
- Marlon Brando
- Napoleon Bonaparte
- John Candy
- Winston Churchill
- Kurt Cobain
- Calvin Coolidge
- Howard Cosell
- James Dean
- Princess Diana
- Joe DiMaggio
- Walt Disney
- Albert Einstein
- T.S. Eliot
- Chris Farley
- W.C. Fields
- Ben Franklin
- Clark Gable
- Jerry Garcia
- Jimi Hendrix
- Harry Houdini
- John Houseman (Professor Kingsfield)
- Rock Hudson
- Lyndon Johnson
- Janis Joplin
- Andy Kaufman
- John Kennedy
- Robert Kennedy
- Bruce Lee
- John Lennon
- Keith Moon
- Jim Morrison
- Jacqueline Onassis
- River Phoenix
- Cole Porter
- Elvis Presley
- Gilda Radner
- Franklin Roosevelt
- Babe Ruth
- Tupac Shakur
- William Shakespeare
- Frank Sinatra
- John Steinbeck
- J.R.R. Tolkien
- Harry Truman
- Mark Twain
- George Washington
- Ted Williams
- John Wayne
- Stevie Wonder
Major IRS Court Losses in 2004 from CCH:
- Ewing v. Commissioner, 122 T.C. 32 (2004) (equitable innocent spouse relief; court not limited to administrative record)
- Wright v. Commissioner, CA-2, 2004-2 U.S.T.C. Par. 50,343 ("lost" refund check; IRS loses because its records are bad)
- Benton v. Commissioner, 122 T.C. No. 20 (2004) (NOLs and bankruptcy)
- Robinette v. Commissioner, 123 T.C. No. 5 (2004) (de novo hearing on collection due process appeal)
(Thanks to Ann Murphy (Gonzaga) for the tip.)
Thursday, December 30, 2004
Henry J. Lischer, Jr. (SMU) has published Professional Responsibility Issues Associated with Asset Protection Trusts, 39 Real Prop., Prob. & Tr. J. 561 (2004). Here is the abstract:
This Article examines the asset protection trust, a device used to protect property from the claims of creditors of the settlor. The author provides an overview of the asset protection trust and recent litigation involving such trusts. Professional responsibility issues associated with asset protection trusts, which are particularly important for attorneys who reside in states without asset protection trust legislation, are then discussed. The author reviews both the Model Rules of Professional Conduct and the Model Code of Professional Responsibility as they relate to asset protection trusts. Attorneys in non-asset protection trust states, the author concludes, should be mindful of the risk of professional discipline as to providing services in establishing or implementing an asset protection trust.
There is an on-going debate about tax competition or tax harmonization. The high-tax welfare states want to keep tax rates high so that they can continue to fund their social welfare programs. But they are losing business and investments to lower tax jurisdictions where governments let people and businesses keep a higher percentage of their income. This issue is especially relevant in the European Union, since the older members tend to have relatively high tax rates, whereas some of the new members have relatively low tax rates. This paper examines this issue and attempts to answer the question of whether tax competition is harmful.
The IRS has announced that donations made for the benefit of the victims of the devastating tsunami last weekend in Southeast Asia may be tax deductible:
Contributions to domestic, tax-exempt, charitable organizations that provide assistance to individuals in foreign lands qualify as tax-deductible contributions for federal income tax purposes provided the U.S. organization has full control and discretion over the uses of such funds.
Further details are provided in IRS Publication 3833, Disaster Relief: Providing Assistance through Charitable Organizations. To be deductible on 2004 tax returns, contributions must be made by midnight on December 31. For example, checks can be mailed to, or contributions made via credit card directly on web sites of, qualified charitable organizations such as:
For other organizations providing relief to tsunami victimes, see:
For other tax coverage, see Roth & Company.
On December 28, Edward M. Manigault, Vice Chair of the ABA Estate and Gift Tax Committee, sent to the IRS Comments of Individual Members of the ABA, Section of Real Property, Probate and Trust Law, Estate and Gift Tax Committee Concerning Adequate Disclosure of Gifts Reg-106177-98 (also available on the Tax Analysts web site at 2004 TNT 251-37). Here is the Summary:
The Request invited comments on: (a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
Our comments are intended to enhance the quality, utility and clarity of the information to be collected. We also hope that our suggested changes will make Form 709 simpler. Our specific comments relate to the distinction between disclosure of transfers subject to Code § 2701 or Code § 2702 compared to the disclosure required for other gifts.
Mary Heen (Richmond) has published Congress, Public Values, and the Financing of Private Choice, 65 Ohio St. L.J. 853 (2004). Here is part of the abstract:
This Article examines the financing dimension of private choice, with a focus on Congress's taxing and spending decision-making processes. The Article begins with an overview of the financing and performance dimensions of privatization decisions, followed by an analysis of how taxation relates to both dimensions.... Congress coordinates its taxing and spending decisions through the budget process, collectively determining what will be financed and performed through government and what will be left to private choice. The courts generally defer to the tax and spending decisions made by Congress. Nevertheless, in the process of developing this highly deferential approach, the U.S. Supreme Court historically has drawn distinctions between taxes and other means of paying for or regulating the production of goods and services....Next, drawing from tax scholarship on tax expenditures, the Article develops the argument that general tax reduction and targeted tax incentives differ in their approach to financing.... The Article concludes with a discussion of accountability issues with regard to both financing and performance....
Michael Doran (Urban Institute) has posted Executive Compensation Reform and the Limits of Tax Policy on the Tax Policy Center web site. Here is the Abstract:
The American Jobs Creation Act of 2004 includes a major attempt to reform the tax rules for deferred compensation arrangements covering corporate managers. This paper examines the tax policy and corporate-governance policy objectives of the reform effort, explores the shortcomings of the legislation, and suggests a different approach for future executive compensation reform.
Wednesday, December 29, 2004
To encourage saving for retirement, private pensions such as employer sponsored 401(k) plans or IRAs receive favorable tax treatment by the federal government. A major goal of such tax provisions is to increase personal saving. A measure of the value of these tax benefits is provided by the Treasury Department, and the National Income and Product Accounts contains a measure of personal saving. With the sudden drop in personal savings in 1999 and its steady decline in more recent recession years, government tax expenditures on pension benefits began to approach the personal savings level by the end of the 1990s.
H. Edward Hales, Jr. (Sutherland, Asbill & Brennen -- Atlanta) has published Thinking About Leveraging Plan Assets? Think Some More: UBTI and Prohibited Transactions, 39 Real Prop., Prob. & Tr. J. 541 (2004). Here is the abstract:
This Article discusses the use of leverage in the context of qualified plans. More specifically, the author addresses whether leveraged investments will expose a qualified plan to tax liability on unrelated business taxable income and whether the investments will violate provisions of the Internal Revenue Code and ERISA. Exclusions for acquisition indebtedness are discussed, as well as exemptions under the ERISA and Internal Revenue Code prohibited transaction rules. The author concludes that although the use of leverage can be risky for qualified plans, it can also be a great tool, given proper planning and a thorough understanding of the relevant exclusions and exemptions.
Mihir Desai (Harvard, Business School) & James Hines (Michigan, Business School) have posted Old Rules and New Realities: Corporate Tax Policy in a Global Setting on SSRN. Here is the abstract:
This paper reassesses the burden of the current U.S. international tax regime and reconsiders well-known welfare benchmarks used to guide international tax reform. Reinventing corporate tax policy requires that international considerations be placed front and center in the debate on how to tax corporate income. A simple framework for assessing current rules suggests a U.S. tax burden on foreign income in the neighborhood of $50 billion a year. This sizeable U.S. taxation of foreign investment income is inconsistent with promoting efficient ownership of capital assets, either from a national or a global perspective. Consequently, there are large potential welfare gains available from reducing the U.S. taxation of foreign income, a direction of reform that requires abandoning the comfortable, if misleading, logic of using similar systems to tax foreign and domestic income.
From this morning's Tax Notes Today:
President Bush in the coming days will name panelists to a bipartisan tax reform commission charged with reporting recommendations to the Treasury Department, according to White House Press Secretary Trent Duffy.
The panel is expected to report its findings to Treasury as early as possible in 2005, and those suggestions are expected to guide the Treasury secretary in making reform recommendations to Bush not long after. But it is unclear when Bush will launch a full-scale tax reform effort given he also hopes to reform Social Security. Some observers on the Hill have speculated that tax reform is likely to take a backseat until Bush has pushed proposals to add private accounts to Social Security. Duffy did not detail a timetable, saying only that Bush "remains committed" to the goal of tax reform. "Americans spend too much time sitting at the dinner table doing their taxes," Duffy said. Duffy also would not speculate on whether Bush would push for modest changes to the current code or for fundamental overhaul, saying only that the first step of the process is to let the advisory panel "explore and determine ways in which the tax code could be reformed to help our economy, to help efficiency, to help job creation."
As for panel members, some of the candidates named in media reports as likely reform panel members said they are not expecting invitations from Bush. Former House Ways and Means Committee Chair and retail sales tax advocate Bill Archer speculated that the panelists will not be household names known for endorsing a specific reform plan. Neither Archer nor former House Majority Leader and flat tax advocate Richard K. Armey -- another name frequently mentioned as a contender for the commission -- said they are expecting wholesale overhaul as a result of the tax reform effort.
(Also available on the Tax Analysts web site at 2004 TNT 250-1.)
Estate planning provides a method to provide for those whom we want to comfort after we die and to those who have comforted us. Family members and friends can be a source of tremendous support but they may also let you down in a variety of ways ranging from minor betrayals to orchestrating your own death. Pet animals, however, have a much better track record in providing unconditional love and steadfast loyalty. It is not surprising that a pet owner often wants to assure that his or her trusted companion is well-cared for after the owner’s death.
The American legal system, which should respect a person’s desires and accommodate them as long as they are not harmful to others or against public policy, has a mediocre record when it comes to permitting pet owners to arrange after-death care of their pets. Over the past decade, the law has made admirable steps forward. State legislatures are increasingly enacting § 2-907 of the Uniform Probate Code or a functional equivalent thereof. However, this trend needs to continue so that every state has legislation authorizing pet owners to create enforceable long-term care trusts for their pets. Regardless of the existence of enabling legislation, pet owners may carefully prepare enforceable trusts under traditional trust law which assure proper care for their animals. Attorneys who prepare wills and other estate planning documents must be alert to the important role pets frequently play in their clients’ lives and take the appropriate steps to help clients provide short- and long-term quality care for their "other" loved ones.
Following up on the wonderful Tax Notes piece on the tax blogosphere, Tax Bloggers Use Internet To Widen Tax Policy Appeal, 105 Tax Notes 1498 (Dec. 13, 2004) (blogged here), Bruce Bartlett of the National Center for Policy Analysis yesterday offered his views on the subject in The Blogger Take on the Issues. Mr. Bartlett has kind things to say about both tax professor (Mauled Again (James Maule - Villanova) and Start Making Sense (Dan Shaviro - NYU)) and tax practitioner (Tax Guru (Kerry Kerstetter - Arkansas CPA)) blogs. We are, of course, thrilled with Mr. Bartlett's description of TaxProf Blog:
In the tax area, the most prolific blogger is tax professor Paul Caron of the University of Cincinnati. I find him useful because he really keeps on top of the scholarly research among other tax professors. In most cases, this research is available on the Internet in the form of working papers that may be available months or even years before they appear in inaccessible law reviews. This is extremely valuable to me in terms of keeping ahead of the curve on tax research.
Tuesday, December 28, 2004
- Treasury Announces Entry Into Force of Protocol Amending U.S.-Netherlands Income Tax Treaty:
David Gage, John Gromala & Edward Kopf (all of BMC Associates) have published Holistic Estate Planning and Integrating Mediation in the Planning Process, 39 Real Prop., Prob. & Tr. J. 509 (2004). Here is the abstract:
This Article discusses holistic estate planning as an alternative to traditional estate planning. Providing a brief background on the development of holistic estate planning, the authors explore the advantages of this alternative method of estate planning, which uses mediation techniques and family dynamics specialists to facilitate the pre-estate planning process. Through the use of two case studies, the authors demonstrate how involving the entire family in the estate planning process can facilitate the transition of assets between generations. Involving the entire family allows parents, children, and estate planning attorneys to create a better estate plan that will transfer not only family assets, but also family values and traditions.
Update: Others in the law school biz apparently feel the same way about snow: Ave Maria Law School [Michigan] Considers Move to Florida.
Prudent folks making large charitable gifts rely on an organization's inclusion in Publication 78 as a qualified public charity eligible to receive tax-deductible contributions. To provide guidance amidst the frenzy of year-end charitable giving, the IRS has released Announcement 2004-103, 2004-52 I.R.B. 1036 (12/27/04) (also available on the Tax Analysts web site), which lists the 379 organizations which have failed to establish (or to maintain their status) as public charities. As a result, donors cannot rely on the status of these organizations as qualified public charities eligible to receive tax deductible contributions. Donors contemplating large year-end charitable gifts should make sure that the recipients of their gifts are in good-standing in Publication 78 and are not listed in Announcement 2004-103. States with particularly large numbers of de-listed organizations are:
- Texas (97)
- Louisiana (57)
- California (50)
- Oklahoma (40)
Recent cases from Michigan and Texas illustrate two very different approaches on the issue of the malpractice liability of attorneys whose negligence in drafting estate plans for their clients results in additional estate tax liability:
- Sorkowitz v. Lakritz, Wissbrun & Associates, P.C., 261 Mich. App. 642, 683 N.W.2d 210 (2004): The beneficiaries of an estate brought a malpractice action against the lawyers who drafted the decedent's estate plan for failing to include Crummey and GST clauses. The lower court dismissed the complaint on procedural grounds, concluding that Michigan law required malpractice plaintiffs to prove, on the "four corners" of the documents themselves and not via extrinsic evidence, that "a decedent's intent has been frustrated by an attorney's negligent drafting of estate planning documents." The court of appeals reversed and rejected the application of the "four corners" doctrine on these facts:
In this day and age, clients go to estate planning experts not only to have valid testamentary documents prepared, but also to have an estate plan that will minimize the taxes payable recommended, and thus have the maximum amount transferred to the donor's intended beneficiaries at the intended times and intervals. We would be ignoring reality to dismiss legal malpractice cases such as this one on the basis of the fiction that one cannot know the decedent's intent unless it is apparent within the four corners of the estate planning documents, and without regard to common sense and expert opinion on estate planning matters. We should not ignore as judges what we know as lawyers and as men and women. It is far more likely that the decedents here intended to minimize the taxes payable upon their deaths than that they were indifferent to the amount of taxes payable, and it is virtually certain that they did not intend to pay more taxes than necessary.
It is asserted ... that the decedents engaged defendants for estate planning, which clearly encompasses tax advice, and defendants either negligently failed to advise of, or negligently failed to include, provisions that would have prevented the tax deficiencies. Such claims will rarely be apparent on the face of the estate planning documents, without resort to extrinsic evidence. There is no reason to exempt estate planning lawyers from liability for malpractice simply because the damages often accrue after their client's death. If safeguards are necessary because of the nature of this specialty, such safeguards can be developed. But applying the Mieras "four corners" limitation to such claims is not required by precedent, goes too far in the direction of protecting the attorney, and is against the best interests of the clients and, ultimately, the profession.
The "four corners" rule is applicable in a dispute between potential beneficiaries concerning the intended distribution of the pot of assets or pie left by the decedent. It is not applicable to a claim such as this one, that seeks recovery for diminution in the pot or pie left by the decedents alleged to have been caused by the negligence of the defendants who provided estate planning. Here the interests of the deceased clients, the estate, and all the beneficiaries are aligned on the same side, and there is no danger that defendant attorneys will be wrongly held accountable to a third-party for properly implementing the desires of their client.
- Belt v. Oppenheimer, Blend, Harrison & Tate, Inc., 141 S.W.3d 706 (Tex. Ct. App. 2004): The executors and children of the decedent brought a malpractice action against the lawyers who drafted the decedent's estate plan, alleging that the estate incurred more than $1.5 million in additional federal estate tax because of the lawyers' negligence. The lower court granted summary judgment to the attorneys on the ground that they did not owe any legal duty to the beneficiaries because of a lack of privity under Barcelo v. Elliott, 923 S.W.2d 575 (Tex. 1996), and the court of appeals affirmed:
We recognize that the [plaintiffs] have . . . raised several policy arguments in support of their position; however, such arguments have been adversely answered by the supreme court in Barcelo. It is a tenet of our judicial system that we, as an intermediate appellate court, are bound by pronouncements of the supreme court, even though we may entertain a contrary opinion. [W]e are confined to follow the dictates of Barcelo in this instance. . .
For further discussion of these cases, see the Winter 2004 ACTEC Journal (Vol. 30, No. 3).
Reuven Avi-Yonah (Michigan) has posted Bridging the North/South Divide: International Redistribution and Tax Competition on SSRN. Here is the abstract:
Finding ways to help bridge the North/South divide in terms of life expectancy, health, and living conditions may be the most important task facing humanity at the beginning of the 21st century. The Millennium Development Goals adopted by the UN are a beginning step toward that goal, and require additional funding of about $50 billion per year (over existing aid). However, under current conditions, it seems extremely unlikely that democratic approval can be given in developed countries to such an increase in aid, and certainly not to the level of redistribution required to bridge the gaps. Nor are new methods of financing, such as the Tobin Tax, likely to be enacted given rich world opposition. In these circumstances, the best policy approach is for the rich countries to help developing countries help themselves. In order to do that, they need to restrict harmful tax competition among developing countries and competition to attract flight capital by developed countries.
Monday, December 27, 2004
- Bush Plan Could Imperil Tax Write-Off for New York: As the Bush administration looks to revamp the tax code, New York officials say they are particularly worried about one idea being considered: eliminating the federal deduction for state and local taxes. If the president pursues this plan, New York State would lose about $37 billion per year in federal tax deductions, more than almost any other state, according to Internal Revenue Service data. The change would affect about 3.2 million households in New York, three-quarters of which are middle- and low-income, tax records indicate.
- Tax Breaks on Historic Houses Face Restrictions: A popular tax break for homeowners in historic districts may soon face some harsh restrictions, including increased penalties for owners, appraisers and promoters who help file inflated claims.
- The Bottom Line on Overhauling Social Security: How can Americans be anything but confused by the complex debate over the privatization of Social Security? Investing part of the payroll taxes we pay in stocks and bonds to produce a personal nest egg is alluring. But until there is a detailed plan to analyze, we cannot know the true consequences.
- Dodge Year-End Tax Traps (Tom Herman): Taxpayers still have a few days before New Year's to stumble into blunders that can end up being very costly. Here are just a few ways to avoid getting burned.
- IRA Heirs: Beware Dec. 31: If you inherit an IRA, it pays to keep track of a few important deadlines -- including next Friday.
- Taking Charitable Deductions (Tom Herman): Many people make major gifts to charity late each year. But the tax rules can be surprisingly tricky. Here are some frequently asked questions.
- Big Tax Break Prompts SUV Sales: Two months ago, President Bush signed into law a bill that includes a sharp cut in a special tax deduction for many new SUVs. But, thanks to another wrinkle in the tax code, some car shoppers who buy a large SUV before the end of this year can still get a sizable deduction.
- Corporate Taxes: Going, Going . . . : Given the remarkable plunge in corporate tax receipts since 2000, Congress might have logically responded this past year by closing loopholes, attacking tax shelters and raising business taxes. Instead, Congress opted to pass the most sweeping corporate tax law in nearly 20 years, a measure with tax breaks worth $143 billion over 10 years, benefiting restaurant owners and Hollywood producers; makers of bows, arrows and sonar fish finders; NASCAR track owners; even importers of Chinese ceiling fans. Between the years 2000 and 2003, corporate tax revenue went from $207.3 billion to $131.8 billion, a three-year skid that encompassed not only a recession but also a recovery, both in economic growth and corporate profits. By 2003, corporate tax receipts, relative to the size of the economy, had sunk to a level not seen since 1983 and, before that, the Great Depression.
- Student Workers Pass a Tax Test: The relationship between colleges and students who work for them has long been a source of tax uncertainty.
Chongwoo Choe (Australian Graduate School of Management) & Charles Hyde (Unviersity of Melbourne) have posted Multinational Transfer Pricing, Tax Arbitrage, and the Arm's Length Principle on SSRN. Here is the abstract:
This paper studies the multinational firm's choice of transfer prices when the firm uses separate transfer prices for tax and managerial incentive purposes, and when there is penalty for noncompliance with the arm's length principle. The optimal incentive transfer price is shown to be the weighted average of marginal cost and the optimal tax transfer price plus an adjustment by a fraction of the marginal penalty for non-arm's length pricing. Insofar as the tax rates are different in different jurisdictions, the firm optimally trades off the benefits of tax arbitrage against the penalty for non-arm's length pricing. Such a tradeoff leads the optimal tax transfer price to deviate from the arm's length price. In the special, but unlikely, case where the tax rates are the same and the arm's length price is equal to marginal cost, the optimal incentive price is equal to marginal cost.
The ABA Tax Section has submitted to the IRS Comments on the IRS's Classification Settlement Program to resolve worker classification cases. The comments were prepared by the Committee on Employment Taxes. Here is the Executive Summary:
The issue of worker classification – i.e., whether a worker retained by a service recipient to perform services is either an independent contractor or an employee – has received a great amount of attention over the years. The issue is raised most directly in employment tax audits that are conducted by the IRS. The proper classification of a worker must be determined accurately to ensure that workers and service recipients can anticipate and meet their tax responsibilities timely and accurately.
Sometimes, however, in the course of an employment tax audit, IRS examiners and other IRS personnel are faced with a very difficult task in determining the proper classification of workers. Congress and the IRS have taken a number of steps in recent years to improve the processes by which such determinations are made, and to promote more certainty and uniformity. For its part, among other things, the IRS issued extensive, updated guidelines for its personnel in 1996. That same year, the IRS also established its Classification Settlement Program (CSP), a process for resolving worker classification disputes that arise during employment tax audits. The CSP is now part of the Internal Revenue Manual. Although IRS examiners must follow certain procedures set forth in the CSP, those procedures can lead to a voluntary alternative for taxpayers to resolve disputes at the examination level that might otherwise result in more costly, time-consuming and adversarial appeals.
In general, the CSP has been successful in many respects in resolving disputes over the classification of workers as employees or independent contractors. However, now that the CSP has been in operation for several years, it is appropriate to ask whether changes should be made as the result of experience and changes in the law.
We conclude that the success of the CSP could be enhanced by clarifying and expanding the CSP and by including some additional improvements. Along with these comments and pursuant to an informal request, we developed a “red-lined” version of the current CSP, with each proposed addition or deletion to the CSP clearly marked to reflect the changes suggested by the comments. This “red-lined” version is attached to the comments as Appendix A.
Burgess J.W. Raby & William L. Raby have published Prohibited Transactions, Qualified Plans, and "Reasonable Cause," also available on the Tax Analysts web site at 2004 TNT 247-27. Here is the Introduction:
Having a pot of money readily available to help take advantage of business opportunities, keep the business afloat, or meet pressing personal needs can be a temptation impossible to resist. Yet that is the situation when the small-business owner is the administrator, the major beneficiary, and the trustee of a qualified plan. Taking advantage of that situation raises the possibility of excise taxes on prohibited transactions and penalties for failure to file excise tax returns and pay the tax. Sometimes, as in the first case discussed below, the violation of the prohibited transactions rule is blatant and the individual involved seems to have no defense, but sometimes, as in the second and third cases, it is less clear that what was done should be penalized.
- Ralf Zacky v. Commissioner, T.C. Memo. 2004-130
- Joseph R. Rollins v. Commissioner, T.C. Memo. 2004-60
- Flahertys Arden Bowl Inc. v. Commissioner, 115 T.C. 269 (2000)
- The Role of Taxes in the Birth of Christ
- Tax Prof Spotlight: Kirk Stark
- Tax Issues in Jib Jab's Santa Claus Video
- Merry Christmas from Americans for Fair Taxation
- Tax Analysts: Fremont-Smith on Charitable Embezzlement and Fraud
- Top 5 Tax Paper Downloads
- CBO Report on Diamond & Orszag's Plan to Save Social Security
- Tax Analysts: Manning on Language Usage
Sunday, December 26, 2004
There is a lot of movement in this week's list of the Top 5 Tax Paper Downloads on SSRN, with new papers debuting at #4 and #5:
2. Starving the Beast: The Psychology of Budget Deficits, by Jonathan Baron (Pennsylvania, Wharton School) & Edward J. McCaffery (USC)
3. Comments on Assessing the Bush Administration's Tax Agenda, by Linda Sugin (Fordham)
4. Are Non-Profit Firms Simply For-Profits in Disguise? Evidence from Executive Compensation in the Nursing Home Industry, by Anup Malani (Virginia) & Albert H. Choi (Virginia, Dep't of Economics)
Robert F. Manning has published What Did You Mislearn in School Today?, 105 Tax Notes 1647 (Dec. 20, 2004), available on the Tax Analysts web site at 204 TNT 247-28. The article is part of an occasional series on language usage. Here is an excerpt:
Many years passed before we discovered that our teachers, even speaking ex cathedra, were not infallible in all matters grammatical....Some of their rules were erroneous, and others were exceptionable. Nevertheless, many writers (including more than a few tax practitioners) still follow the questionable dictates of the likes of [elementary school grammar teachers].... With all due regard for the memories of the molders of our young minds, let's take a fresh look at the stuff we learned in school and why we should unlearn some of it:
- None always takes a singular verb.
- Do not end a sentence with a preposition.
- Never split an infinitive.
- Never begin a sentence with And, But, or Because.
- Never use the passive voice.
- Never use first-person pronouns.
- Never use you to refer to your reader.
- Never use contractions.
[Diamond & Orszag] propose a reform plan that would rescue the program both from its projected financial problems and from those who would destroy the program in order to save it. Saving Social Security’s strategy balances benefit and revenue adjustments, following the precedent set by the last major Social Security reform in the early 1980s. The authors’ proposal restores long-term balance and sustainable solvency to the program without imposing additional burdens on the rest of the budget. Further, it protects disability and young survivor benefits and strengthens Social Security’s protections for low earners and widows. Most important, the plan preserves the program’s core social insurance role by providing a base-level of assured income to American workers and their families in time of need.
On Wednesday, the Congressional Budget Office released a 57-page report, Long-Term Analysis of the Diamond-Orszag Social Security Plan (12/22/04), prepared at the request of Senator Larry Craig (R-Idaho), Chair of the Senate Special Committee on Aging.
The CBO analysis considers the impact that the proposed plan would have on the Social Security program, the federal budget, the U.S. economy, and present and future beneficiaries.
For additional documents, see:
Saturday, December 25, 2004
And it came to pass in those days, that there went out a decree from Caesar Augustus that all the world should be taxed. (And this taxing was first made when Cyrenius was governor of Syria.) And all went to be taxed, every one into his own city. And Joseph also went up from Galilee, out of the city of Nazareth, into Judaea, unto the city of David, which is called Bethlehem; (because he was of the house and lineage of David:) To be taxed with Mary his espoused wife, being great with child. And so it was, that, while they were there, the days were accomplished that she should be delivered. And she brought forth her firstborn son, and wrapped him in swaddling clothes, and laid him in a manger; because there was no room for them in the inn.
Luke 2:1-7 (KJV).
The UCLA School of Law made one of the largest leaps in the latest US News survey of tax programs, moving from #25 in 2002 to #6 in 2004. In large part, this move was fueled by the unprecedented hiring of three tax professors in 2003, joining the four tax professors already on the faculty to form one of the strongest tax faculties in the country.
The resurgence of UCLA’s tax program is evident in its many activities planned for this year, including its Tax Policy and Public Finance Colloquium this Spring, the UCLA Law Review's Symposium on Rethinking Redistribution: Tax Policy in an Era of Rising Inequality in January, UCLA’s Institute on Tax Aspects of Mergers and Acquisitions in May, and the hosting of a Conference on Historical Perspectives on Tax Law & Policy in July. Moreover, because of the combination of an expanded tax faculty and substantial student interest, the UCLA Program in Business Law and Policy will offer a separate tax track in its business law concentration starting next year.
In a seven-part series, TaxProf Blog will spotlight the tax professors who make up the heart of UCLA’s tax program.
Kirk Stark joined the UCLA faculty in 1996 and quickly became one of the most popular professors at the law school. Over the past eight years, Kirk has taught Federal Income Taxation, Corporate Tax, Taxation & Distributive Justice, Multistate Taxation, and the first-year Property course. In addition, he has co-organized the UCLA Colloquium on Tax Policy & Public Finance during its first two years and is currently serving as the faculty advisor for the UCLA Law Review symposium, Rethinking Redistribution: Tax Policy in an Era of Rising Inequality, to be held in January 2005. A self-proclaimed “beneficiary of low student expectations about tax classes,” Kirk was elected Professor of the Year by the law school graduating classes of 1999 and 2002. In 2003, he received UCLA’s University-wide Distinguished Teaching Award. But even more importantly, Kirk is responsible for adding many more tax lawyers into the world, with many of them having no interest in the subject prior to taking his tax classes. As one student remarked, “Tax has become a must-take class at UCLA.”
Kirk’s interest in tax law and policy has its origins in a teacher’s strike in his hometown of Michigan City, Indiana. During the winter months of 1985, Kirk’s parents, both public school teachers in the mid-size Midwestern town, participated in a six-week long strike that cut short Kirk’s final year of high school. The strike brought to the fore divisions in the community about property taxes and school funding, and prompted Kirk’s interest in the details of state and local tax policy. Several years later, during his first year at Yale Law School, Kirk published a student note, Rethinking Statewide Taxation of Nonresidential Property for Public Schools. He later served as the Chief Articles Editor of the Yale Law Journal and took first prize in the American Journal of Tax Policy student writing competition for an article on the role of transition rules in tax policy.
Following law school, Kirk worked as a tax lawyer at King & Spalding, focusing primarily on the taxation of corporate mergers & acquisitions, partnership tax, and tax litigation in the United States Tax Court. He has also worked in the legal department of the Inter-American Development Bank, an international organization that finances development projects in Latin America. Having studied in Buenos Aires while in college, Kirk speaks fluent Spanish, albeit with a hybrid Argentine/Hoosier accent.
Kirk doesn’t hide his enthusiasm for tax as a field of study. “Tax is — of course — where the action is. It is the site of many of the great debates about the relationship between the individual and the larger community. It is no surprise, I tell my students on the first day of class, that many of the world's greatest thinkers (e.g., Locke, Hobbes, Zolt) devoted much of their writing to the question of tax. Tax implicates all the big, important questions: What do we owe each other and why? How should we allocate among ourselves the cost of our collective activities? To what extent do we "deserve" the outcomes that we achieve in our market economy?” Frequently, Kirk’s passion for tax rubs off on his students. As one student remarked upon completing Kirk’s basic tax course, “Had there been a ‘tax army” I would have immediately enlisted!”
Kirk has published numerous articles on tax law and policy, with a particular emphasis on state and local tax policy issues. State Tax Notes describes him as a leading scholar in the field “whose provocative research is shaking up the status quo.” Several of his recent articles have addressed topics concerning multiunit public finance and the Tiebout Hypothesis. His 2003 article, Tiebout & Tax Revolts: Did Serrano Really Cause Proposition 13? (with Jonathan Zasloff), presents new statistical and historical evidence challenging the argument, advanced by Dartmouth economist William Fischel and others, that California's school finance decision caused the state's famous tax revolt. He currently has an article coming out in the Canadian Journal of Law & Jurisprudence, Enslaving the Beachcomber: Some Thoughts on the Liberty Objections to Endowment Taxation.
Kirk and his wife, Mei-lan, met in the Yale Law Library during their first semester of law school. Mei-lan works as a trademark/copyright attorney for the Walt Disney Company. Their two daughters, ages 6 and 2, admire their mother’s career more than their father’s. The family makes occasional trips to The Happiest Place on Earth®, where they enjoy the benefits of the “no additional cost service” exclusion under §132(a)(1).
For prior UCLA tax faculty profiles, see:
Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles. For prior Tax Prof Profiles, see here.
The folks at JibJab, who brought us the hilarious This Land! video of President Bush and Senator Kerry (blogged here), have a new Christmas video Santa Claus!. Participants in the Tax Prof Discussion Group have noted the many tax issues in the video:
Stuart Lazar (Thomas Cooley):
- Would cash gifts be includible in income? Clearly, the milk and cookies would be a de minimis gift. But, in the words of the immortal Jon Stewart, cash might be de maximus. Or it might be seen as the sale of the presents for the cash.
- Can Santa claim the elfs as dependents?
- Does the repossesion of Santa's workshop give rise to COD income? Or, does Santa fall under the insolvency exception?
- Can Santa deduct the costs of making children's presents against the income he earns from appearing at department stores? Can he show a loss or is he limited by Section 183? Do the passive loss rules come into play?
Jim Maule (Villanova):
- If no income and a gazillion dollars of expenses, does the section 183 hobby loss limitation apply?
- Are the milk and cookies taxable income?
- What about cash given in lieu thereof as requested?
- Is there a tax convention between the U.S. and the North Pole?
- Medical expense deduction for the physical?
- Tax consequences of the creditors' seizure of the sleigh and the factory foreclosure?
- What method of inventory accounting in use?
Gail Levin Richmond (Nova): Can Santa deduct his "uniform"?
Stuart Lazar (Thomas Cooley): I would guess that Santa probably wears his "uniform" year round -- it is a chick magnet. As such, it does not pass the Pevsner test.
Marion R. Fremont-Smith (The Hauser Center for Nonprofit Organizations, Kennedy School of Government, Harvard) has published a Special Report, Pillaging of Charitable Assets: Embezzlement and Fraud, 46 Exempt Organization Tax Review 333 (Dec. 2004), available on the Tax Analysts web site at 2004 TNT 247-29. Here is the conclusion:
Evidence from the surveys of press reports of wrongdoing by officers, directors, trustees, and employees of charitable organizations indicate a persistent degree of criminal activity. They also indicate a high degree of success in prosecutions, but this may be attributable to the fact that it is these cases that catch the attention of the press. There is no paucity of grounds on which criminal prosecutions can be brought -- both state and federal -- and there is some evidence that matters referred for prosecution are pursued. It is not possible to gauge whether increased attention to fraud by the accounting profession will be effective in reducing the extent of criminal activity within the nonprofit sector and, in fact, it is far too soon to tell. What is clear is that the proposals of the June 2004 Senate Finance Committee staff have mobilized support among organizations representing the nonprofit sector -- notably Independent Sector, the Council on Foundations, BoardSource, and many others that speak for specific segments of the sector -- as well as the American Bar Association and members of the accounting profession. They are reassessing the impact and effectiveness of current laws and efforts at self-regulation.
Most of Congress's interest and the sector's efforts are directed toward preventing breaches of fiduciary duty, although, as noted, some will result in a tightening of the criminal laws designed to punish "pillaging." In regard to criminal acts, I am not persuaded that new laws will greatly change the situation. There will always be individuals who take advantage of positions of trust for their private benefit and, for at least a time, their deceptions will go unnoticed. At best one can hope that organizations will become more aware of the risks of fraud that they face and take appropriate steps to impose internal controls that might minimize those risks -- or at the least reduce the time it takes before they are discovered.
Friday, December 24, 2004
This document, prepared by the staff of the Joint Committee on Taxation, provides a listing of tax provisions (other than those providing time-limited transition relief after the repeal of an underlying rule) that are currently scheduled to expire in 2004-2014 (with references to the applicable section of the Internal Revenue Code of 1986 or other applicable law). For purposes of compiling this list, the staff of the Joint Committee on Taxation considers a provision to be expiring if, at some statutorily specified date in the future, the provision expires completely or reverts to the law in effect before the present-law version of the provision.
In an early Christmas present for our readers, I am delighted to announce that Tax Analysts, the country's premier publisher of tax news and commentary, has agreed to partner with TaxProf Blog in making the most current and cutting-edge tax information available to the tax academic community. Each day, TaxProf Blog will cull from the vast resources of Tax Analysts an item of particular interest to our readers. We hope this partnership will give you yet another reason to visit our site each day.
The Catalogue for Philanthropy has ranked the fifty states on their relative generosity, comparing each state's average itemized charitable deductions with its average adjusted gross income (based on 2002 IRS data).
The 50-state ranking has a decided Red State-Blue State flavor: 27 of the 30 "most generous" states are Red States that voted for President Bush (including all 25 of the "most generous" states), while 17 of the 20 "least generous" states are Blue States that voted for Senator Kerry (including all 7 of the "least generous" states):
Note the eerie similarity with the 2004 presidential election map:
For media reports, see
(Thanks to the Tax Guru for the tip.)
For prior Red State-Blue State tax posts, see:
- Red States Feed at Federal Trough, Blue States Supply the Feed
- Red State, Blue State Update
- 50-State "Business Tax Friendliness" Ranking: Red States Chummy, Blue States Chilly
- Bush Tax Reform Favors Red States Over Blue States
- "Economic Freedom" Index Mirrors Red State-Blue State Divide
Valentin Estevez (University of Chicago, Economics Department) has posted Liberals, Conservatives and Your Tax Return: Partisan Politics and the Enforcement Activities of the IRS on SSRN. Here is the abstract:
This paper examines whether partisan politics influence the proportion of income tax returns audited by the IRS. I find that under Democratic presidencies the audit rate of income tax returns is higher than under Republican presidencies even after the inclusion of various political and economic controls. This difference is not constant across types of returns since during Democratic presidencies the IRS tends to audit fewer individual returns and more corporate returns than during Republican presidencies. Within the individual returns class, I find that under Democratic presidencies non-business returns are audited less frequently than business returns. Binding term limits do not affect these findings, regardless of partisan affiliation. These results contrast with recent evidence in the political economy literature that suggests that partisan politics affects mainly economic outcomes, such as growth and inflation rates, rather than the choice of policy instruments. Even though the declining trend in the number of income tax audits has been interpreted by the public as an indication that the IRS has become more tolerant of tax evasion, the results of this paper suggest that parties may be in fact resorting to more subtle redistributive policies, such as the likelihood of an audit, to favor their constituency.
Thursday, December 23, 2004
TaxProf Blog has been named the Most Popular Blawg recently added to the Blawg web site. (A "blawg" is "a weblog with emphasis on the law or legal related issues and concerns, often maintained by an individual who studies, practices or otherwise works in the legal field.")
Jonathan Baron (Pennsylvania, Wharton School) & Edward J. McCaffery (USC) have posted Starving the Beast: The Psychology of Budget Deficits on SSRN. Here is the abstract:
Many opponents of big government favor a strategy of "starving the beast," cutting taxes today with the expectation that spending cuts will follow tomorrow. Why might such a strategy work? Various heuristics and biases help to explain how it can. In two experiments conducted on the World Wide Web, subjects chose general levels of taxation and public spending from various hypothetical starting points. Subjects wanted to reduce both taxes and spending, preferring balanced budgets and even surpluses to deficits. When asked about specific spending cuts, however, subjects showed a marked reluctance to make cuts, leading to deficits. Subjects also showed an anchor and underadjustment bias, changing their responses in light of various baselines, and failing to completely close existing deficits. The "starving the beast" phenomenon, by pairing specific tax cuts with the general, abstract idea of spending cuts, can thus succeed in a population preferring fiscal balance. Once the deficit is created, it will likely persist, influencing future policy preferences.
In Caputi v. Commissioner, T.C. Memo. 2004-283 (12/22/04), the Tax Court yesterday upheld the constitutionality of §152(e) in a challenge brought by a non-custodial parent.
Under § 152(e), the dependency exemption is given to the custodial parent unless waived by that parent. Absent such a waiver, in the case of a minor dependent child whose parents are divorced or separated and together provide over half of the child's support, the parent having custody for a greater portion of the calendar year (custodial parent) will generally be treated as providing over half of the support for the minor dependent, and that parent will be entitled to the deduction.
Following his divorce, James Caputi claimed a dependency exemption for his minor son even though his ex-wife was the custodial parent. He argued that by granting the custodial parent the dependency exemption deduction, § 152(e) creates an unconstitutional irrebuttable presumption that the custodial parent provides more than half of the dependent’s support.
The Tax Court applied the rational basis test and found that §152(e) passed constitutional muster:
By enacting the current version of § 152(e), Congress sought to avoid the very type of factual debates that petitioner advances regarding the expenses of supporting and raising children, and to ease the administrative burden that was placed on the IRS when it became involved in these types of disputes. Section 152(e) gives the custodial parent the deduction and the ability to waive it for the benefit of the noncustodial parent. Id. This eases the administrative burden on the IRS and advances enforcement of the statute in a rational way; therefore, § 152(e) does not violate the Due Process Clause of the Fifth Amendment of the Constitution of the United States. To be sure, there are other ways that Congress could have resolved the problem, and each way would have strengths and weaknesses. But the fact that another way may seem preferable to petitioner does not mean that the manner chosen is without a rational basis.
New York Times: Bush's Tax Overhaul May Be Incremental:
President Bush's campaign to make the tax code simpler, fairer and more pro-growth is likely to involve incremental changes to the current system rather than a sweeping effort to scrap the venerable income tax for a radically new approach, such as a national sales tax. But the changes Bush will propose are still expected to generate huge opposition, especially if he suggests scrapping favored tax breaks such as the deduction for state income tax payments.
Wall Street Journal: A National Telephone Tax?
Much of the Washington press corps was preoccupied last week with the White House economic proposals, which are about allowing people to keep more of their money. Meanwhile, the National Governors Association was across town hosting a separate gathering that focused on just the opposite. The NGA -- along with its buddies at the National Conference of State Legislatures, the National League of Counties, the National League of Cities and the U.S. Conference of Mayors -- desperately wants to tax Internet use. And they're hoping that Internet phone calls, the latest hot Web application, will pave the way.... They want the Internet classified as one giant telephone for tax purposes. That's because telecom levies are some of the highest in the country, averaging 17.9%, according to the Council on State Taxation, and producing a cool $20 billion or so every year for state and local coffers.
Wall Street Journal (Tom Herman): New Tax Laws Create Traps At Year End:
First, do no harm. Taxpayers should keep that in mind as they scramble to make year-end maneuvers, such as tax-loss selling and charitable giving. After a rash of tax-law changes affecting everything from used-car donations to the deductibility of sales taxes, it is easier than ever to make costly year-end blunders that could mean higher tax bills.
Wall Street Journal: Stock Option Tax Rules Are Revised:
The Treasury Department and the Internal Revenue Service yesterday gave a holiday gift to companies and executives worried about the future of stock-appreciation rights, a form of deferred compensation that has been expected to grow in popularity as the appeal of stock options wanes.
Wall Street Journal: The New Sales-Tax Deduction:
If you decide it's better for you to deduct your sales taxes instead of income taxes, you can use the new IRS tables instead of relying on actual receipts that you saved throughout the year. Use your income level and number of exemptions to find the sales tax amount for your state.
Washington Post: An Early, Untaxed Bequest:
This is the season for giving, and merchants and children alike encourage it. But so do the nation's tax laws, and as parents and grandparents look toward the end of the year, accountants and other advisers suggest they think outside the gift-wrapped box. In general, taxes on what tax folks call "intergenerational transfers," and what the rest of us call gifts and bequests to the younger generation, can be quite harsh, despite Republicans' efforts to cut or repeal them.
Members of the Senate Finance Committee announced plans yesterday to stop millions of dollars in excessive income tax write-offs by property owners who promise not to change the facades on their historic properties. Chairman Charles E. Grassley (R-Iowa) and ranking Democrat Max Baucus (Mont.) said they will introduce legislation to fine property owners, promoters and appraisers involved in donating facade easements that lead to undue tax deductions. The penalties would be retroactive to prevent homeowners from cashing in this tax season, before the reforms, they said.
Washington Post: IRS Toughens Rules For Tax Shelter Advice:
The Internal Revenue Service yesterday toughened the rules that lawyers, accountants and other tax professionals must follow when they tell clients in writing that a tax strategy is likely to withstand a challenge from the government. The IRS also made final a list of practices it wants tax professionals to follow, but that do not carry penalties.
Washington Post: Outsourcing Tax Collection:
In response to the Dec. 9 editorial "Why Can't the IRS Do It?" I would like to explain the rationale for using private firms to collect unpaid taxes owed to the IRS. This policy is a matter of fairness: You pay your share of taxes; so should everyone else who owes them. Debt-collection firms successfully collect tax debt for more than 40 states and student loan debt for the U.S. Education Department.
Washington Post: In Tax Debate, Varying Estimates Drive Debate:
State policymakers frequently cite a 2002 study by two University of Tennessee economists estimating the amount of revenue the states would fail to realize in absence of a national system for taxing Internet sales. Based in part on an aggressive projection for total online sales, the Tennessee researchers concluded that the states would be losing out on $45 billion in tax revenue by 2006.
The Treasury Department yesterday announced (JS-2166) that Deputy Assistant Secretary for Tax Analysis Robert Carroll and Deputy Assistant Secretary for Regulatory Affairs Eric Solomon will assume leadership roles for Treasury tax policy until a new Assistant Secretary for Tax Policy is named. Carroll will provide economic advice and analysis with regard to tax policy issues. Solomon will continue to direct the regulatory guidance process in his role as Deputy Assistant Secretary for Regulatory Affairs and also serve as the acting Deputy Assistant Secretary for Tax Policy.
Assaf Razin (Tel Aviv University) & Efraim Sadka (Tel Aviv University) have posted Aging and the Welfare State: The Role of Young and Old Voting Pivots on the NBER web site. Here is the abstract:
An income tax is generally levied on both capital and labor income. The working young bears mostly the burden of the tax on labor income, whereas the retired old, who already acummulated her savings, bears the brunt of the capital income tax. Therefore, there arise two types of conflict in the determination of the income tax: the standard intragenerational conflict between the poor and the rich, and an intergenerational conflict between the young and the old. The paper studies how aging affects the resolution of these conflicts, and the politico-economic forces that are at play: the changes in the voting pivots and the fiscal leakage from tax payers to transfer recipients.
Wednesday, December 22, 2004
This paper examines the use of federal tax provisions to effect changes in state law corporate governance. There is a growing academic controversy over these provisions, fueled in part by their popularity among legislators as a method of addressing the recent spate of corporate scandals. In order to better understand and distinguish between the possible uses of tax as a tool of corporate governance, this paper takes a historical approach by focusing on two measures enacted during the New Deal - the undistributed profits tax in 1936 and the overhaul of the tax-free reorganization provisions in 1934 - and considers why the former was so much more controversial and less sustainable than the latter. While some of the difference can be explained by the different political and economic circumstances surrounding each proposal, this paper argues that the divergence in the degree of opposition can be explained in part by an examination of the extent to which each provision threatened an underlying norm, or longstanding standard, of corporate behavior. The paper goes on to test this norms-based explanation against several recent attempts to enact corporate governance-oriented tax provisions and concludes that it has modern relevance. The implication is that while Congress may use the Tax Code to reinforce existing norms of corporate behavior, it is likely to be less successful when it tries to use the Code to change existing norms or introduce new ones.
Despite a $140 billion existing tax break for employer-provided health insurance, tax policy remains the tool of choice for many policy-makers in addressing the problem of the uninsured. In this paper, I use a microsimulation model to estimate the impact of various tax interventions to cover the uninsured, relative to an expansion of public insurance designed to accomplish the same goals. I contrast the efficiency of these policies along several dimensions, most notably the dollars of public spending per dollar of insurance value provided. I find that every tax policy is much less efficient than public insurance expansions: while public insurance costs the government only between $1.17 and $1.33 per dollar of insurance value provided, tax policies cost the government between $2.36 and $12.98 per dollar of insurance value provided. I also find that targeting is crucial for efficient tax policy; policies tightly targeted to the lowest income earners have a much higher efficiency than those available higher in the income distribution. Within tax policies, tax credits aimed at employers are the most efficient, and tax credits aimed at employees are the least efficient, because the single greatest determinant of insurance coverage is being offered insurance by your employer, and because most employees who are offered already take up that insurance. Tax credits targeted at non-group coverage are fairly similar to employer tax credits at low levels, but much less efficient at higher levels.
Yoram Margalioth (Tel Aviv University), Eyal Sulganik (Interdisciplinary Center Herzliyah, Arison School of Business), Rafael Eldor (Interdisciplinary Center Herzliyah, Arison School of Business) & Yoseph Edrey (University of Haifa) have posted Tax Planning, Imbalance and Production on SSRN. Here is the abstract:
The paper analyzes the case of tax planning that tilts the government gain/loss ratio below one, and provides a proof of a certain type of inefficiency caused by tax planning. As the paper shows, the tax imbalance distorts the firm's output level, providing the firm with an incentive to produce more than the social optimum. This inefficiency is different from the general inefficiency entailed by income taxation, captured by the conventional notion of excess burden. The paper also examines the determinants of this type of distortion and offers some policy implications.
Following up on yesterday's post with suggestions for last-minute gifts for that special tax person in your life: here are more tax-related gifts available on ebay:
Tax Deductible Toilet Paper: A Roll of Tax Deductible Toilet Paper. A Must for the Anti-IRS Person. 10-4 Good Buddy Tax Return 1984. The Box measures 5" x 5" 4"
IRS Wrestler Action Figure: IRS a.k.a. Irwin R. Schyster is an official World Wide Wrestling Federation action figure. His ambition: "To tax my way to the top." Favorite quote: "I'm gonna write you off!"
April 15th Blues The Musical: Brand new for CPA's, Accountants, Tax Preparers or just any U.S. taxpayer who wants to laugh, cry and sing! A light one-act devoted to the turmoil of tax time. Sample songs: "Under the Table Tango," in which Elaine Valby (as Jane Q. Public) sings an aria of itemization. Later, on "A Tax Accountant Isn't So Romantic," Jane reflects on what she'll do without her accountant ex-boyfriend. April 15th Blues is light, yet delightful, comedy fare.
Caution: IRS Agent with an Attitude Sign: A brand new sign! Made of thick (.040 inch) aluminum and tough cast vinyl. This sign is 12 in. wide and 12 in. tall. Made to last for years outdoors also makes a great display indoors. Comes with 2 holes pre-punched for easy installation, corners are rounded.
Postcard of Treasury Department Circa 1915: White boarder postcard, circa 1915-1930. This beautiful old Era postcard is in very good to excellent condition. Typical edge, corner and handling wear for a card this age.
Stick the IRS! Board Game: Sticking the IRS does not require pins or needles or knowledge of the Internal Revenus Code. It takes 2-6 adult "Taxpayers" who are willing to take a chance with a "Tax Shelter" that may give financial security or may backfire. After four tours around the Board, the Taxplayer who has the most after-tax cash wins the game and has sucessfully been able to Stick The IRS.
IRS Opium Narcotics Seller Tax Stamp: A Fascinating Piece of Rare 1950's Tax Memorabilia: A 1952 IRS Opium Dealer & Seller Tax Stamp Issued to Karl S. Johnson of Lynn, Indiana (most likely a druggist). Dated: June 5, 1951. Allows for the distribution of Opium, Coca Leaves, and other powerful narcotics.
Uncashed IRS Refund Check from 1924: Today we are listing a neat old IRS collectible item. We have an August 25 1924 issued envelope, letter and refund check from the Treasury Department/Office of the Collector Internal Revenue, Buffalo, NY for 1 cent!
IRS Criminal Investigation Pin: Department of Treasury's Internal Revenue Service Criminal Investigation Pin. This attractive pin measures 1.25 inches across with butterfly clutch back.
IRS Special Agent Mini-Badge: A IRS Special Agent mini-badge bearing the same design as the law enforcement badges worn by Criminal Investigation Agents of the Internal Revenue Service, Department of the Treasury.
Official U.S. Taxpayer Patch: Each embroidered patch measures about 3 inches, is brand new with bright colors, and very detailed. They have a heat seal backing making them easy to apply with a hot iron or heat press. You can also sew them on.
Magnus Henrekson (Stockholm School of Economics) & Anna Dreber (Stockholm School of Economics) have posted Female Career Choice and Career Success: Institutions, Path Dependence and Psychological Feed-Back Effects (Dec. 15, 2004) on the Scandinavian Working Papers in Economics web site. Here is the abstract:
This paper identifies the pertinent institutions governing the structure of payoffs with regard to female career progression. Drawing on recent insights in behavioral economics, we hypothesize that interactions between psychological mechanisms and the institutional setup may be important determinants of cross-country differences in the level and evolution of female representation on executive positions in the business sector. We test this proposition informally by exploring whether it can be used to account for some of the observed differences between Sweden and the US in this respect. Our normative conclusion is that institutional reforms aimed at increasing female representation should take into account the role of psychological mechanisms in determining career choices and how these mechanisms are affected by relevant institutions such as the level of personal taxes, rules for parental leave, child care and wage-setting arrangements. Throughout the strong path dependence in career choice and career progression is emphasized.
The Treasury Department and IRS yesterday issued final regulations on the exception from employment taxes for services provided by students when those services are performed for a school, college or university:
Although wages paid to students for working for a school, college or university are subject to income tax, a special exception excludes the wages for such services from FICA and FUTA taxes if certain requirements are met. Questions have arisen regarding whether the exception is available in situations where the employment aspects of the student worker's relationship to the school, college or university predominate, especially in the case of medical residents receiving training in connection with the provision of health care services. These regulations address those questions.
The final regulations provide standards for determining whether an employer qualifies as a school, college, or university, and whether an employee is a student for purposes of exception from employment taxes. The final regulations also provide that full-time employees are not students for purposes of the exception, and outline relevant factors to be taken into account in determining if the exception applies to the services provided by other employees.