January 31, 2005
Winners of 2004 Law Students Tax Challenge
Congratulations to the winners of the 2004 Law Students Tax Challenge sponsored by the ABA Tax Section:
- 1st Place Team: Brian Judkins & Dan McCall, Georgetown (right). See the Georgetown press release here.
- 2nd Place Team: Kevin Morriss & Jason Rednour, Chapman
- 3rd Place Team: Atim Nsunwaaq & Soyun Park, Georgetown
- Jason Dutil & James Kinnebrew, George Washington
- Matthew Jaumann & Kenneth Crotty, Quinnipiac
- Amanda Van & Nathan Gierke, Thomas Jefferson
Best Written Submission: Brian Judkins & Dan McCall, Georgetown
The LSTC is a national tax planning and client-counseling competition designed to more closely reflect everyday tax practice than traditional moot court competitions. The LSTC is now in its fourth year and has become one of the largest tax competitions for law students in the United States. The semi-final and final rounds of the 2004 LSTC took place in January of 2005 in San Diego, California, during the Section of Taxation Midyear Meeting.
President's Tax Reform Commission To Hold First Meeting Feb. 16
The President’s Advisory Panel on Federal Tax Reform today announced that it will hold its first meeting on Wednesday, February 16 at 10 a.m. at the Ronald Reagan Building & International Trade Center Amphitheater, Concourse Level, 1300 Pennsylvania Avenue NW, Washington, D.C.
From the Treasury Department press release:
The first meeting will provide an opportunity for the panel members to hear general background information about the federal tax code. This meeting is the first in a series of public meetings that the panel will hold before it submits its final report by July 31, 2005.
From the notice published in the Federal Register:
Interested parties are invited to attend the meeting; however, no public comments will be heard at this meeting. The public will be provided additional opportunities to submit comments regarding issues of tax reform at later dates. Any written comments with respect to this meeting must be submitted by mail to The President's Advisory Panel on Federal Tax Reform, 1440 New York Avenue NW, Suite 2100, Washington, DC 20220. An electronic address will be provided as soon as it is available. All written comments will be made available to the public.
Wall Street Journal:
- Tax Showdown Promised by EU Chief (1/31)
- If IRA's in Trust, Look Out (1/30)
- New Tax-Deduction Choice Is a Headache (1/30)
- As Europe Cuts Corporate Tax, Pressure Rises on U.S. to Follow (1/28)
- First, Go After The Tax Cheats (1/30)
- Panel Advises Ending Tax Breaks for Easements (1/28)
- Tax Panel Offers Ideas To Raise Revenue (1/28)
IRS Rules Unforeseen Circumstances Justified TP's Move Within 2 Years for § 121 Purposes
The IRS ruled in LTR 2005-04-012 (Oct. 14, 2004) (also available on the Tax Analysts web site as Doc 2005-1782, 2005 TNT 19-23) that an individual who lived in his primary residence for fewer than two years nevertheless could exclude the maximum allowable amount of gain from the sale of his home under § 121 based on these unforeseen circumstances:
TP completed a test in order to compete for a position within the K-9 unit of TP's police force. The K-9 unit represents only 3% of the entire police force and very few officers are selected to train for a position within the K-9 unit. After TP and Spouse started using the Townhouse as their principal residence, TP received notification that TP was selected to become a K-9 officer. According to TP's supplemental representations, a K-9 officer is required to care for a dog and maintain a 6 foot by 9 foot kennel at the officer's residence. The homeowners association for TP's townhouse does not permit its residents to maintain a kennel. Consequently, TP and Spouse sold the Townhouse before they had owned and used the property as their principal residence for 2 years.
Can We No Longer Discuss Tax Policy in Class in Ohio?
The local media reports that a bill was introduced in the Ohio Senate last week "to prohibit instructors at public or private universities from 'persistently' discussing controversial issues in class or from using their classes to push political, ideological, religious or anti-religious views." Yikes -- we spent the better part of our first Estate & Gift Tax class this semester debating the pros and cons of the estate tax. Is that a verboten "controversial" and/or "political" topic?
The Ohio legislation was introduced by Larry Mumper, a Republican, who claimed that "many professors undermine the values of their students because '80% or so of them (professors) are Democrats, liberals or socialists or card-carrying Communists' who attempt to indoctrinate students. 'These are young minds that haven’t had a chance to form their own opinions,' Mumper said. 'Our colleges and universities are still filled with some of the ’60s and ’70s profs that were the anti-American group. They’ve gotten control of how to give people tenure and so the colleges continue to move in this direction.'"
The bill is patterned after the Academic Bill of Rights championed by David Horowitz.
- Top 5 Tax Paper Downloads
- Tax Analysts: Leyden, Hellwig Honored by ABA Tax Section
- Taxation of Complimentary Tickets
January 30, 2005
Top 5 Tax Paper Downloads
This week's list of the Top 5 Tax Paper Downloads on SSRN is the same as last week's, except that the #1 and #2 papers have switched positions:
2. Starving the Beast: The Psychology of Budget Deficits, by Jonathan Baron (Pennsylvania, Wharton School) & Edward J. McCaffery (USC)
3. 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)
Leyden, Hellwig Honored by ABA Tax Section
Tax Profs received two prestigious awards at the just-concluded ABA Mid-Year Meeting in San Diego:
The ABA Tax Section Pro Bono Award is presented each year to an individual lawyer or law firm who has demonstrated outstanding and sustained commitment to pro bono (free) legal services, particularly with respect to federal and state tax law.
"Diana Leyden's efforts on behalf of low income families bring honor to her and are in the best tradition of pro bono assistance by lawyers," said Kenneth W. Gideon, Section Chair. "We are proud to recognize her efforts with this award."
Leyden . . . has been actively involved in pro bono activities throughout her legal career. As Director of the University of Connecticut School of Law Tax Clinic, Leyden trains and supervises law students representing low- income taxpayers in federal and state tax controversies.
Nolan Fellows are younger tax lawyers who are actively involved in the Section and have demonstrated leadership qualities. "This year's Nolan Fellows are again an outstanding group of young tax lawyers," said Kenneth W. Gideon, Section Chair. "We are proud to recognize their contributions to our Section and our profession." Each one-year fellowship includes the waiver of meeting registration fees and assistance with travel to some section meetings.
The other 2005 Nolan Fellows are:
Taxation of Complimentary Tickets
Players say they are angry that about $10,000 will be withheld from their paychecks for what is supposed to be a fringe benefit. "It's bull****," Kings forward Chris Webber, 31, said. Responding to corporate scandals involving such companies as Enron Corp. and WorldCom Inc., the U.S. Internal Revenue Service is scrutinizing non-cash compensation such as homes and cars or - in the case of professional athletes - extras like free tickets.
January 29, 2005
Evelyn Brody (Chicago-Kent)
- B.A. 1976, Yale
- J.D. 1981, Georgetown
Evelyn has worked in all three sectors: private, public, and nonprofit. She practiced with Arnold & Porter in Washington, D.C. (1981-85), and Michael, Best & Friedrich in Madison, Wisconsin (1985-88); was an attorney/advisor in the Office of Tax Policy at the U.S. Department of Treasury (1998-92); and has been teaching at Chicago-Kent College of Law (since 1992, with semesters at Penn, Duke, and NYU). Evelyn received her J.D. from Georgetown University Law Center and her B.A. from Yale College.
Teaching a variety of income-tax courses, Evelyn makes sure to emphasize policy and politics, as well as doctrine. Of her basic tax class, she comments: “My favorite students are the ones with low expectations about studying tax law, which describes most of them. They come in thinking it’s about numbers and calculations and then they realize it’s about money, greed and power, and they really get into it. It’s a very funny course.”
Evelyn also teaches nonprofit law, her area of research. Her scholarly publications have examined the tax treatment of education; the economic and institutional similarities between nonprofit and for-profit organizations; charitable endowments; the direct and indirect effects of tax reform on charities; the limits of nonprofit fiduciary law; the constitutional bounds of the right of association; and the enforcement powers of the IRS and state attorneys general. (For a complete list of her publications, see here.)
Evelyn is the Reporter for the recently created American Law Institute project, “Principles of the Law of Nonprofit Organizations.” So far, she has drafted Council Draft No. 1 (Oct. 2003), relating to charitable purposes and restricted gifts, and Council Draft No. 2 (Nov. 2004), covering fiduciary duties and other aspects of charity governance. She observes: “Nonprofit law raises different issues from those found in business law. The tension is not between managers and owners but among the generations (past, present, future), and between managers and beneficiaries. How can – and to what degree should – the living generation follow the intentions of donors? How can boards and managers be required to meet their duties to the intended beneficiaries? What is the proper role of the IRS and the State attorneys general in charity enforcement, and what is the role of the donor and other private parties? The challenge to the nonprofit law project has only increased with the recent governance failures on the business side – what does Enron, WorldCom and Tyco say about our reliance on corporate boards?”
Both multi-disciplinary nonprofit projects and tax-law professional projects claim Evelyn’s attention. Her chapter on “Accountability and Public Trust” appeared in Lester Salamon’s State of Nonprofit America (2002). She has drafted “The Legal Framework for Nonprofit Organizations” for the forthcoming second edition of The Nonprofit Sector: A Research Handbook, edited by Walter W. Powell and Richard Steinberg. She is an associate scholar with The Urban Institute’s Center on Nonprofits and Philanthropy, for which she edited and contributed to a multi-disciplinary book, Property-Tax Exemption for Charities: Mapping the Battlefield (2002); co-hosted a seminar series on nonprofit advocacy; and helps organize semi-annual conferences on emerging issues in philanthropy, sponsored jointly with the Hauser Center for Nonprofit Organizations at Harvard. She is an At-Large member of board of the Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA). Evelyn now serves on the expert advisory group to the Independent Sector’s Panel on the Nonprofit Sector, which is preparing a response at the invitation of the Senate Finance Committee for suggestions for nonprofit governance reforms.
Evelyn was an academic advisor to the Joint Committee on Taxation staff’s 2000-2001 simplification project, and in 1992 served on the Clinton/Gore Transition Team (Treasury/Tax Policy Cluster). A long-time member of the ABA’s Section of Taxation, she is currently serving as Secretary of the Section and Chair of the Teaching Taxation Committee.
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.
Seidman on Social Security: What Now?
Laurence Seidman (University of Delaware, Department of Economics) has published Social Security: What Now?, 106 Tax Notes 463 (2005), also available on the Tax Analysts web site as Doc 2005-283, 2005 TNT 15-24. Here is the abstract:
He contends that even if nothing is done, Social Security will face a problem, not a crisis, after 2042: a 27% cut in the monthly benefit that would still leave the benefit after inflation larger than today's benefit. To avoid that 27% benefit cut after 2042, he offers three recommendations to be implemented as soon as possible: tax payroll above the Social Security ceiling; gradually reduce the replacement rate for high-income earners; and gradually raise the age of full benefits and the age of early retirement by one year. To achieve a bipartisan package, he recommends considering optional individual accounts provided seven conditions described in his article are met.
San Diego Hosts Conference on U.S. – Mexico International Tax Issues
The 2-day U.S. – Mexico International Tax Update On The Latest U.S.-Mexico Cross-Border Tax Issues conference at the University of San Diego concludes today:
Join us for a two day tax conference with sessions on current U.S. international tax law for U.S. and Mexico tax practitioners and financial advisors with clients who have assets, investments or otherwise intend to do business in the United States or Mexico. The conference will cover key tax issues for structuring, acquiring, financing, operating or disposing of assets or an affiliate in the U.S. Top government tax lawyers, including IRS Chief Counsel (International) will outline the new federal international tax provisions in the “American Jobs Creation Act of 2004.” Additionally, senior Mexican tax authorities will discuss the latest Mexican international tax reforms.
Tax Prof speakers include:
- Reuven Avi-Yonah (Michigan):
- American Jobs Creation Act – Update of New U.S. International Tax Reforms
- Application of NAFTA to the U.S.-Mexico Income Tax Treaty and the International Enforcement of Tax Judgments
- Karen Burke (San Diego): Reorganizing and Liquidating U.S. and Mexican Cross-Border Operations
- M. Carr Ferguson (San Diego): Reorganizing and Liquidating U.S. and Mexican Cross-Border Operations
- Bert Lazerow (San Diego): Application of NAFTA to the U.S.-Mexico Income Tax Treaty and the International Enforcement of Tax Judgments
- Dennis Lilly (San Diego): U.S. and Mexican Taxation of Cross-Border Services – Including Immigrating to or from the U.S. and Mexico and Application to Athletes and Entertainers
- Richard Pugh (San Diego): American Jobs Creation Act – Update of New U.S. International Tax Reforms
For the conference brochure, with registration information and a complete list of speakers and their topics, see here.
January 28, 2005
Joint Tax Committee Releases Report on Options to Improve Tax Compliance and Reform Tax Expenditures
The Joint Comittee on Taxation yesterday released the 435-page Options To Improve Tax Compliance And Reform Tax Expenditures (JCS-2-05). Here is part of the Introduction and Summary:
This report, prepared by the staff of the Joint Committee on Taxation, presents various options to improve tax compliance and reform tax expenditures. This report is prepared at the request of Senate Finance Committee Chairman Charles Grassley and Ranking Member Max Baucus. A copy of their letter follows this Introduction and Summary. This report is an independent work-product of the Joint Committee staff and the options included in it have not received prior approval by Senator Grassley, Senator Baucus, or their staffs.
As requested by Senators Grassley and Baucus, the report describes a number of proposals that would reduce the size of the tax gap by curtailing tax shelters, closing unintended loopholes, and addressing other areas of noncompliance in present law. In addition, the report contains proposals that would reform certain tax expenditures. Each proposal includes a description of present law, reasons for change, a description of the proposed change and effective date, and a discussion of the issues raised by the proposal. The proposals are not ranked or presented in any order other than by subject-matter.
The proposals contained in the report attempt to reduce noncompliance in several different ways. Some proposals address the problem by requiring new compliance or reporting initiatives, revising aspects of the law that have proven to be a source of taxpayer noncompliance, or increasing penalties. Other proposals address the problem by simplifying the law or making it more fair.
IRS Chief Counsel Korb on The Economic Substance Doctrine & Tax Shelters
IRS Chief Counsel Donald L. Korb spoke on Economic Substance Doctrine in the Current Tax Shelter Environment at the USC Law School 2005 Tax Institute. Here is the Conclusion:
Unfortunately, over the past 10 years we have witnessed a resurgence of tax shelter activity that has caused great damage to the integrity of our tax system. We have many cases under examination and many others in various stages of litigation. In working these cases, we must keep in mind that the economic substance doctrine is not a general antiabuse rule that can be raised to attack every transaction that the IRS does not like. On the other hand, taxpayers and practitioners should not forget that the doctrine is an indispensable tool which the IRS must be able to employ, to challenge transactions where the tax results appear inconsistent with Congressional intent and common sense. What this means is that in appropriate cases, the IRS will use all of the tools at its disposal to combat abusive tax shelters, including the economic substance doctrine.
BNA Tax Advisory Board Meets on Corporate Tax Issues
- Predecessor and Successor Regulations under Section 355, by Candace A. Ridgway (Jones Day, Washington, D.C.)
- Disguised Sale of Partnership Interest Regulations, by Deborah Harrington (Deloitte & Touche, Washington, D.C.)
- Recent Corporate Tax Developments, by Susan Edlavitch (Venable, Washington, D.C.)
Benko & Rohrs on The § 199 Domestic Production Deduction: An Overview of the Interim Guidance
Beth M. Benko & Jane A. Rohrs (both with Ernst & Young) have published The § 199 Domestic Production Deduction: An Overview of the Interim Guidance, also available on the Tax Analysts web site as Doc 2005-1666, 2005 TNT 18-48. Here is part of the abstract and conclusion:
Notice 2005-14 provides rules and definitions for taxpayers to use in computing the § 199 deduction. In general, § 199 provides a deduction equal to 3% (increasing to 9% when fully phased in in 2010) of the lesser of: (a) taxable income derived from a qualified production activity or (b) taxable income, for the tax year in question. However, the deduction is limited to 50% of the W-2 wages paid by the taxpayer during the calendar year that ends in that tax year.
Notice 2005-14 is detailed and provides answers to many of the questions that arose as a result of the enactment of § 199. In that respect, Treasury and the IRS were responsive to the need of taxpayers to have definitive answers as quickly as possible following the enactment of § 199. Nevertheless, many issues remain unresolved and much of the guidance relies on taxpayers using a "reasonable method." Presumably, future guidance will provide more clarity and certainty for taxpayers in computing the § 199 production deduction.
The goal of much of the recent guidance issued by Treasury and the IRS has been to create tax simplification and to minimize controversy by providing administrable rules. Notice 2005-14 does include some practical administrable guidance. However, the computation of the § 199 production deduction will require taxpayers to spend valuable time and resources gathering and analyzing information that was not previously required to determine the taxpayer's tax compliance burdens. Moreover, controversy will likely exist as taxpayers and the IRS struggle to reach agreement on what is, for example, "reasonable" in light of the existing facts and circumstances, or decide to test the boundaries of existing tax principles already the subject of dispute, but nevertheless "borrowed" for purposes of § 199.
UCLA Law Review Symposium Today on Rethinking Redistribution: Tax Policy in an Era of Rising Inequality
The UCLA Law Review Symposium on Rethinking Redistribution: Tax Policy in an Era of Rising Inequality takes place today from 9:00 a.m. - 4:00 p.m. PST, moderated by Kirk J. Stark (UCLA):
9:15 a.m.: Tax Policy and Redistribution in Historical Perspective
- Charlotte Crane (Northwestern): Designing Taxes with Wealth in Mind: Some Original Understandings
- Ajay K. Mehrotra (Indiana): Creating the Modern American Fiscal State: Progressive-Era Economists and the Intellectual Foundations of the U.S. Income Tax
- Commentator: Steven Bank (UCLA)
10:45 a.m.: Political Philosophy and the Tax Progressivity Debate
- Marjorie Kornhauser (Tulane): Choosing a Tax Rate Structure in the Face of Disagreement
- Commentator: Eric Rakowski (UC-Berkeley)
12:30 p.m.: Using the Tax System as a Vehicle for Redistribution
- Lawrence Zelenak (Duke): Tax or Welfare? The Administration of the Earned Income Tax Credit
- Commentator: Lily Batchelder (NYU)
1:45 p.m.: Cognitive Psychology and the Politics of Redistribution
- Commentator: William Blatt (Miami)
3:00 p.m.: Tax Policy and Redistribution in Developing Countries
- Richard Bird (Toronto, Rotman School of Management) & Eric M. Zolt (UCLA): Redistribution via Taxation: A New Perspective for Developing Countries
- Commentator: Arnold C. Harberger (UCLA, Economics Department)
Nip, Tuck, and Tax
Illinois and Washington are considering joining New Jersey in taxing . . . facelifts and Botox injections (see here):
Lawmakers trying to plump up the bottom line are considering a "vanity tax" on cosmetic surgery and Botox injections in Washington, Illinois and other states. Plastic surgeons and their patients say the idea is just plain ugly. "It makes no sense. Where does it stop - massages, facials, teeth cleanings?" asked Karen Wakefield, 51, who has had a nose job, dermabrasion, liposuction, tummy tuck and breast lift - plus a little Botox here and there.
On the federal level, § 213(c)(9) already excludes cosmetic surgery from the medical expense deduction. The Code defines "cosmetic surgery" as "any procedure which is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease." (Thanks to Botox-free Sam Donaldson (Washington) for the tip.)
January 27, 2005
IRS Issues Rev. Proc. on Combining Like-Kind Exchange with § 121 Exclusion
The revenue procedure clarifies that a homeowner, who may exclude gain upon a sale or exchange of a home, also may benefit from a deferral of gain for a like-kind exchange with respect to the same property.
The revenue procedure indicates that, in certain cases, a homeowner may benefit from both the home-sale exclusion and the like-kind deferral. In such cases, the property would have been used consecutively or concurrently as a home and a business (e.g. rental residence). The revenue procedure sets forth six examples, illustrating the treatment of depreciation and boot.
IRS Releases EITC Assistant
The EITC Assistant will help take the guess work out of the EITC eligibility rules. The EITC Assistant is one in a series of steps taken by the IRS to encourage all eligible taxpayers, but only those who are eligible, to claim the valuable EITC refund. For the 2004 tax year, the maximum credit is $4,300. EITC Assistant is available in English and Spanish versions.
For other EITC resources, see:
New England Seeks Estate Planning Visitor for 2005-06
New England School of Law is seeking a visitor for the 2005-06 academic year (one or two semesters) to teach two sections of Estate Planning and one section of Wills, Estates & Trusts. For more information, contact Judi Greenberg.
Kun on Implications of Corporate Inversions
Orsolya Kun (Siegel & Kun) has published Corporate Inversions: The Interplay of Tax, Corporate, and Economic Implications, 29 Del. J. Corp. L. 313 (2004). Here is the abstract:
Within the last several years, public attention has focused on a number of high-profile "corporate inversions" or tax-motivated trans-actions, in which U.S.-based multinational corporations reincorporated in foreign jurisdictions. These tax-motivated expatriations raise a number of concerns justifying the added attention. Although corporate inversions do not substantively change business operations, these transactions alter the tax structure of the inverting multinational. The inverted corporation ceases to be subject to U.S. worldwide taxation, and may allocate income outside the reach of U.S. taxation. Participating corporations, however, do not lose the benefits of U.S. corporate status. Finally, the change in the jurisdiction of incorporation significantly affects corporate governance by changing the laws governing the fiduciary duties of corporate officers and directors. This article examines the reasons behind corporate expatriations, the tax structure that makes them feasible and their legal and operational implications.
Raby & Raby on Frivolous Tax Positions
Burgess J.W. Raby & William L. Raby have published Frivolity, Tax Practitioners, and the Tax Law, also available on the Tax Analysts web site as Doc 2005-1617, 2005 TNT 17-42. Here is the Introduction:
The Senate version of what became the American Jobs Creation Act of 2004 would have given the IRS much greater latitude to impose a § 6694(a) penalty on a return preparer. Current law authorizes the $250 penalty if an undisclosed position lacks "a realistic possibility of being sustained on its merits" or if a disclosed position is frivolous. The Senate change, which did not survive the conference, would have raised "nonfrivolous" to the same reasonable basis standard applicable to taxpayers under § 6662(d)(2)(B)(ii)(II). Instead, there is a wide gap between the standard that applies to taxpayers (reasonable basis) and to tax preparers (not frivolous), and especially so when it comes to the positions that are deemed to be properly disclosed merely by being placed on the tax return under the annually revised revenue procedure, the latest revision of which is Rev. Proc. 2004-73, 2004-51 IRB 999.
Practitioners concerned about their own exposure to penalties, especially since the increased IRS emphasis on practitioner standards, have asked us to help clarify the difference between a frivolous position and one that is nonfrivolous. They are usually not so much concerned about § 6694 as they are about § 10.34(a) of Circular 230, which repeats § 6694's requirement that a disclosed return position not be frivolous and extends that requirement to tax advice as well. The Circular 230 answer is that "a position is frivolous if it is patently improper." That, however, may be begging the question. After all, what is "patently improper"? It would mean something is obviously wrong. Thus, the answer to the original query would be that frivolity is a little like pornography -- you know it when you see it. Another response is that if the practitioner could not even explain the taxpayer's position to a study group of experienced colleagues without bursting out laughing, it is probably frivolous (the so-called giggle test). This article is our attempt to put a little more flesh on the bones of "frivolous" and "patently improper."
Shuldiner Presents Taxation of Risky Investments Today at NYU
It has long been known that it is possible to avoid a flat rate income tax on the returns to risk bearing by simply increasing the size of the transaction. The theory is simple. A flat income tax takes an equal share of gains and losses. In doing so, it reduces both the expected return and the variance of the transaction. By increasing the size of the transaction ("grossing up" or "scaling up"), it is generally possible to restore both the pre-tax level of risk and the pretax return from the investment itself. If the risky transaction requires no capital -- such as with many with some derivative contracts -- grossing up is costless and the tax has no effect on the taxpayer. From the government's point of view, the government has essentially engaged in the grossed-up transaction as a partner. The government suffers the risks of its share of the transaction and receive the rewards of its share, no more.
The Colloquium will be held in Room 202 of Vanderbilt Hall from 4:00 - 6:00 p.m. EST. Although the public is invited to attend, due to heightened security throughout NYU Law, please contact Haydee Torres so she can provide the Guard's desk with your name.
Abrams Presents Repairing the Section 734(b) Basis Adjustment Today at Northwestern
The partnership tax provisions - Subchapter K of the Internal Revenue Code - work pretty well. Those provisions have a difficult job of providing a reasonable mechanism for taxing arrangements between parties that can be far from off-the-rack. It should not be difficult to figure out how to tax two individuals who contribute equal amounts of cash to start a joint business in which each will own a one-half interest. It quickly becomes problematic, however, when one of the two partners wants a greater share of early receipts in exchange for a lower share of back-end gains. If the amounts the partners contribute are unequal, they will have some arrangement to account for that difference which the taxing structure must digest. A partnership is the most flexible form of business organization, and the rules of Subchapter K capture that flexibility surprisingly well.
January 26, 2005
TaxProf Blog Crosses 400,000 Threshold
After 9 1/2 months in operation, TaxProf Blog has crossed the 400,000 visitor mark. We are grateful to our growing number of regular readers and are thrilled that we have spawned ten sister blogs in other areas of law through our Law Professor Blogs Network:
- AntitrustProf Blog (Shubha Ghosh (SUNY Buffalo))
- ContractsProf Blog (Carol Chomsky (Minnesota) & Frank Snyder (Texas-Wesleyan))
- CrimProf Blog (Jack Chin (Arizona) & Mark Godsey (Cincinnati))
- Health Law Prof Blog (Betsy Malloy (Cincinnati) & Tom Mayo (SMU))
- LaborProf Blog (Rafael Gely (Cincinnati))
- Law Librarian Blog (Joe Hodnicki (Cincinnati))
- Media Law Prof Blog (Cristina Corcos (LSU))
- Sentencing Law & Policy Blog (Douglas Berman (Ohio State))
- White Collar Crime Prof Blog (Peter Henning (Wayne State) & Ellen Podgor (Georgia State))
- Wills, Trusts & Estates Prof Blog (Gerry Beyer (St. Mary's))
We hope you will continue to email us suggestions and comments, both with respect to this blog as well as potential blogs for other areas of law.
Call for Papers: University of Illinois Tax Research Symposium
This is a biannual symposium designed to bring together leading tax scholars from accountancy, economics, finance and related fields. Authors employing rigorous research methods to study any tax-related topic are invited to submit papers. The Department of Accountancy will publish a monograph that contains a synopsis of each paper presented and discussants’ comments. The intent is that such publication will not preclude authors from submitting completed papers to scholarly journals. Reasonable travel and lodging expenses for presenters will be reimbursed.
Papers are due May 1, 2005. For more information, contact Robert Halperin.
Treasury's Office of Tax Analysis Publishes Impact of Advertising on IRA Participation
The Treasury Department's Office of Tax Analysis has published Information, the Introduction of Roths, and IRA Participation (OTA Working Paper 91), by Warren B. Hrung (Office of Tax Analysis, Treasury Department). Here is the abstract:
This study investigates the issue of whether part of the increase in total IRA contributions from 1997 to 1998 can be attributed to increased advertising due to the introduction of Roth IRAs in 1998. In this study, the use of a tax preparer will proxy for exposure to information regarding IRAs. A preparer is expected to have less of an influence on IRA participation in 1998 relative to 1997. Evidence supports this prediction amongst taxpayers eligible for an IRA contribution in both 1997 and 1998. However, evidence also suggests that more information would have led to a potentially sizable increase in participation for taxpayers newly eligible for an IRA contribution in 1998.
(The paper also is available from Berkeley Electronic Press).
Sheppard on How to Love Tax Practice
Lee Sheppard presented How to Learn to Stop Worrying and Love Tax Practice yesterday at the New York State Bar Association's annual meeting, published at 106 Tax Notes 474 (2005) (and also available on the Tax Analysts web page as Doc 2005-1178, 2005 TNT 15-27). Here is the opening:
I tell law students that they will not get rich planning tax shelters. I tell them that they will have one house instead of two, three cars instead of seven, and one wife instead of two. I tell them that if they want to get rich quick they should not be in any business that bills by the hour, but that they should become investment bankers instead.
One student responded, "But Goldman Sachs doesn't take just anyone." So now I tell that story, and I never fail to get baleful looks from students and howls of laughter from their teachers.
The truth is that investment bankers think you're schmucks. And they're never gonna stop thinking that. When this talk was being planned, there was a big kerfuffle among local practitioners about a prominent lawyer who left a white-shoe law firm to go to a bank.
So what? Either way, you're working for bankers, directly or indirectly. And the irony of the way things work these days is you might have more power to say no to crazy ideas inside a bank than outside it. The ostensibly independent outside lawyers are dependent on the banks as clients, while the bank's internal lawyers can stop horrible things from seeing the light of day. No matter where you are, you're stuck with working for bankers, because the whole economy has been financialized.
Fleischer Presents The Missing Preferred Return Today at Michigan
Managers of buyout funds and other private equity funds give their investors an 8% preferred return on their investment before they take a share of any additional profits. Venture capitalists, on the other hand, offer no preferred return. Instead, VCs take their cut from the first dollar of nominal profits. This disparity between venture funds and buyout funds is especially striking because the contracts that determine fund organization and compensation are otherwise very similar. Are VCs receiving pay without performance? Is the missing preferred return evidence that VCs are camouflaging rent extraction from investors?
This Article argues that the missing preferred return reflects an inefficiency in venture capital compensation practices. Making VC pay subject to a preferred return would help investors screen out bad VCs and would better align the incentives of VCs with their investors when VCs are courting and negotiating with portfolio companies. The screening effect may be less important for VCs with strong reputations. Even for elite VCs, however, the status quo still appears to be inefficient, albeit in a different way. If a fund declines in value in its early years, as is usually the case, the option-like feature of the carried interest distorts VC incentives. Compensating VCs with a percentage of the fund, rather than just a percentage of profits, would eliminate this distortion of incentives. Thus, the current industry practice is puzzling. None of the usual suspects like bargaining power, boardroom culture, camouflaging rent extraction or cognitive bias offers an entirely satisfactory explanation. Only by peering into a dark corner of the tax law can we fully understand the status quo.
The tax law encourages venture capital funds to adopt a compensation design that misaligns incentives but still maximizes after-tax income for all parties. Specifically, by not recognizing the receipt of a profits interest in a partnership as compensation, and by treating management fees as ordinary income but treating distributions from the carried interest as capital gain, the tax law encourages funds to maximize the amount of compensation paid in the form of carry. One way to do this is to eliminate the preferred return, thereby increasing the present value of the carried interest, which in turn allows investors to pay lower tax-inefficient management fees.
Stark on The Liberty Objections to Endowment Taxation
Kirk Stark (UCLA) has posted Enslaving the Beachcomber: Some Thoughts on the Liberty Objections to Endowment Taxation on SSRN. Here is the abstract:
Conventional wisdom among contemporary liberal egalitarians is that taxing individuals according to their endowment or earnings capacity would constitute an unacceptable intrusion on basic human liberties. In effect, the argument goes, such a scheme would result in a type of slavery - in order to pay the tax, people would be forced to accept jobs commensurate with their identified levels of endowment. For example, John Rawls argued that an endowment tax would force the more able into those occupations in which earnings were high enough for them to pay off the tax; it would interfere with their liberty to conduct their life within the scope of the principles of justice.
This Article examines the Rawlsian objection to endowment taxes and considers whether it can be distinguished from the libertarian claim, advanced most famously by Robert Nozick, that taxation of earnings is unjust because it is on a par with forced labor. The Article's principal claim is that unless one assigns greater moral value to non-market activities than to market activities (a position arguably in tension with the liberal principle of neutrality as between alternative visions of the good life), there is no difference in kind or in degree between the interference with liberty occasioned by the two types of taxes. It follows from this analysis that if one accepts Rawls's argument regarding endowment taxes, one must also accept Nozick's argument regarding wage taxes. This conclusion presents the liberal egalitarian with a dilemma: she must either (1) embrace endowment taxes as a moral ideal, rejecting the liberty concerns expressed by Rawls and others, or (2) join Nozick in renouncing the ordinary taxation of earnings, a move that would substantially weaken her commitment to egalitarian outcomes.
The purpose of the Article is not to resolve this dilemma, but rather to expose some of the tensions inherent in the liberal egalitarian framework and to suggest that consideration of these tensions is necessary to the development of a more satisfactory liberal egalitarian position on questions of taxation and distributive justice. Toward that end, an alternative framework is suggested for assessing the liberty cost of taxation. It is contended that all taxes - whether on income, consumption, wealth, endowment or other tax bases - interfere with individuals' pursuit of the good life. For any given level of revenue to be raised through taxation, the recognition and protection of a liberty interest in one type of activity will simply increase the liberty costs associated with unprotected activities. The liberal instinct to shield non-market activity from taxation does not reduce the liberty cost of taxation, but rather merely shifts it to those whose conceptions of the good life involve the use of markets. This is not to suggest that a concern for personal autonomy should not inform our choice of tax institutions, but rather that the question may ultimately be one of distribution. That is, in fashioning a tax system, how best can we allocate the benefit of being free from taxation's inevitable interference with personal autonomy?
January 25, 2005
Panel on Nonprofit Sector Releases Draft Recommendations for Improving Charity Governance and Oversight
The Panel on the Nonprofit Sector has released draft Recommendations for Improving Charity Governance and Oversight made by five Work Groups and an Expert Advisory Group The Recommendations fall into four broad categories:
- Improving Transparency and Financial Management
- Improving Government Oversight and Enforcement
- Improving Governance and Self-Regulation
- Compliance Requirements for Small Organizations
The Panel comprises 24 leaders convened by Independent Sector at the encouragement of the U.S. Senate Finance Committee. To give comments on the draft, see here. To participate in a free national conference call about the draft to be held tomorrow (Wed., Jan. 26) at 2:00 - 3:30 p.m. EST, see here.
eBay Auction for "Law Professors Experiencing Popularity Problems"
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This item is ... a wise purchase for law professors experiencing popularity problems.
The auction ends tomorrow. The current high bid (as of 1:00 p.m. EST) is $76. The seller also notes: "Every time that someone bids, another puppy gets to live." (Thanks to our sister Law Librarian Blog for the tip.)
SOI Publishes 2002 Partnership Tax Data
The total number of partnerships increased to 2,242,169, but net income (less deficit) decreased to $270.7 billion.
Dodge & Soled on Inflated Tax Basis
Joseph M. Dodge (Florida State) & Jay A. Soled (Rutgers, Business School) have published Inflated Tax Basis and the Quarter-Trillion-Dollar Revenue Question, 106 Tax Notes 453 (2005) (also available on the Tax Analysts web site as Doc 2005-356, 2005 TNT 15-23). Here is the abstract:
Dodge and Soled explain why inflated tax basis reporting is pervasive, estimating that this problem will cost the federal government $250 billion over the next 10 years and that the real figure could easily be much higher. And, unlike corporate tax shelters, this type of tax fraud is available to all taxpayers who engage in property transactions.
Furthermore, they assert, the underlying problem of tax basis identifications will be dramatically exacerbated if the new Congress moves quickly (as seems likely) to permanently repeal the estate tax, in which case a carryover tax basis regime of section 1022 will supplant the current basis-equals-fair-market-value-at-death rule. The authors question, however, how estate fiduciaries could possibly calculate the tax basis that decedents had in their investments, if the taxpayers themselves, while alive, did not know that basis. A carryover basis regime failed so badly in 1976 that it was retroactively repealed, according to Dodge and Soled. In light of this failure, there is no reason to suspect that the carryover basis regime scheduled to take effect in 2010 will fare any better, unless Congress and the IRS institute safeguards along the lines that the authors propose.
In a conversation with Mikhail Gorbachev, Ronald Reagan once said, "Trust, but verify." In making that remark, Reagan made an important observation about how perhaps we should conduct diplomacy and, the authors suspect, our affairs in general. They think that tax basis identifications require the same vigilance on the part of Congress and the IRS.
David Cay Johnston published an extensive discussion of the article on the front page of the business section in yesterday's New York Times (Overstating of Assets Is Seen to Cost U.S. Billions in Taxes):
Investors, entrepreneurs and landlords annually avoid paying at least $29 billion in taxes by overstating the price of stocks, businesses and real estate, two professors say in an article being published today in Tax Notes, an influential tax policy journal..."An unpublicized problem of crisis proportions is plaguing" the tax system, one that will cost the government at least $250 billion in the coming decade," the professors wrote...The authors are two widely recognized authorities on little known ways of cheating by exploiting weaknesses in tax administration.
Kordana & Tabachnick on Tax and the Philosopher's Stone
Kevin A. Kordana (Virginia) & David Tabachnick (Virginia, Fellow in Philosophy Department) have posted Tax and the Philosopher's Stone, 89 Va. L. Rev. 647 (2003) (reviewing Liam Murphy & Thomas Nagel, Myth of Ownership: Taxes and Justice (Oxford 2002)) on SSRN. Here is the abstract:
In the Myth of Ownership: Taxes and Justice (Oxford 2002), Liam Murphy and Thomas Nagel discuss the relationship between tax policy and contemporary political philosophy. Murphy and Nagel essentially argue for the priority of political philosophy over tax policy. For them, there is little room for tax policy per se; they argue that tax policy ought to serve the ends of a philosophical conception of justice. They maintain that questions of fairness are, in and of themselves, irrelevant to tax policy, which should be understood as a slave to philosophical conceptions of justice. While we embrace Murphy and Nagel's central claim that it makes little sense to engage arguments over tax policy without an antecedently held conception of distributive justice and that questions of tax policy must be consistent with that conception, we argue that some aspects of their argument are ultimately too strong. Traditional metrics of tax policy analysis such as the benefit principle and the equal sacrifice principle are neither completely irrelevant to tax policy, nor inconsistent with all versions of political liberalism. We distinguish between "pre-institutional" and "post-institutional" conceptions of liberalism, and between "maximizing" and "non-maximizing" conceptions of distributive justice. We argue that while Murphy and Nagel's argument is powerful in the context of maximizing, post-institutional conceptions, it is less persuasive in the context of pre-institutional versions of liberalism and, perhaps, in the context of non-maximizing versions of post-institutional liberalism. Finally, we conclude by arguing that the central claims of Murphy and Nagel's argument are, to some extent, in tension with what they take to be their view's practical applications.
Enrich and Zelinsky Speak Today at NYSBA Tax Section Annual Meeting
The annual meeting of the New York State Bar Association Tax Section is 9:00 a.m. - 4:00 p.m. today at the New York Marriott Marquis Hotel, 1535 Broadway, New York City. Tax Profs Peter D. Enrich (Northeastern) and Edward A. Zelinsky (Cardozo) are participants on a panel on The Recent 6th Circuit Decision in Cuno v. DaimlerChrysler and the National Streamlined Sales Tax Project. Other panels are:
- Recent Developments in Capital Markets
- Private Equity: Current Tax Issues
- The Government Speaks
- Future Shock: Are Tax Lawyers on the Edge of a Brave New World?
January 24, 2005
Commissioner Everson Delivers Public Lecture Tonight at Yale on Taxes: The Price of Citizenship
IRS Commissioner Mark W. Everson delivers a public lecture tonight at Yale on Taxes: The Price of Citizenship. The lecture is at 7:30 - 8:30 p.m. EST in Sudler Hall, William L. Harkness Hall, 100 Wall Street. (Thanks to reader Bill Kambas for the tip.)
Samansky Presents Charitable Deductions for Non-Itemizers Today at Ohio State
Allan J. Samansky (Ohio State) presents Charitable Contribution Deductions for Non-Itemizers today at 11:30 a.m. EST at Ohio State.
Unanimous Supreme Court Sides with Government in Contingent Fee Case
The Supreme Court today decided Commissioner v. Banks (No. 03—892) and Commissioner v. Banaitis (No. 03-907). In a unanimous opinion (with Chief Justice Rehnquist not participating), the Court ruled in in favor of the Government. The Court cites at page 10 of the opinion the amicus briefs filed by Tax Profs Stephen B. Cohen (Georgetown) and Charles Davenport (Rutgers-Newark) (previously blogged here).
Respondent Banks settled his federal employment discrimination suit against a California state agency and respondent Banaitis settled his Oregon state case against his former employer, but neither included fees paid to their attorneys under contingent-fee agreements as gross income on their federal income tax returns. In each case petitioner Commissioner of Internal Revenue issued a notice of deficiency, which the Tax Court upheld. In Banks’ case, the Sixth Circuit reversed in part, finding that the amount Banks paid to his attorney was not includable as gross income. In Banaitis’ case, the Ninth Circuit found that because Oregon law grants attorneys a superior lien in the contingent-fee portion of any recovery, that part of Banaitis’ settlement was not includable as gross income.
Held: When a litigant’s recovery constitutes income, the litigant’s income includes the portion of the recovery paid to the attorney as a contingent fee. Pp. 5—12.
(a) Two preliminary observations help clarify why this issue is of consequence. First, taking the legal expenses as miscellaneous itemized deductions would have been of no help to respondents because the Alternative Minimum Tax establishes a tax liability floor and does not allow such deductions. Second, the American Jobs Creation Act of 2004–which amended the Internal Revenue Code to allow a taxpayer, in computing adjusted gross income, to deduct attorney’s fees such as those at issue–does not apply here because it was passed after these cases arose and is not retroactive. Pp. 5—6.
(b) The Code defines “gross income” broadly to include all economic gains not otherwise exempted. Under the anticipatory assignment of income doctrine, a taxpayer cannot exclude an economic gain from gross income by assigning the gain in advance to another party, e.g., Lucas v. Earl, 281 U.S. 111, because gains should be taxed “to those who earn them,” id., at 114. The doctrine is meant to prevent taxpayers from avoiding taxation through arrangements and contracts devised to prevent income from vesting in the one who earned it. Id., at 115. Because the rule is preventative and motivated by administrative and substantive concerns, this Court does not inquire whether any particular assignment has a discernible tax avoidance purpose. Pp. 6—7.
(c) The Court agrees with the Commissioner that a contingent-fee agreement should be viewed as an anticipatory assignment to the attorney of a portion of the client’s income from any litigation recovery. In an ordinary case attribution of income is resolved by asking whether a taxpayer exercises complete dominion over the income in question. However, in the context of anticipatory assignments, where the assignor may not have dominion over the income at the moment of receipt, the question is whether the assignor retains dominion over the income-generating asset. Looking to such control preserves the principle that income should be taxed to the party who earns the income and enjoys the consequent benefits. In the case of a litigation recovery the income-generating asset is the cause of action derived from the plaintiff’s legal injury. The plaintiff retains dominion over this asset throughout the litigation. Respondents’ counterarguments are rejected. The legal claim’s value may be speculative at the moment of the assignment, but the anticipatory assignment doctrine is not limited to instances when the precise dollar value of the assigned income is known in advance. In these cases, the taxpayer retained control over the asset, diverted some of the income produced to another party, and realized a benefit by doing so. Also rejected is respondents’ suggestion that the attorney-client relationship be treated as a sort of business partnership or joint venture for tax purposes. In fact, that relationship is a quintessential principal-agent relationship, for the client retains ultimate dominion and control over the underlying claim. The attorney can make tactical decisions without consulting the client, but the client still must determine whether to settle or proceed to judgment and make, as well, other critical decisions. The attorney is an agent who is duty bound to act in the principal’s interests, and so it is appropriate to treat the full recovery amount as income to the principal. This rule applies regardless of whether the attorney-client contract or state law confers any special rights or protections on the attorney, so long as such protections do not alter the relationship’s fundamental principal-agent character. The Court declines to comment on other theories proposed by respondents and their amici, which were not advanced in earlier stages of the litigation or examined by the Courts of Appeals. Pp. 7—10.
(d) This Court need not address Banks’ contention that application of the anticipatory assignment principle would be inconsistent with the purpose of statutory fee-shifting provisions, such as those applicable in his case brought under 42 U.S.C. § 1981 1983, and 2000(e) et seq. He settled his case, and the fee paid to his attorney was calculated based solely on the contingent-fee contract. There was no court-ordered fee award or any indication in his contract with his attorney or the settlement that the contingent fee paid was in lieu of statutory fees that might otherwise have been recovered. Also, the American Jobs Creation Act redresses the concern for many, perhaps most, claims governed by fee-shifting statutes. P. 11.
Enrich Presents Constitutionality of Tax Abatements for Economic Development Today at Toledo
Peter D. Enrich (Northeastern) presents Constitutionality of Tax Abatements for Economic Development today at noon at Toledo. According to the press release:
He recently joined forces with consumer activist Ralph Nader to combat corporate welfare by initiating a lawsuit in Ohio challenging the constitutionality of corporate tax incentives.
Black & Black on A National Tax Bar
Katherine D. Black (Southern Utah, Business School) & Stephen T. Black (Franklin Pierce) have published A National Tax Bar: An End to the Attorney-Accountant Tax Turf War, 36 St. Mary's L.J. 1 (2004). Here is the Conclusion:
Taxation is a field that is so pervasive that its effect is felt by practically all people. In fact, the ramifications of taxation can be so devastating that they can literally destroy businesses and disrupt families. Superimposed upon the monetary effects of taxation, are the potential criminal penalties for willful failure to comply with a maze of complex and practically unintelligible rules.
Despite the critical need for competent, professional help in the area of taxation, the current state of tax practice is confused, virtually unsupervised, and without definite standards for practitioners. [FN679] Accountants who do a great deal of the tax practice in this country have refused to create a certification that would protect the public and ensure a high level of competency among practitioners in the area of taxation. Despite their reluctance to demand a high standard of competency, they have begun to move into additional areas of "law" in an effort to expand their practice.
The state courts have said that the practice of tax is the practice of law, and as such is subject to its supervision. Presumably, these decisions establish the law that only lawyers can practice tax, but these holdings are flaunted and not enforced. Further, enforcement would bring about chaos and be to the public detriment, as there are not enough lawyers to do the work done by accountants. The federal courts are split on the issue, but generally hold that the practice of tax is the practice of accounting, even when performed by an attorney. Generally, their rulings are not so much an analysis of whether tax is the practice of law, as they are an effort to limit the use of an accountant-client privilege. Thus, although the states hold the practice of tax is the practice of law, the federal courts generally hold that the practice of tax is the practice of accounting unless it involves a criminal prosecution. Accountants practicing tax, however, do so under the threat of prosecution for the unauthorized practice of law under state law. Since there is no one else to do a job that is in such critical demand, this threat of prosecution is an unfair burden to put upon the accounting profession.
It is time for the legal profession to set realistic standards ensuring the public welfare in terms of providing both sufficient and competent tax assistance. This can be done by creating a new classification of professionals who must meet standards of competency in the areas of taxation and who are supervised by the courts.
Raby & Raby on Taxpayer Testimony as Credible Evidence
When section 7491, which shifts the burden of proof to the IRS for some taxpayers, was added to the tax code seven years ago, the reaction of experienced tax practitioners seemed to be that it would do no harm. Congress had been disturbed by complaints that taxpayers were considered "guilty" in tax matters until they had proven themselves innocent. Section 7491 satisfied the complainants. Recent cases have suggested that it even may make a difference occasionally, but they have also made clear that the taxpayer still has the burden of going forward with the production of evidence before the burden can shift.
Last Chance to Take Survey
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- Top 5 Tax Paper Downloads
- Tax Analysts: Rollinson, Mundaca & Murillo on Notice 2005-10 and the New Repatriation Provisions
- SOI Publishes 2002 Individual Income Tax Data
January 23, 2005
This week's list of the Top 5 Tax Paper Downloads on SSRN is the same as last week's:
1. Starving the Beast: The Psychology of Budget Deficits, by Jonathan Baron (Pennsylvania, Wharton School) & Edward J. McCaffery (USC)
3. 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)
Rollinson, Mundaca & Murillo on Notice 2005-10 and the New Repatriation Provisions
Margie Rollinson, Michael Mundaca & Jose Murillo (all with Ernst & Young, Washington, D.C.) have published Notice 2005-10: Welcome (Mostly) Guidance on the New Repatriation Provisions (also available on the Tax Analysts web site as Doc 2005-1237, 2005 TNT 13-34). Here is the Conclusion:
Notice 2005-10 provides welcome guidance regarding the repatriation provisions of section 965, and is mostly good news for taxpayers. Although some may be disappointed that stock redemptions and dividend payments are not permitted investments and that cash equivalents are not considered cash, the notice does provide some very generous rules regarding permitted investments, including broad rules on worker compensation and benefits, debt repayment, qualified plan funding, business acquisitions, and advertising. The notice also provides rational and administrable rules regarding the development and implementation of the DRIP, as well as reasonable general administrative and compliance rules.
SOI Publishes 2002 Individual Income Tax Data
Taxpayers filed 130.1 million individual income tax returns for Tax Year 2002, reporting $6.0 trillion of adjusted gross income.
January 22, 2005
Howard Abrams (Emory)
- B.A. 1976, University of California-Irvine
- J.D. 1980, Harvard Law School
Insomnia is why I am a tax professor. I was an insomniac during law school, and in my second year I tried reading the high-numbered sections of the Code and regulations (my favorite was and remains Code § 7806(b)) to fall asleep. It did not work as well as I had hoped, but I learned a lot of tax. Enough both to do well in my course and to become interested in the subject as a career. When I learned that Judge Tannenwald (already on the Tax Court but not yet Chief Judge) was looking for a clerk, I applied for the position and was fortunate to be selected. For an aspiring tax professor, working at the Tax Court is an excellent beginning.
Judge Tannenwald was recognized as one of the shinning lights of the bench and bar, and his great specialty was corporate reorganizations. In the late 1970s and early 1980s, it seemed all serious tax lawyers aspired to do corporate reorganizations. But even then my interest lay in the partnership arena, and that was not a bad choice until enactment of the passive loss limitations largely put tax shelters -- and with them much partnership tax work -- out of business. But by then I was an academic and so protected from this reduction in potential clients (I had spent six months at Brobeck, Phleger & Harrison right after my clerkship -- it seemed like a safe choice at the time). I started at the University of Oklahoma for a year but moved to Emory University in 1983 where I have been ever since.
Well, mostly ever since. I spent the 1988-1989 academic year at Cornell, the 1999-2000 academic year in the National Office of Deloitte & Touche in Washington, DC, and the calendar year of 2003 at Steptoe & Johnson (also in DC). I am, I think, a much better law professor for having spent time in the private sector. Indeed, over the last half-dozen years I have done a lot of speaking to professional organizations (and with practitioners as other speakers), and my education has grown immeasurably. We are fortunate to have a remarkably capable bar, and I have found the lawyers who are active in the ABA Tax Section surprisingly willing to help educate even pin-head academics such as myself. Of course, creation of the limited liability company and promulgation of the check-the-box regulations has made partnership tax the way-cool area it always should have been.
I have been a teacher for almost 25 years, and what I do is largely a reflection of those who have come before. Professors Wolfman and Andrews formed much of my tax thinking, and I doubt I will ever break free of the mold they cast. Judge Tannenwald was kind enough (perhaps not always kindly) to teach me that hard work is at least as important as cleverness, and Richard Doernberg at Emory has given me someone to bounce ideas off for more than 20 years. Fred T. Witt (now of Deloitte & Touche) clerked with me 25 years ago, and we have remained close friends ever since. We approach tax problems from opposite directions -- he starts from the words of the Code, I start from the structure -- yet we almost always arrive at the same place. If I have had success in this business, my secret has been Fred: find someone smart who thinks very differently from the way you do, and then talk to him or her regularly.
But truth be told, my life has not been all tax. In the middle 1980s when personal computing was in its infancy and Windows had yet be developed, I wrote a software program called "MousePerfect," a mouse-interface for the leading DOS-based wordprocessor (WordPerfect). MousePerfect was great fun: it began and ended before the Internet so I did not become filthy rich, but for five or six years I got to see my software written up in most of the leading computer magazines. While never more than a two person operation, MousePerfect ultimately had distributors in the Benelux countries, in Australia, and in Mexico. IBM, Microsoft, and even NATO bought copies; the US military had a site license!
I'm trying to finish the BNA Portfolio on Disregarded Entities and a couple of short pieces on partnership taxation. And then I hope to turn to an Evidence article and perhaps even something on law and literature. I regularly teach for a few weeks of the summer at Leiden University, and I have been an adjunct as the University of Georgia for more than ten years. I have managed to win teaching awards three times (Richard has won five awards!), and I've testified before the Senate once. The Emory tax web page is here.
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.
Sullivan on President Bush's Advisory Panel on Tax Reform
Martin A. Sullivan has published Economic Analysis: Boxed In -- What's a Tax Reform Panel to Do?, 106 Tax Notes 264 (2005) (also available on the Tax Analysts web site as Doc 2005-873, 2005 TNT 12-9):
Tax Notes' economic correspondent Martin A. Sullivan takes a closer look at the Advisory Panel on Federal Tax Reform's structure and mandate, comparing the panel to the 2001 President's Commission to Strengthen Social Security.