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Saturday, January 22, 2005

Tax Profs at ABA Tax Section Mid-Year Meeting

Aba_tax_5Tax Profs are playing a prominent role in the mid-year meeting of the ABA Tax Section in San Diego.  Tax Profs on today's panels include:

7:00 a.m.- 9:00 a.m.:  Low Income Taxpayers:  Chair:  Diana Leyden (Connecticut)

      • Ethics and "Offer Mills":  Moderator:  Gwen Thayer Handelman (Nova)

8:30 a.m.- 11:45 a.m.:  Sales, Exchanges, and Basis
  • Current Developments in Realization and Recognition:  Moderator:  Erik Jensen (Case Western)
  • Exchanging "Cates and Dogs" -- Eschanges of Oil and Gas Interests, Exchanges of New and Used Aircraft and Syndicated Interests in Aircraft, Exchanges of Personal Property Under NAICS:  Panelist:  Bradley T. Borden (Washburn)

8:30 a.m. - 11:30 a.m.:  Value-Added Tax and Other Consumption Taxes:  Chair: Alan S. Schenk (Wayne State)

  • Congressional Proposals for a Consumption-Based Tax:  Panelists:  Oliver Oldman (Harvard), Alan Schenk (Wayne State) & Lester Snydder (San Diego)

2:00 p.m. - 5:00 p.m.:  Standards of Tax Practice:  Chair: Michael B. Lang (Chapman)

  • An Update on Multi-Jurisdictional Practice:  Moderator:  Mona L. Hymel (Arizona)
  • Important Developments:  Panelist:  Stephen T. Black (Franklin Pierce)

2:00 p.m. - 5:00 p.m.Current Developments in Individual, Corporate, Partnership, and Estate & Gift Taxation:

  • Panelists:  Elaine Hightower (Montana), Martin J McMahon (Florida), Ira B. Shepard (Houston)

January 22, 2005 in ABA Tax Section, Conferences, Tax Profs | Permalink | Comments (0) | TrackBack (0)

Friday, January 21, 2005

More on Taxing Telcommuters

We previously have blogged (here and here) the unsuccessful attempt by Cardozo Tax Prof Edward Zelinsky to avoid paying New York state income tax on the portion of his salary attributable to his work in his Connecticut home office.  The latest ABA Journal e-report has an interesting story on the issue, Telecommuter Tax Case is Closely Watched; N.Y. Argues It Can Tax All of an Out-of-State Worker’s Income.

January 21, 2005 in News | Permalink | Comments (0) | TrackBack (0)

Schenk on The Realization Rule

SchenkdDeborah H. Schenk (NYU) has published A Positive Account of the Realization Rule, 57 Tax L. Rev. 355 (2004). Here is the Conclusion:

In summary, although a realization rule is an inevitable feature of our hybrid tax, a pure realization rule is indefensible in a system intended to impose a tax on capital. Differing effective tax rates on the return to capital give rise to deadweight loss and a misallocation of resources triggered by efforts to limit avoidance options created by the rule. Since the benefits of the realization rule are not fully capitalized into prices, different types of income bear different effective tax rates, creating equity concerns as well. Since neither an accrual tax or a pure realization rule is tolerable, the task for policymakers is to determine where along the continuum to draw the line.

January 21, 2005 in Scholarship | Permalink | Comments (0) | TrackBack (0)

6th Circuit Denies Rehearing in Ohio Investment Tax Credit Case

We previously blogged the Sixth Circuit's decision in Cuno v. Daimler-Chrysler, Inc., No. 00-07247 (6th Cir. Sept. 2, 2004), holding that Ohio's investment tax credit is unconstitutional because it grants preferential tax treatment to companies to expand within the state rather than in other states.  The Sixth Circuit this week denied the defendants' petition for rehearing en banc.  The panel's decision, if followed in other circuits, would invalidate investment tax credits in 40 other states.  (Tax Prof Peter Enrich (Northeastern) is counsel for the appellants.)   For press coverage of the Sixth Circuit's order, see:

January 21, 2005 in New Cases | Permalink | Comments (1) | TrackBack (0)

Rubin & Whiteway on Disregarded Entities and Partnership Liability Allocations

Tax_analysts_23 Blake D. Rubin & Andrea Macintosh Whiteway (both with Arnold & Porter, Washington, D.C.) have published Disregarded Entities and Partnership Liability Allocations: Proposed Regs Critiqued, 106 Tax Notes 321 (2005) (also available on the Tax Analysts web site as Doc 2004-24173, 2005 TNT 12-31). Here is the abstract:

The IRS recently proposed regulations addressing the consequences of owning a partnership interest through a disregarded entity (such as a single-owner LLC) on the allocation of partnership liabilities under § 752. The proposed regulations, according to the authors, are unquestionably based on a sound analysis of the extent to which a partner who owns a partnership interest through a disregarded entity bears the economic risk of loss for a partnership liability. That theoretical purity, they argue, comes at a cost of significant taxpayer compliance burdens in an area where, based on informal conversations with government representatives involved in developing the regulations, there was no evidence of taxpayer abuse.

January 21, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Catholic Seeks Tax Visitor for 2005-06


The Columbus School of Law of the Catholic University of America is seeking a one-semester or full-year tax visitor for 2005-06:

Law school teaching experience is preferred. The Catholic University of America was founded in the name of the Catholic Church as a national university and center of research and scholarship. Regardless of an individual’s personal religious affiliation, all faculty are expected to support the University’s mission.

Persons interested in being considered should submit a resume and letter describing their qualifications for an interest in the position as soon as possible to Dean William Fox, The Columbus School of Law, 3600 John McCormack Road, NE, Washington, D.C. 2006, FAX: (202) 319-5473

January 21, 2005 in Tax Profs | Permalink | Comments (0) | TrackBack (0)

Tax Profs at ABA Tax Section Mid-Year Meeting

Aba_tax_5Tax Profs are playing a prominent role in the mid-year meeting of the ABA Tax Section in San Diego.  Tax Profs on today's panels include:

7:30 a.m.- 8:30 a.m.:  Exempt Organizations Subcommittee on Political & Lobbying Organizations and Activities:  Co-Chair:  Miriam Galston (George Washington)

7:30 a.m.- 9:00 a.m.:  Teaching Taxation:  Advising on Foreign Tax Systems:
  • Moderator:  Tracy A. Kaye (Seton Hall)
  • Panelist:  Samuel C. Thompson (UCLA)

8:30 a.m. - 11:30 a.m.:  Domestic Relations:  Chair:  Toni Robinson (Quinnipiac)

  • High End Divorce Planning:  Panelist:  Thomas R. White, III (Virginia)
  • The New Definition of a Qualifying Child:  Panelists:  Thomas R. White, III, (Virginia), Cynthia Lepow (Loyola-New Orleans)

8:30 a.m. - 11:30 a.m.:  Partnerships & LLC

  • Co-investment or Partnership: Drawing the Line:  Panelist: Bradley S. Boren (Washburn)
  • Section 752 and Basis ina Disregarded World: Panelist:  Panelist:  Karen C. Burke (San Diego)

8:45 a.m. - 5:00 p.m.:  Exempt Organizations

  • Native American Philanthropy: Reforming the Rules:  Moderator:  Jeffrey A. Trexler (SMU)
  • Governmental Entities — Or Are They?:  Moderator: Ellen Aprill (Loyola-L.A.)

9:00 a.m. - 11:30 a.m.:  Banking & Financial Institutions

  • Current Developments in the Consolidated Return Context:  Moderator:  Don Leatherman (Vanderbilt)

2:30 p.m. - 5:30 p.m.:  Court Procedure & Practice

  • How Much Deference is Due:  The IRS and Administrative Determinations:  Panelist: Christopher M. Pietruszkiewicz (LSU)

3:30 p.m. - 5:30 p.m.:  Diversity (Executive Session):  Chair:  Craig Boise (Case Western)

4:00 p.m. - 6:30 p.m.:  Young Lawyer's Forum:  Chair:  Barry Kozak (John Marshall)

January 21, 2005 in ABA Tax Section, Teaching | Permalink | Comments (0) | TrackBack (0)

Thursday, January 20, 2005

Rare Bipartisan Agreement at the Inauguration

Zelenak on Redesigning the EITC as a Minimum Wage Adjustment

ZelenaklLawrence Zelenak (Duke) has published Redesigning the Earned Income Tax Credit as a Family-Size Adjustment to the Minimum Wage, 57 Tax L. Rev. 301 (2004). Here is the Conclusion: 

Congress has never offered a coherent account of the purpose (or purposes) of the EITC, and the structure of current law does not suggest any well-defined purpose. The somewhat incoherent nature of current law might be the result of a compromise between conflicting visions of the credit's purpose, rather than the lack of any clear vision, but it is difficult or impossible to find attractive accounts of the purpose of the credit even in the academic literature.

This Article has argued that the EITC can and should be redesigned to serve as an adjustment to the minimum wage based on family size, to lift all families headed by full-time workers out of poverty. Although this view of the EITC would inform a redesign of the credit, it would certainly not dictate every element of credit design. People might agree on this basic goal for the credit and still disagree on many structural details, such as: (1) whether the maximum amount of the credit should be tied to the official poverty guidelines, (2) whether there should be some limit on the number of credit-generating children for any one household, (3) how rapidly the credit should be phased in and phased down, (4) how far the credit should be phased down (that is, what are appropriate differences in tax liability based on family size, for middle and upper income taxpayers), (5) whether the credit design should be based on the assumption that the de facto minimum wage for working parents exceeds the official minimum wage, (6) whether there should be special credit rules for parents of young children, based on the view that such parents should not be employed full-time, (7) whether the credit should be designed to cover the subsistence needs of a worker's homemaking spouse, as well as those of the worker's children; and (8) whether the minimum wage-adjusting aspect of the credit should be combined with or separated from any payroll tax relief for low wage workers. Despite these numerous and important open questions, viewing the credit as a minimum wage adjustment could be the first step in the development of a more rational and more effective anti-poverty program for working families.

January 20, 2005 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Hasen on A Realization-Based Approach to Taxation of Financial Instruments

DhasenDavid M. Hasen (Michigan) has published A Realization-Based Approach to the Taxation of Financial Instruments, 57 Tax L. Rev. 397 (2004). Here is part of the Conclusion:

Financial contract innovation undermines the federal income tax system in two basic ways, both of which are related to the inconsistent and incomplete application of realization principles in the income tax. First, it disaggregates the kinds of economic returns that a real economic investment generates from ownership of the investment itself. Because historical practice generally supported realization-based taxation for risk-based returns that derived from assumption of an investment risk, but not for other kinds of risk-based returns, the principal tax effect of this disaggregation has been to extend the realization rule to many contexts in which there is neither precedent nor a sound policy basis for doing so. Second, financial contract innovation presents an opportunity for the seemingly limitless combination of different kinds of assets and returns into new assets with new returns. In economic terms these new assets may mimic other familiar assets, or they may have economic characteristics that share those of two (or more) other assets without being reducible to either. In the first case the tax law must be able to identify and tax the combination as the familiar asset; in the second case it must be able to tax the asset in a way that both approaches accuracy as compared to similar instruments and avoids arbitrage opportunities. In the absence of rules that address these distinct effects of synthesis and hybridization, the capacity that financial contract innovation affords to carve up and reallocate returns on underlying assets creates opportunities for tax avoidance by exploiting inconsistency and discontinuity.

I have argued for a two-pronged approach to deal with these problems. The first prong would confine application of the realization rule to the investment-risk return of an asset, and the second would apply realization and accrual principles consistently to all financial returns, whether freestanding or combined as part of a complex financial instrument.

January 20, 2005 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Beller on The New Penalty Regime

Tax_analysts_21Herbert N. Beller (Sutherland Asbill & Brennan, Washington, D.C.) has published The New Penalty Regime: Proceed With Caution!, 106 Tax Notes 311 (2005) (also available on the Tax Analysts web site as Doc 2004-23791, 2005 TNT 12-30).  Here is the abstract:

This Special Report reviews recently enacted penalties and related statutory provisions and administrative requirements designed to strengthen the government's hand in its battle against abusive tax shelter transactions, particularly when required disclosure of those transactions is not made. Beller demonstrates that the new rules directly affect both the taxpayers and their advisers, and could in some instances result in significant changes in the nature and scope of the professional relationship between tax practitioners and their clients.

January 20, 2005 | Permalink | Comments (0) | TrackBack (0)

Griffith Presents Progressive Taxation and Happiness Today at NYU

Griffith Nyu_2Thomas D. Griffith (USC) presents Progressive Happiness and Taxation today at NYU as part of its Colloquium on Tax Policy and Public Finance series.  Here is the abstract:

This Article explores the optimal level of income redistribution by examining the potential welfare gains from redistributive tax and spending policies. Drawing on recent research on human happiness, this Article argues that while wealthy nations are generally happier than their poorer counterparts, neither national nor individual economic growth appear to have an appreciable impact on the subjective well-being of the citizens of relatively wealthy nations. Significant causes of this finding include the problem of rivalry—that increases in the income of some depress the happiness of others—and the fact that individuals overestimate the degree to which additional consumption will improve their happiness. Studies show the level of inequality in a society also may affect levels of happiness. Ultimately, happiness research is consistent with the strongest justification for adopting a progressive tax structure— income has declining marginal utility thus redistribution can increase total welfare in a society.

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. 

January 20, 2005 in Colloquia | Permalink | Comments (1) | TrackBack (0)

Hines Presents VATs and International Trade Today at UCLA

Jhines Ucla_1James R. Hines, Jr. (University of Michigan, Economics Department) presents Value-Added Taxes and International Trade: The Evidence today at UCLA as part of its Tax Policy and Public Finance Workshop series.  Here is the abstract:

This paper examines the effect of value-added taxes (VATs) on international trade. Destination-based VATs are commonly thought to encourage exports, since exports are exempt from tax while imports are taxed. Economic theory implies that exchange rate adjustment prevents destination-based VATs from affecting exports and imports, since exchange rate appreciation completely undoes the effects of introducing a VAT. Indeed, this proposition is so well accepted among economists that it has not been subjected to serious prior testing. Evidence from 136 countries in 2000 indicates instead that reliance on VATs is associated with fewer exports and imports. Countries using VATs have one-third fewer exports than do countries not using VATs, and 10% greater VAT revenue is associated with 2% fewer exports. A similar pattern appears in an unbalanced panel of 168 countries from 1950-2000, in which VAT use is associated with 12% fewer exports. These patterns persist with the inclusion of income and geographic controls, and while the effect of VATs on exports is stronger among low-income countries than it is among high-income countries, there is a significant negative effect of VATs on exports even among high-income countries. The behavior of American multinational firms in 1999 is consistent: 10% greater local VAT collections are associated with 5% fewer exports by local American-owned affiliates. Two features of VAT implementation may account for these effects: VATs tend to be imposed at higher rates on traded goods than on nontraded goods, and exporters often receive only incomplete VAT rebates.

The workshop is from 3:00 - 5:00 pm PST in Room 2448 at UCLA.

January 20, 2005 in Colloquia | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 19, 2005

Crane Presents Keeping the Income Tax Base Closed at Northwestern

Northwestern CraneCharlotte Crane (Northwestern) presented Keeping the Income Tax Base Closed last week at Northwestern's Tax Policy Colloquium.  Here is the Conclusion:

Several changes over the last several decades have introduced new challenges into the problem of income tax base definition. The unacknowledged liabilities have proliferated -- a function of the adoption of section 461(h) and the expansion of the demand for deferred compensation subject to section 404. The repeal of General Utilities has brought with it the relatively new pretense that it is possible to equate at any one point in time the overall value of a going derived by adding up the value of its assets -- both positive and negative -- with the the market value of interests in the entity. Increasing sophistication in the design of financial products has resulted in more situations in which the usual reliance on the distinction between well-specified obligations to repay in cash and other obligations produces less sensible results. As exemplified both by the transactions that led to the enactment of sections 357(d) and 358(h) and by the obvious inadequacies of the solutions, our tax accounting for anticipated costs has simply not proved up to the challenge.

January 19, 2005 in Colloquia | Permalink | Comments (0) | TrackBack (0)

Tax History Project Publishes The Origination Clause

Thp_logo_1 The Tax History Project, a public service initiative of Tax Analysts, has posted "A Source of Frequent and Obstinate Altercations": The History and Application of the Origination Clause (by Michael W. Evans).  Here is the Introduction:

Congress, in considering revenue legislation, occasionally faces a "blue slip problem." A question arises concerning whether a Senate bill or amendment offends the Constitution's Origination Clause, with the result that, if the provision passes the Senate, the House will respond with a blue slip -- a resolution, printed on blue paper, that informs the Senate that it is the opinion of the House that the bill infringes on the House's constitutional prerogative to originate revenue legislation and that, accordingly, the House refuses to consider it. That slip of blue paper signals a problem faced since colonial times: how to distribute the power to raise revenue in a bicameral legislature. It is a problem with not only deep historical roots, reaching back before the Constitution, but also important practical applications. For example, over the past few years, Congress has faced Origination Clause questions for legislation increasing the federal debt limit and establishing new user fees.

January 19, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Tax Policy Center Holds Forum on Setting the Stage for Tax Reform

The Tax Policy Center held a forum yesterday on Setting the Stage for Tax Reform:

The President has called for tax reform to make the tax system simpler, fairer, and more conducive to economic growth, without increasing (or decreasing) the deficit. This Tax Policy Center forum will discuss the issues that the new tax reform commission will have to grapple with in setting forth proposals that could advance these objectives. Why is the tax code such a mess, and what can be done to fix it? Can the income tax be saved, or should it be scrapped in favor of a tax on consumption? Can the income tax be redesigned so that most taxpayers do not have to file tax returns? What are the implications for tax reform of the proliferation of social programs in the tax code? Is revenue-neutral tax reform politically feasible or desirable?

Moderator: Julie Kosterlitz (National Journal)


  • William G. Gale (Miller Chair, Brookings Institution, & Co-director of the Tax Policy Center)
  • Pamela Olson (Partner, Skadden, Arps, Slate, Meagher & Flom, LLP)
  • C. Eugene Steuerle (Senior Fellow, Urban Institute and Co-director of the Tax Policy Center)

Tax Analysts reports that agreed that the panelists agreed that "pending tax reform efforts would likely yield incremental and not full-blown overhaul of the income tax system."

January 19, 2005 in Conferences | Permalink | Comments (0) | TrackBack (0)

Field on Transparency in Revenue Estimating

Tax_analysts_20Tom Field, the founder of Tax Analysts, has published Transparency in Revenue Estimating, 106 Tax Notes 329 (2005) (also available on the Tax Analysts web site as Doc 2004-24018, 2005 TNT 12-32).  Here is the abstract:

Thomas F. Field is the founder of Tax Analysts, a nonprofit publisher located in Arlington, Virginia. For more than 30 years, Tax Analysts has played a prominent role in litigating disclosure questions relating to tax information.

In this article, Field reviews current transparency practices at the three federal agencies that produce revenue estimates. He concludes that the U.S. Treasury Department is very secretive with respect to its revenue estimates, that the Congressional Budget Office is quite transparent, and that the Joint Committee on Taxation occupies a middle ground.

Field then reviews the arguments for and against greater transparency in the revenue estimating process. He also examines state and international estimating practices to see if they provide any guidance about the appropriate degree of transparency for revenue estimates. At the conclusion of the article, he advances a set of proposals to improve the transparency of the federal estimating process.

This article is based on interviews with scores of individuals both in and outside of government. Most asked not to be identified, but Field wishes to thank each of them for their assistance. Their comments helped to correct errors and substantially improved the recommendations. Thanks to these comments, this article has truly become a collective effort by dozens of individuals who share a common interest in the improvement of the estimating process. The article's errors, however, remain Field's own.

This article is part of an ongoing series of articles in Tax Notes on the revenue estimating process. The series was funded by a consortium of sponsors headed by the Lone Star and Heritage Foundations. For an introduction to the series, see Tax Notes, Nov. 22, 2004, p. 1141.

January 19, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Survivor Winner Richard Hatch Cannot Survive IRS

SurvivorIrs_logo_33 Richard Hatch, the winner of the first CBS Survivor reality show, plead guilty yesterday to two counts of income tax evasion for failing to report: 


  • $1,000,000 he received in 2000 for winning the show (along with a $10,000 payment he received for appearing on the final episode).
  • $320,000 he received for working on a Boston radio station in 2001.

For a copy of the criminal information filed yesterday in federal district court in Rhode Island, see here.  Thanks to our sister blogs CrimProf Blog and White Collar Crime Prof Blog for the tip.

January 19, 2005 in Celebrity Tax Lore | Permalink | Comments (2) | TrackBack (1)

Lederman Accepts Chaired Position at Indiana-Bloomington

LedermanLeandra Lederman (George Mason), after visiting this year at Indiana-Bloomington, has accepted a permanent position there as William W. Oliver Professor of Tax Law and Director of the Tax Program.  Brian Leiter hits the nail on the head:

In addition to substantial contributions to tax scholarship, she is also a very good teacher, as we learned when she visited at Texas a couple of years ago. A good catch for Indiana!

Congratulations to Leandra and to Indiana!

January 19, 2005 in Tax Prof Moves | Permalink | Comments (1) | TrackBack (0)

Tuesday, January 18, 2005

NYSBA Tax Section Submits Report on Proposed Partnership Regs on Disregarded Entities

Nysba_5The New York State Bar Association Tax Section has submitted a report to the IRS on the Proposed Regulations Under Section 752 Relating to the Allocation of Partnership Liabilities Where a Disregarded Entity is an Obligor:

      • Letter from Chair (Lewis R. Steinberg) (2 pages)
      • Report No. 1076 (21 pages) (Joel Scharfstein was the principal author; William B.Brannan, Kimberly S.Blanchard, Patrick C.Gallagher, Gary B.Mandel, Andrew W.Needham, Michael L. Schler, David H.Schnabel, Lewis R.Steinberg & Willard B.Taylor provided helpful comments).

January 18, 2005 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Tax History Project Publishes Historical Perspective on Tax Reform

Thp_logo_1 The Tax History Project, a public service initiative of Tax Analysts, has posted Historical Perspective: Tax Reform? Don't Count on It (by Joseph J. Thorndike).  Here is the Introduction:

Washington is atwitter with talk of tax reform. President Bush is pondering names for his blue-ribbon tax commission (incongruously, perhaps, for a red-state president). And think tanks are humming with excitement, eager to foist their fiscal fancies on an unwitting -- or at least uninformed -- Congress. But what are the real prospects for wholesale tax reform? Pretty slim, if history is any guide. In a recent reissue of his well- regarded study, Federal Taxation in America, historian W. Elliot Brownlee has reminded us that real tax reform -- serious, durable, ambitious tax reform -- requires a national crisis. Unless things get much worse for the United States, that reform seems likely to remain a chimera.

January 18, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

SOI Publishes 2001 Private Foundation and Charitable Trust Data

Irs The just-released Statistics of Income Bulletin (Fall 2004) includes Domestic Private Foundations and Charitable Trusts, 2001 by Melissa Ludlum (SOI).  Here is the summary:

Nearly 70,800 private foundations filed Forms 990-PF and reported disbursements of nearly $27.4 billion in contributions, gifts, and grants for Tax Year 2001.

For related data, see here.  For other private foundation and charitable trust data, see here.

January 18, 2005 in Gov't Reports | Permalink | Comments (0) | TrackBack (0)

Minnesota District Court Denies Gay Man's Attempt to File a Joint Tax Return with His Partner

Tax_analysts_19 In McConnell v. United States (No. 04-271, Dist. Ct. Minn. 1/3/05) (also available on the Tax Analysts web site as Doc 2005-1056, 2005 TNT 11-6), the federal district court in Minnesota held that a gay man could not file a joint income tax return with his partner because he had previously litigated the validity of their marriage under Minnesota law:

J. Michael McConnell brought this action against the United States of America (Government), seeking a federal income tax refund in the amount of $793.28 and a declaration that he is "a full citizen who is lawfully married and, by that fact, entitled to be treated the same as every other married Minnesotan, similarly situated."

McConnell, a male, and his partner, Richard John Baker, a male, applied for a marriage license in Hennepin County in 1971. Hennepin County denied their request, and McConnell and Baker initiated a lawsuit in Minnesota state court related to that denial. See Baker v. Nelson, 191 N.W.2d 185 (Minn. 1971)....While that case was pending, McConnell and Baker received a marriage license on August 16, 1971, from the Clerk of District Court in Blue Earth County, Minnesota, and on September 3, 1971, they participated in a marriage ceremony. On October 15, 1971, the Minnesota Supreme Court issued its opinion in Baker, holding that Minnesota law "does not authorize marriage between persons of the same sex and that such marriages are accordingly prohibited." Five years later, McConnell commenced a suit in federal court, pursuing claims for federal benefits based on his purported marriage. See McConnell v. Nooner, Civ. No. 4-75-355 (D. Minn. Apr. 19, 1976), aff'd, 547 F.2d 54 (8th Cir. 1976) (per curiam). Based on the Minnesota Supreme Court's holding in Baker, this Court dismissed McConnell's action.

On December 8, 2003, McConnell filed a Form 1040X with the Internal Revenue Service (IRS), seeking a refund for the tax year 2000 and to alter his marital status on his 2000 form from "unmarried individual" to "married filing jointly." The IRS denied McConnell's requests on the basis that the "Federal Government does not recognize same-sex marriages." In response, McConnell initiated this action. The Government moved to dismiss the Complaint for failure to state a claim. Chief Magistrate Judge Lebedoff issued a Report and Recommendation on November 2, 2004, recommending that the Government's motion be granted on the basis of claim and issue preclusion....

Based on a de novo review of the record, the Court adopts the November 2, 2004 Report and Recommendation

January 18, 2005 in New Cases, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Polsky & Befort on Employment Discrimination Remedies and Tax Gross Ups

Beforts_1 Polskyg_1Gregg D. Polsky (Minnesota) & Stephen F. Befort (Minnesota) have published Employment Discrimination Remedies and Tax Gross Ups, 90 Iowa L. Rev. 67 (2004). Here is the abstract:

This article considers whether a successful employment discrimination plaintiff may be entitled, under current law, to receive an augmented award (a gross up) to neutralize certain adverse federal income tax consequences. The question of whether such a gross up is allowed, the resolution of which can have drastic effects on litigants, has received almost no attention from practitioners, judges, and academics. Because of the potentially enormous impact of the alternative minimum tax (AMT) on discrimination lawsuit recoveries, however, the gross up issue is now beginning to appear in reported cases.

The three principal federal anti-discrimination statutes - Title VII, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) - generally confer broad equitable powers on the courts to devise remedies that will make the victims of discrimination whole in economic terms. The Internal Revenue Code (Code), however, sometimes operates to frustrate this make-whole objective by taxing a discrimination award more heavily than the components of the award would have been taxed had the components been earned in due course by the plaintiff. This excess taxation gives rise to what this article calls adverse tax consequences.

A discrimination plaintiff may suffer adverse tax consequences in two distinct ways. First, amounts recovered to compensate for back pay and front pay losses may be subjected to higher income tax rates than if such amounts had been earned as wages in due course. This increase in tax rates is typically due to the fact that the plaintiff's recovery is in a lump sum; as a result, a portion of the recovery may be subject to marginal rates higher than the plaintiff's typical marginal rate.

Second, an employment discrimination recovery could implicate the AMT. If so, the AMT may cause the recovery to be effectively taxed at rates significantly higher than the top marginal rate of 35 percent. In fact, in certain cases, the AMT may cause the tax on the recovery to exceed 100 percent - meaning that a victorious plaintiff would owe more in taxes than her recovery. This AMT trap is notoriously absurd as a matter of tax policy and undermines the national policy of encouraging the pursuit of meritorious civil rights claims. Yet, the trap persists, at least in most areas of the country.

The resolution of the gross up issue depends ultimately on whether the federal anti-discrimination remedial provisions permit judges to shift the liability for these adverse tax consequences from the plaintiff - on whom the Internal Revenue Code specifically imposes the liability - to the defendant - whose unlawful conduct necessitated the lawsuit that caused the adverse tax consequences. The potential vehicle for this shift is the broad equitable powers conferred upon courts to fashion relief in order to make victims of discrimination whole.

The issue of whether these broad equitable powers allow judges to shift a portion of the plaintiff's federal income tax liability to defendants is particularly interesting since both the plaintiff's tax liability and the defendant's discrimination liability arise from federal statutes passed by Congress. Thus, the resolution of the issue depends on which body of statutes, the Internal Revenue Code or the pertinent federal anti-discrimination statute, prevails over the other.

More generally, though, the issue concerns the courts' willingness to delve into federal income tax matters and focus on after-tax dollars, which are meaningful, rather than pre-tax dollars, which are meaningless. Courts typically have been reluctant to get their hands dirty with tax law if they can avoid it. Determining after-tax income can be a painstaking process and predicting future after-tax income even more so. Nevertheless, we conclude that courts have the authority to provide gross ups to discrimination plaintiffs and should exercise this authority whenever adverse tax consequences are substantial.

January 18, 2005 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Please Take This Survey

Foundation Press LogoThompson-West LogoWest Publishing Company and Foundation Press, sponsors of this blog and our Law Professor Blogs Network, have asked that we help identify our readership through this on-line survey.  They (and we) would like to figure out the mix of professors, judges, lawyers, librarians, students, and others who read this blog.  The survey takes less than a minute to complete.  Thanks in advance for your help.

January 18, 2005 in About This Blog | Permalink | Comments (0) | TrackBack (0)

Monday, January 17, 2005

NYSBA Tax Section Submits Report on The Application of § 6700 Penalties to Lawyers

Nysba_5The New York State Bar Association Tax Section has submitted to the IRS a report on the Application of Section 6700 Penalties to Lawyers: The "Reason to Know" Standard:

      • Letter from Chair (Lewis R. Steinberg) (2 pages)
      • Report No. 1075 (Margaret C. Henry was the principal author; Stuart Rosow, Lewis Steinberg, Kimberley Blanchard, Michael Schler, Edward Gonzales, Joe Forrester, James Malone, Alexander Deland & Bruce Serchuk. provided helpful comments) (25 pages)

January 17, 2005 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Tax History Profile: Randolph E. Paul

Thp_logo_1 The Tax History Project, a public service initiative of Tax Analysts, has posted Profiles in Tax History: Randolph E. Paul (by Joseph J. Thorndike).  Here is the Introduction:

Randolph Evernghim Paul was an architect of the modern federal tax system. As Treasury general counsel during World War II, he helped transform the income tax from a narrow levy on the rich to a broad tax on the middle class. Paul was also one of the most influential Keynesians in the Roosevelt administration, arguing consistently and cogently that taxes should be used to regulate the nation's economy.

January 17, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

SOI Publishes 2000 Corporate Foreign Tax Credit Data

Irs The just-released Statistics of Income Bulletin (Fall 2004) includes Corporate Foreign Tax Credit, 2000 by Scott Luttrell (SOI).  Here is the summary:

For Tax Year 2000, 5,917 U.S. corporations claimed foreign tax credits, reducing their U.S. income tax liability by $48.4 billion.

For related data, see here.  For other corporate foreign tax credit data, see here.

January 17, 2005 in Gov't Reports | Permalink | Comments (0) | TrackBack (0)

Martin Luther King, Jr. and Tax

MartinlutherkingIn honor of Martin Luther King, Jr. Day: reports on how some southern officials tried to use state tax laws to stop King and the nascent civil rights movement:

      • "In Alabama, ... Governor John Patterson in early 1960 directed state revenue authorities to charge Martin Luther King, Jr., with tax evasion and perjury in completing his Alabama state income tax returns. The charges against King, who had already moved his ministry from the Dexter Street Church in Montgomery to his father's church in Atlanta, specified that he had diverted money raised for the Southern Christian Leadership Conference (SCLC) into his own pockets without ever reporting it as income." Kermit L. Hall, "Lies, Lies, Lies": The Origins of New York Times Co. v. Sullivan, 9 Comm. L. & Pol'y 391, 404 (2004).
      • "The only person ever prosecuted under the Georgia income tax perjury statute was Martin Luther King." Corey R. Chivers, Desuetude, Due Process, and the Scarlet Letter Revisited, 1992 Utah L. Rev. 449, 454 n.27.

January 17, 2005 in Celebrity Tax Lore | Permalink | Comments (0) | TrackBack (2)

Inaction on Social Security Would Hurt Economy, OMB Director Says

Tax_analysts_18 From Inaction on Social Security Would Hurt Economy, OMB Director Says (also available on the Tax Analysts web site as Doc. 2005-1092):

Office of Management and Budget Director Joshua Bolten on January 14 discussed the "long-term fiscal danger posed by mandatory spending programs," particularly Social Security, and called for swift action on instituting reform that adheres to the president's stated principles.

January 17, 2005 in News, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Sunday, January 16, 2005

Treasury, OECD Officials Discuss International Tax Developments

Tax_analysts_logo_8 From Treasury, OECD Officials Discuss International Tax Developments (also available on the Tax Analysts web site as Doc 2005-916, 2005 TNT 10-5):

The OECD's 2005 tax agenda will focus on treaties, transfer pricing, and consumption tax issues, the OECD's Jeffrey Owens said in Washington on January 13, while Treasury's Barbara Angus said that the United States should continue reforming its international tax regime.

January 16, 2005 in News, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Treasury's Office of Tax Analysis Publishes Optimal Tax Enforcement

TreasuryThe Treasury Department's Office of Tax Analysis has published Optimal Tax Enforcement: A Review of the Literature and Practical Implications (OTA Working Paper 90), by Janet G. McCubbin (Chief, Special Studies Branch, IRS Statistics of Income Division). Here is part of the abstract:

Treasury and the Internal Revenue Service have recently intensified compliance research and compliance enforcement activities. This paper contributes to the effort by reviewing two classes of theoretical models of tax enforcement, identifying some practical implications that can be drawn from these models, and suggesting some ideas for future research. Both optimal tax models and game theory models suggest that close coordination between tax policymakers and the tax administrator may be necessary. Specifically, IRS officials and policymakers should think carefully about what IRS’ enforcement objective should be, and how the overall objective can be implemented in various enforcement programs. The IRS must also collect the data that would allow researchers to estimate how taxpayers respond to tax and enforcement policies. Finally, Treasury, Congress and other policymakers need to take IRS constraints, incentives and likely responses into account when making tax policy and budgetary decisions, much as they take taxpayer behavior into account.

(Thanks to Bruce Bartlett for the tip.)

January 16, 2005 in Gov't Reports | Permalink | Comments (0) | TrackBack (0)

Saturday, January 15, 2005

Treasury Told that Circular 230 Regs "Federalize" Tax Practice

Tax_analysts_17 From Circular 230 Regs "Federalize" Tax Practice, Treasury Told (also available on the Tax Analysts web site as Doc 2005-923, 2005 TNT 10-2 ):

Treasury officials heard their first public feedback on the new Circular 230 regs during a January 13 Tax Management lunch hosted by the Silverstein and Mullens law firm in Washington. Early indications are that while the new rules succeed in targeting abusive transactions, they also interfere with the lawyer-client relationship.

January 15, 2005 in News, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Spotlight_1The 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. 


Ucla_seal_1The 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.

ZoltEric Zolt joined the UCLA tax faculty in 1985.  Before joining UCLA, he was a partner in the Chicago law firm of Kirkland & Ellis, where he specialized in individual and corporate tax matters.  Before practicing law, Eric was on the research staff of the Center for Policy Alternatives, MIT.

Eric teaches Introduction to Federal Income Taxation, Taxation of Corporations & Shareholders, Taxation of International Transactions, Elements of Economic Organization (jointly offered with UCLA’s business school), and seminars on Taxation and Development, Comparative Tax Policy, and Transition to Market Economy. Students come into his basic tax class expecting to be bored, frightened, and confused. Eric does not disappoint them.

A successful teacher, Eric received the University’s Distinguished Teaching Award in just his fourth year of teaching.  He has also received the Law School’s Rutter Award for Excellence in Teaching (1997).  Eric has been twice been elected by the graduating class as Professor of the Year, a feat that, unfortunately, his tax colleague Kirk Stark will soon surpass.

While on leave from UCLA, he served in the U.S. Department of the Treasury from 1989 through 1992.  Eric served first as Deputy Tax Legislative Counsel in the Office of Tax Policy. He was a co-director of Treasury’s Report on the Integration of Individual and Corporate Tax Systems: Taxing Business Income Once (1992).  Given the decrease in corporate tax revenues and the increase in corporate tax shelter activity, he now realizes that taxing business income even once may be too ambitious.

In 1991, Eric founded and served as the Director of Treasury’s Tax Advisory Program for Eastern Europe and the Former Soviet Union.  Based at the U.S. Mission to the OECD in Paris, this program provided technical assistance to countries reforming their tax systems to be more compatible with a market economy.  Eric later found out that Paris was not in Eastern Europe.

Eric continues to serve as a consultant to the Treasury Department, the World Bank and the International Monetary Fund.  In the last 15 years, he has provided tax policy advice in over 25 countries.

In 2002, Eric co-founded and served as the first Chair of the Executive Committee of the Southern African Tax Institute, a joint venture of four South African universities, administratively located at the University of Pretoria.  In its first three years of operations, SATI has provided training to over 300 government tax officials from 20 different African countries.

To escape the weather in Los Angeles, Eric visits at other law schools.  Eric has (or will be) a visiting professor at Yale Law School (Fall 1997, Fall 1999, and Fall 2005), where he was the Jacquin D. Bierman Visiting Professor of Taxation, and at Harvard Law School (Fall 2000 through Fall 2002), where he was the John Harvey Gregory Lecturer on World Organizations. Eric also served as the Director of Harvard Law School’s International Tax Program from June 2000 through June 2003.

He is currently working with economic historian Kenneth Sokoloff (UCLA Department of Economics) on a project, Inequality and the Evolution of Tax Institutions: Evidence from the Americas. He is also working with economist Richard Bird (U. of Toronto) on a paper titled Redistribution via Taxation: A New Perspective for Developing Countries.

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.

January 15, 2005 in Tax Prof Spotlight | Permalink | Comments (0) | TrackBack (0)

Book on Collection Due Process Rights

BookLeslie Book (Villanova) has published The Collection Due Process Rights: A Misstep or a Step in the Right Direction?, 41 Hous. L. Rev. 1145 (2004).  Here is the abstract:

This article defends one of the more controversial parts of the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) the collection due process (CDP) provisions. CDP gives taxpayers the right to independent administrative and judicial review of IRS decisions to use its awesome administrative collection powers, powers that have long made the IRS a feared creditor.

Prior to CDP's enactment, the IRS had the power to collect taxes from taxpayers without judicial review of administrative collection determinations. This power, atypical for creditors which often must get judicial approval for summary collection action, led many observers to criticize the IRS's powers as dangerous to individuals, even when there was no dispute that taxpayers owed back taxes. Notwithstanding this criticism, CDP's formalizing parts of the administrative collection process and interposing judicial review of certain IRS collection actions has itself been controversial for its draining of administrative resources from compliance, an issue of even greater importance in times of budget deficits. This article reveals how administrative and constitutional law principles that provide checks on arbitrary government determinations have largely been absent from tax collection adjudications. The adoption of CDP serves as a progression toward adopting broader rule of law principles in the tax system. Fidelity to rule of law has come to dominate the American legal landscape in the past century, but has been slow to make inroads in the tax system.

The article addresses this challenging topic by considering IRS collection procedures, and the changes that CDP brought to that process. Second, it examines principles from administrative and constitutional law, and reveals how tax adjudications have largely been outside the mainstream of these two important external checks on agency behavior. In light of the tax law's isolation from these disciplines, it reveals that Congress and the Supreme Court have implicitly and explicitly overstated the government's interest in the collection process and understated the individual's interest. Third, in light of these administrative and constitutional law principles, it makes specific proposals to improve CDP, including a consideration of the proper standard of review that courts should employ in review of collection determinations. These proposals, provide the means for policymakers to appreciate the potential for CDP to provide more meaningful taxpayer protections and minimize the aspects of CDP that are imposing significant systemic costs and straining valuable tax compliance resources.

January 15, 2005 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, January 14, 2005

Tax_news_roundup_1 New York Times:

      • Foreign-Profit Tax Break Is Outlined (1/14):  The Bush administration outlined rules on Thursday for a huge one-time tax break for companies that reinvest their overseas profits back into the United States. The tax break, which was part of last year's corporate tax bill, would allow companies to pay a fraction of the normal tax rate on hundreds of billions of dollars in foreign profits if they pledge to invest the funds in activities that may create jobs at home. In a setback for many of the biggest potential beneficiaries, the Treasury Department said companies could not use their windfalls for repurchases of stock or increases in shareholder dividends.
  • One-Room School Faces $10,000 IRS Fine (1/13):  A tax error totaling less than $40 has resulted in a $10,000 fine for the Hill Public School, a one-room schoolhouse. The IRS informed the school district of the discrepancy on June 1, 2003, and wants the fine to be paid, Rhonda Maxcy, school board secretary, said Monday. Maxcy says an accountant is to blame for the error, which he repeated a dozen times on the school's quarterly tax returns from 2000 to 2002. The school's stated amount withheld for several federal taxes was over the limit by $3.25 each quarter, she said.
  • Treasury Offers Companies Tax - Break Guide (1/13):  Companies thinking about using a new, temporary tax break to cut their tax bills on profits earned abroad can now turn to Treasury Department guidelines that explain how to use the profits brought home. A law passed last fall gives companies a one-year window to reduce the tax rate on money earned in foreign countries and brought back into the United States from as much as 35% to 5.25% if the money is reinvested at home. Companies must create a reinvestment plan to qualify for the tax break, a process detailed in the guidelines released Thursday.
  • Report Calls for Simpler Taxes (David Cay Johnston) (1/12):  Congress has made the tax code so complicated that even the Internal Revenue Service is having trouble coping, the national taxpayer advocate, Nina E. Olson, wrote in her annual report to Congress, which was presented yesterday. "Without a doubt, the only meaningful way to reduce these compliance burdens" on taxpayers, Ms. Olson wrote, "is to simplify the tax code enormously."
  • Bush Names 2 Ex-Senators to Consider Tax Changes (1/9):  President Bush on Friday named two well-known former senators to head a bipartisan advisory panel on taxes, and gave the group six months to come up with recommendations on how to make the income tax simpler, fairer and more conducive to growth.
  • Land, Taxes and a Dispute as Old as the United States (1/9):  At the SavOn convenience store in this tiny, tidy upstate city of 3,000 or so, a gallon of regular gas goes for $1.86, a pack of Marlboros goes for $3.75, and the history goes on forever. So to understand why the United States Supreme Court will hear arguments on Tuesday in the dispute between the city and the tribe, you need to sort through enough history to make your head spin: which tribes sided with the colonists and which with Great Britain in the Revolutionary War, the relative merits of the 1788 Treaty of Fort Schuyler, the 1794 Treaty of Canandaigua and the 1838 Treaty of Buffalo Creek. The core issue sounds simple: When the Oneidas bought land for the store in 1997 that was once part of their ancestral homelands, was the property again part of Indian country and thus exempt from local taxes, as the Oneidas claim? Or was it subject to taxes, as it had been under its previous owner, as the city claims? Within that simple question are all the ancient and contemporary grievances roiling upstate.

Wall Street Journal:

  • Treasury Gives Corporations Latitude on Overseas Profits (1/14): The Treasury Department is giving U.S. companies a broad interpretation of how they can repatriate and spend overseas profits under a special one-year tax break. Though the guidance isn't everything that corporate leaders had hoped for when Congress approved the plan in the fall, the rules are likely to encourage U.S. multinationals to spend billions of dollars of their foreign profits domestically.
  • Financial-Aid Rules Sow Confusion for 529 Owners (1/13):  College savings 529 plans have become popular with investors ... because of the tax benefits: Contributions may be tax-deductible depending on your state, and withdrawals for IRS-approved higher-education expenses currently are tax free. In some plans a person can sock away as much as $300,000 per student, and unused monies can be transferred to a sibling or other student. The problem is the federal government and public colleges treat 529 accounts differently than private colleges treat them when designing aid packages. And private schools often differ from each other in how they treat the accounts. Because the rules for financial-aid eligibility are all over the map, parents and family members may limit their child's eligibility for financial aid merely by funding a 529 account.
  • Flat and Happy... (Alvin Rabushka) (1/12):  Will we ever get real tax reform? For decades, economists, journalists and politicians have been discussing the pros and cons of a flat tax , sales tax , and VAT as alternatives to our federal income tax . One commission after another has conducted hearings and one Treasury secretary after another has overseen studies. Little by way of simplification and reform has come of these efforts. Interest groups and partisan politics have blocked real reform. Every year, Congress further complicates the tax code. President Bush has just established another commission of nine distinguished members, but it will encounter the usual obstacles. A new round of hearings is not needed. A better approach is for the members to visit the eight countries in Central and Eastern Europe that have adopted the flat tax in the last 10 years and study their experience.
  • How to Deduct Tsunami Gifts for '04 (Tom Herman) (1/12):  So much for gridlock. A tax-law change designed to encourage more charitable giving to help tsunami victims won approval quickly last week in the House and Senate, and President Bush signed it into law Friday. As a result, many taxpayers who donate money this month to charities to aid tsunami victims can choose to deduct those contributions on their federal income-tax return for 2004. Previously, donors making gifts this month couldn't deduct those donations for 2004. This change will give many Americans this month "an extra incentive to support this great cause," said Sen. Max Baucus, a Montana Democrat. But even before the president signed the bill, accountants and other tax advisers were e-mailing each other with questions raised by the legislation. Among them: What types of contributions qualify for this special treatment, and which charities qualify? Here is a summary of several key issues, with answers from Internal Revenue Service officials, congressional staffers and tax advisers, as well as advice on how to take maximum advantage of the new law.
  • Bush Appoints Panel to Study Tax-Code Change (1/10):  President Bush laid the groundwork for overhauling the tax code, an effort that appears increasingly focused on simplifying rather than scrapping it.
  • Tax Reform Team (1/10):  One lesson we draw from the makeup of the tax reform advisory panel that President Bush named on Friday is that he really does intend to get something done, perhaps as early as this year. Many Beltway skeptics have assumed that Mr. Bush's very general tax reform intentions were merely a campaign talking point, or perhaps a fallback if Social Security reform failed. But Mr. Bush has selected serious people who combine political savvy with tax and economic expertise.
  • The Tsunami and Taxes (Tom Herman) (1/9/04):  Readers eager to help victims of the tsunami disaster may be wondering about the tax implications for their donations. Here are a few questions you may have, and the answers from tax specialists:

Washington Post:

  • Tax Changes That Merit Remembering This Spring (1/10): The Bush administration may want to rewrite the tax code from top to bottom, but unless and until that happens, we taxpayers still have to live with the old one. It's the tax code we've got, as they might say at the Pentagon, not the tax code we want. So the time has come once again to start getting ready for that American spring ritual, tax-return filing season.
  • Tax Experts Predict No Big Shifts (1/8):  Tax experts said yesterday they expected President Bush's new tax panel to recommend incremental change to the tax code, not a fundamental replacement. The president reiterated his intent to push wholesale changes to the tax code that would make it simpler and more conducive to economic growth, but outside experts say that is now unlikely.

January 14, 2005 in News | Permalink | Comments (0) | TrackBack (0)

Kelley on History of Nonprofit Law

Kelley Ssrn_5 Thomas A. Kelley (North Carolina) has posted Rediscovering Vulgar Charity: A Historical Analysis of America's Tangled Nonprofit Law on SSRN. Here is the abstract:

Charitable organizations in the United States find themselves in a double bind these days. On one hand, our free-market American culture expects them to be entrepreneurial and bottom-line oriented, adopting many of the methods and practices of commercial enterprises. On the other hand, courts and governmental agencies, the IRS in particular, threaten and punish charities when they become too commercial. Charities live in fear of being ensnared by confusing and contradictory legal doctrines such as the operational test, the commerciality doctrine, the unrelated business income tax, and the commensurate in scope doctrine. This paper takes a historical approach to explaining why we find ourselves in this vexing bind, then proposes in broad outline a possible legislative fix.

January 14, 2005 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Tax History Profile: John Nance Garner

Thp_logo_1 The Tax History Project, a public service initiative of Tax Analysts, has posted Profile in Tax History:  John Nance Garner (by Joseph J. Thorndike).  Here is the Introduction:

John Nance Garner is best remembered for his assessment of the vice presidency. The office, he reportedly sneered in 1932, "isn't worth a pitcher of warm spit." The quote may be apocryphal, and even credulous historians think he referenced a different bodily fluid. But one thing is certain: Garner deserves a better epitaph. The plain-spoken Democrat from Uvalde, Texas, helped rescue his party from political oblivion during the Republican ascendancy of the 1920s. And he used tax policy to do it.

January 14, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Tax Analysts: Nelson on Executive Compensation and § 162(m)

Tax_analysts_logo_6 Daniel Nelson of PricewaterhouseCoopers has published Section 162(m) Revisited (also available on the Tax Analysts web site as Doc 2005-686, 2005 TNT 8-22).  Here is the Conclusion:

Although Congress limited the deduction for some executive pay of public companies, it provided several exceptions, most notably for some incentive pay arrangements. However, qualifying for the exceptions often requires satisfying strict objective and mechanical requirements. The recent IRS pilot review of executive compensation indicated that many public companies are failing to comply with those strict requirements and are being forced to limit their deductions for compensation that could have been fully deducted. In light of this new focus by the IRS, all public companies should review their executive compensation arrangements, compensation committee procedures, and shareholder preapproval procedures to ensure that incentive payments are excluded from the $1 million deduction limits.

January 14, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Lavoie on Attorney-Client Privilege in Tax Planning

LavoieRichard Lavoie has published Making a List and Checking it Twice: Must Tax Attorneys Divulge Who's Naughty and Nice?, 38 U.C. Davis L. Rev. 141 (2004). Here is the abstract:

This Article analyzes the ability of tax attorneys to shield a client's identity from disclosure to the Internal Revenue Service under the attorney-client privilege. The Article concludes that, on policy grounds, the attorney-client privilege should be limited in the context of tax planning. Consequently, client identity should not be privileged irrespective of whether a tax shelter is involved. The Article also concludes that the privilege would not be available under the current judicial approach to client identity questions. As a result, recent regulations requiring tax attorneys to maintain lists of clients engaging in specified tax motivated transactions represent an appropriate response to recent tax shelter activity.

January 14, 2005 in Scholarship | Permalink | Comments (1) | TrackBack (0)

SOI Releases 2001 Tax-Exempt Organization Data

Irs The just-released Statistics of Income Bulletin (Fall 2004) includes Charities and Other Tax-Exempt Organizations, 2001 by Paul Arnsberger (SOI).  Here is the summary:

Nonprofit charitable organizations held over $1.6 trillion in assets and filed over 240,000 information returns for Tax Year 2001.

For related data, see here.  For other exempt organization tax data, see here.

January 14, 2005 in Gov't Reports | Permalink | Comments (0) | TrackBack (0)

Thursday, January 13, 2005

Tobin Says Journal of Taxation Article Overstates Tax Problems of Oprah's Studio Audience

Oprah_4Tobin_1Donald Tobin (Ohio State) takes issue with the authors of the "Shop Talk" piece in the January issue of the Journal of Taxation, who claim in an article blogged here yesterday that Oprah Winfrey's payment of $2,500 to each member of the studio audience at her November 22 show did not eliminate the tax liability caused by their receipt of over $13,000 of free stuff:

The recent article in the Journal of Taxation on Oprah’s giveaway to teachers implies that teachers who received the prizes from Oprah will receive hefty tax bills. The article concludes that Oprah would need to give the winners $7,967.74 to cover the tax bills. Although this conclusion may be technically correct based on the author’s assumptions, it is wholly unrealistic.

In reaching this conclusion, the authors argue that Oprah should have reimbursed contestants based on the highest marginal rate. But taxpayers need to have a taxable income of at least $319,101 to be taxed at that rate. How many teachers will have taxable income over $319,101? And if they do, then I really don’t have any sympathy for the huge tax bill. Let them refuse the prize, or pay the tax.

The real question is what will happen to most of the people who received the prize. The people that Oprah was presumably trying to reward. The article indicates that taxpayers received $15,500 in goods and cash. If we assume they are in the 15% bracket – that means they have taxable incomes below $58,100 if they are married - they would have a federal tax bill of $2,325. If we assume a state tax rate of 3%, the amount used by the authors, the tax bill would rise by $465 to $2,790 (and this ignores the fact that the $465 would be deductible if the taxpayers itemized their deductions). Not surprisingly, this $2,790 is very close to the $2,500 cash that Oprah actually provided.

Using the highest marginal rate is unrealistic and distorts the analysis. Why do I care? Why am I willing to take the time to respond to this? Why am I taking this humorous article so seriously? Yes, I do have a sense of humor.

The reason is because these types of distortions contribute to distrust in the tax system. It seems ridiculous that a teacher would need to have received a “gross up” of $303.38 to pay for a $495 leather duffle bag as the authors in the Journal of Taxation contend. It seems ridiculous because in most cases it is simply not accurate. The tax bill on the prize would be around $2,790 (using the 15% bracket), and the taxpayers’ effective tax rates would still be far below that.

The teachers here received a prize with real value. Oprah learned her lesson and included cash with her prizes to ameliorate the consequences of the tax bite on the prize. Lets leave Oprah alone, and give her credit for helping to shine a spotlight on an important segment of our population.

For prior TaxProf Blog coverage of the tax problems caused by attending the Oprah Winfrey show, see here, here, here, here, and here.

January 13, 2005 in Celebrity Tax Lore, Scholarship, Tax Profs | Permalink | Comments (0) | TrackBack (0)

Joint Tax Committee Releases Report on Tax Expenditures

Blue_book_1The Joint Committee on Taxation yesterday released Estimates Of Federal Tax Expenditures For Fiscal Years 2005-2009 (JCS-1-05).

Tax expenditures are "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption or deduction from gross income or which provide a special credit, a preferential rate of tax or a deferral of tax liability." The five largest tax expenditures provide $2.1 trillion of tax benefits:

      • $597 billion: pensions
      • $493 billion: employer-provided health insurance
      • $434 billion: home mortgage interest
      • $356 billion: reduced tax rates on dividends and capital gains
      • $203 billion: child tax credit

January 13, 2005 in Gov't Reports | Permalink | Comments (0) | TrackBack (0)

Shaviro Presents The Approaching Fiscal Train Wreck Today at NYU

Nyu_2Shavirod_1Daniel N. Shaviro (NYU) presents The Approaching Fiscal Train Wreck today at NYU as part of its Colloquium on Tax Policy and Public Finance series. The Colloquium will be held in Room 202 of Vanderbilt Hall from 4:00 - 6:00 p.m. The paper is a preliminary draft of chapter 3 of a book in progress, tentatively entitled The Use and Abuse of Fiscal Language.  Although the public is invited to attend, due to heightened security throughout NYU Law, please contact Valerie Avisado so she can provide the Guard's desk with your name. 

January 13, 2005 in Colloquia | Permalink | Comments (0) | TrackBack (0)

Tax Analysts: Raby & Raby on Tribal Taxation

Tax_analysts_16 Burgess J.W. Raby & William L. Raby have published Treaties, Tribes, and Income Tax (also available on the Tax Analysts web site as Doc 2005-766, 2005 TNT 9-30). Here is the Conclusion:

Tribes are not, as such, subject to federal (or state) income taxes. Nor are the unincorporated entities they use or the corporations they form under federal law. However, corporations formed under state law, although wholly owned by a tribe, are subject to federal income tax. S corporations cannot be used to sidestep that consequence according to Rev. Rul. 2004-50 because a tribe, says the ruling, is an ineligible shareholder. It is unclear whether corporations formed under tribal law would be exempt or not, although the logic of the situation would indicate that they should be. Unincorporated passthrough entities would seem to be acceptable vehicles for tribal activities that would remain free of income tax.

The members of tribes, however, are generally going to be subject to federal income tax on their income unless they can find some specific statutory or treaty provision, such as section 7873, that exempts the particular income, or the income is from restricted land, as described in Rev. Rul. 67-284. Beyond that, general income tax concepts apply, as with the rabbi trust safe harbor set out in Rev. Proc. 2003-14. Tax practitioners dealing with American Indians need to do their own analysis of the tax consequences of transactions both on and off the reservation and not accept the client's interpretation of the applicable tax law without verifying it for themselves. It is true that some income of a Native American may be exempt from tax, but it is far from as broad an exemption as the sovereign nation mythology of Native American taxation would have one believe.

January 13, 2005 in Scholarship, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Bartlett Criticizes Tax Reform Commission

BbartlettBruce Bartlett (National Center for Policy Analysis) published an op-ed (Daunting Tax Reform Task) in yesterday's Washington Times on the President's Advisory Panel on Tax Reform.  Here is part of the opening:

[President Bush] has given the panel almost no time to do its work and expects a final report no later than July 31. It's hard to see what it can hope to accomplish in so short a time. In his Sept. 2 statement, Mr. Bush said he wanted the commission to report "as early as possible in 2005." Yet only one member, economist James Poterba of the Massachusetts Institute of Technology, is really known as an expert on tax reform, which means commission members will need considerable time just getting up to speed on the issues before they can even start serious deliberation.

For prior TaxProf Blog coverage of the advisory panel, see here, here, and here.

January 13, 2005 in News | Permalink | Comments (0) | TrackBack (0)

Law Professor Blog Cited by Supreme Court

Berman Lpb_roundKudos to Douglas Berman (Ohio State), editor of Sentencing Law and Policy blog, which is part of our Law Professor Blogs Network.  Doug's blog was cited by Justice Stevens in his dissent (at p. 7, n.4) in yesterday's U.S. v. Booker decision on the constitutionality of the federal sentencing guidelines.  Doug had a whirlwind day: he appeared on the NewsHour with Jim Lehrer to discuss the decision and his blog had over 20,000 visitors (and over 40,000 page views), rivaling the traffic generated by his profile in the Wall Street Journal this summer.

January 13, 2005 in About This Blog | Permalink | Comments (0) | TrackBack (3)

Wednesday, January 12, 2005

Criminal Tax Convictions Up 75% in 2004

Irs_logo_31The IRS has released a new Fact Sheet on Tax Preparer Fraud (FS-2005-8).  The IRS notes that the taxpayer may ultimately be held criminally liable for fraud perpetrated by a return preparer:

Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit. In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.

The IRS also notes that criminal tax convictions were up 75% in 2004 compared with 2003:

Criminal Investigation Statistical Information

FY 2002

FY 2003

FY 2004

Investigations Initiated




Prosecution Recommendations












Incarceration Rate*




Avg. Months to Serve




*Incarceration may include prison time, home confinement, electronic monitoring, or a combination.

For more on IRS criminal investigations, see here.

January 12, 2005 in IRS News | Permalink | Comments (0) | TrackBack (0)