June 30, 2005
Tax Court Denies Theft Loss Deduction for Shoddy Construction on Custom Home
In Davis v. Commissioner, T.C. Memo. 2005-160, the Tax Court held yesterday that an Annapolis, Maryland taxpayer could not take a 250k theft loss deduction for substandard construction and overcharges on a custom-built home because he didn't prove when he discovered the loss, the amount of the loss, or that he had no reasonable prospect of recovery in the year he claimed the loss.
Stuart Levine has a devastating critique of the American Family Business Institute's anti-estate tax advertising campaign, calling it "an example of knavery in its purest form." Stuart notes that the AFBI cannot find a single "horror story" to back up its claim that the current estate tax forces forces families to sell their closely-held businesses or farms. (We previouly blogged the non-partisan group FactCheck.org's report calling the ads "estate tax malarky.")
Joint Tax Committee Releases Estimated Revenue Effects of Energy Policy Tax Incentives Act
The Joint Committee on Taxation has issued issued Estimated Revenue Effects Of Title XV. Of H.R. 6, The "Energy Policy Tax Incentives Act Of 2005," As Passed By The Senate On June 28, 2005 (JCX-51-05)
Should the AMT Be Repealed? Beale: No; Keinan: Yes
Linda M. Beale (Illinois) & Yoram Keinan (Ernst & Young's National Tax Office) have published Point and Counterpoint: Should the Individual AMT Be Repealed?, 107 Tax Notes 1723 (June 27, 2005), also available on the Tax Analysts web site as Doc 2005-12575, 2005 TNT 124-48:
The President's Advisory Panel on Federal Tax Reform has been charged with advising on options to make the Code "simpler, fairer, and more pro-growth." It does so as Congress considers a variety of tax-related topics, including funding for Social Security, making the 2001 and 2003 tax reductions permanent, and using a VAT to replace or supplement the federal income tax. Among the topics that the Panel and Congress may consider is the individual Alternative Minimum Tax (AMT), which was enacted in 1969 in response to reports of high-income taxpayers who paid little or no income tax. Over time, Congress expanded the AMT but failed to index its provisions. As a result, the AMT now affects a significant number of middle-class taxpayers and is often criticized. Although the Joint Committee on Taxation has called for repeal of the AMT, repealing the AMT will soon be more costly than repealing the income tax itself. In this Point/Counterpoint debate Professor Linda Beale of the University of Illinois makes the case for retaining the AMT with modifications, while Yoram Keinan of Ernst & Young argues that the AMT should just be repealed, the sooner the better. In reaching their conclusions each considers topics assigned to the Advisory Panel: simplicity, fairness, and growth.
Senate Holds Hearing on Expiring Tax Provisions
The Senate Finance Committee holds a public hearing today on Encouraging Savings and Investment: Stay the Course or Change Direction?. Here are the witnesses scheduled to appear:
- G. Scott Harding (President & CEO, F.B. Harding, Inc.)
- Robert A. Weinberger (Vice President, Government Relations, H&R Block)
- David Malpass (Chief Economist, Bear Stearns)
- Eric Toder (Senior Fellow, The Urban Institute)
- Stephen J. Entin (President & Executive Director, Institute for Research on the Economics of Taxation)
- Brian Graff (Executive Director & CEO, American Society of Pension Professionals & Actuaries)
The hearing will be held beginning at 2:00 pm in 215 Dirksen Senate Office Building.
In connection with the hearing, the Joint Committee on Taxation has issued Present Law And Background Information On Certain Expiring Tax Provisions (JCX-50-05) (25 pages):
The Taxation and IRS Oversight Subcommittee of the Senate Committee on Finance has scheduled a hearing for June 30, 2005, on certain expiring tax provisions. Specifically, the hearing will address the following provisions of present law.
• The 15%/5% (0% after 2007) tax rate structure applicable to income from capital gains (§ 1(h)). Under present law, for taxable years after 2008, the maximum rate of tax on adjusted net capital gain of an individual is 20%
• The 15%/5% (0% after 2007) tax rate structure applicable to qualified dividend income (§ 1(h)). Under present law, for taxable years beginning after 2008, dividends received by an individual are taxed as ordinary income at rates up to 35%.
• The expensing of up to $100,000 of depreciable tangible personal property purchased by qualified taxpayers for use in a trade or business (§ 179). Under present law, for taxable years beginning after 2007, a qualifying taxpayer may deduct up to $25,000 of the cost of qualifying property placed in service for the taxable year.
• The above-the-line deduction for higher education expenses (§ 222). Under present law, no deduction is permitted for expenses incurred after 2005.
• The credit for elective deferrals and IRA contributions (§ 25B). Under present law, for taxable years beginning after 2006, no credit may be claimed for elective deferrals or IRA contributions.
This document, prepared by the staff of the Joint Committee on Taxation, provides a description of present law and presents background data on the utilization of these provisions of the Code. In addition, this document briefly discusses considerations important to estimating the revenue effects of any proposed extension of these expiring provisions. To make the discussion of the estimation of the revenue effects more concrete, the staff of the Joint Committee on Taxation considers two sets of proposals. The first set of proposals would extend present law for each provision through calendar year 2010. The second set of proposals would extend present law for each provision permanently.
IRS Releases New Tax Stats
- Document 6149 - Calendar Year Return Projections by State
- Document 6186 - Calendar Year Return Projections for the United States and IRS Campuses
- Document 6187 - Calendar Year Projections of Individual Returns by Major Processing Categories, Selected Years and Areas
- Document 6292 - Fiscal Year Return Projections for the United States
- Document 6961 - Calendar Year Projections of Information and Withholding Documents for the United States and IRS Campuses
June 29, 2005
Urist to Publish Six Minutes in the City
Jacoba Urist, a former tax lawyer at O'Melveny & Myers (and daughter of Cardozo Tax Prof Edward Zelinsky) has obtained a publisher for her novel about life as a tax lawyer, Six Minutes in the City. The New York Post reports:
Former Secretary of State Warren Christopher's high-powered law firm is set to be the subject of a racy roman à clef. Jacoba Urist, a 28-year-old lawyer who resigned from the New York office of O'Melveny & Myers two years ago, is peddling a novel, "Six Minutes in the City," said to be inspired by her eight-month tenure at the white-shoe firm. We're told that senior partner Christopher, 79, who ran the State Department during Bill Clinton's first term, is the basis for the character of Earl Lewis, a doddering Republican power player well past his prime. "He's basically half-comatose," said a publishing insider of the character. "He's very old, and no one takes him very seriously." The book also features the fictitious firm's partners buying cocaine, uppers and pot from mailroom employees and sexually harassing attractive female summer associates. Urist declined comment. An O'Melveny & Myers spokesman said: "We don't comment on works of fiction."
Hill on Partisan Campaign Activity by Charities
Frances R. Hill (Miami), Tax Program Director of the Campaign Legal Center, sent a letter to IRS Commissioner Mark Everson noting that plans by some § 501(c)(3) tax-exempt organizations to conduct joint interviews of Republican presidential candidates could violate the ban on partisan campaign activity by charities.
See here for a related Roll Call article.
Reportedly (a little birdie told me), some people more in the know than I am are betting that the Tax Reform Commission will endorse neither the X-tax, which I would favor, nor the Graetz model, on which I’ve made my views clear, but rather will propose making various changes to the current income tax system. Some of the main possible features that I have heard about (plus my comments on them) are as follows:
- Exemption for capital income plus elimination of interest deductibility.
- Replace personal exemptions with a single, unified child tax credit.
- Replace various itemized deductions, such as those for charitable contributions and home mortgage interest, with percentage credits.
- A $10,000 cap on the exclusion for employer-provided health insurance.
- Vic Fleischer (UCLA) "share[s] Dan's skepticism that any of this will go anywhere in the near term. But it may set the table for future debates and a move to a consumption tax by 2015 or so."
- Vic Fleischer (UCLA) answers the question: Do tax profs set their research agendas to "fulfill personal meaning"?
Stein on Settling With the IRS: The Importance of Procedure
Ronald Stein (Deloitte, Chicago) has published Settling With the IRS: The Importance of Procedure, 107 Tax Notes 1675 (June 27, 2005), also available on the Tax Analysts web site as Doc 2005-11412, 2005 TNT 123-33. Here is the abstract:
[The article] explores fundamental procedures and related principles and concepts that contribute significantly to the shaping of the settlement process in federal tax controversies. Stein believes that an understanding of the procedural nuances of settlement practice in tax cases is vital as enforcement reemerges as a top IRS priority.
House Holds Hearing Today on Tax Fraud by Prison Inmates
The hearing will focus on the current laws, policies and procedures to detect and deter tax fraud committed by prison inmates, and will explore further steps that can be taken by the IRS or Congress to eliminate this fraud.
The hearing will take place in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 pm.
From the hearing notice:
While the vast majority of Americans pay their taxes with honesty and integrity, a small minority is responsible for large amounts of refund fraud. The IRS estimates there is a total of approximately $375 million lost to refund fraud each year, and remarkably, prison inmates are contributing to the problem from behind bars. The IRS estimates that 7.5 to 15 percent of all refund tax fraud is being committed by prison inmates. Furthermore, it appears that this problem is growing rapidly. Prisoners nationwide have developed elaborate schemes to receive refunds by fraudulently reporting earnings or claiming false eligibility for tax credits. Each year, prisoners are devising new methods to defraud the tax system, at the expense of American taxpayers.
The IRS has some procedures meant to detect and stop tax fraud by prison inmates, including maintaining a database of individuals who have been in prison within the last two and-a-half years. According to IRS data, during 2004, individuals listed in the IRS prisoner database filed 455,097 returns, seeking $758 million in refunds. The IRS successfully identified 18,159 (4 percent) of these returns as fraudulent, but only stopped 14,033 (77 percent) of the refunds, worth $53 million, from being issued. The hearing will examine IRS efforts to combat inmate tax fraud and consider improvements that could be made. In addition, the Subcommittee will hear about the efforts of State correctional systems to combat this fraud.
In announcing the hearing, Chairman Ramstad stated, “Tax fraud in any form is unacceptable. It is especially troubling when prison inmates are able to game the system from behind bars. We must find ways to stop this outrageous behavior.”
IRS Awards Data Processing Contract to Company Involved in Massive Identity Theft
The IRS has renewed a 5-year, $20 million contract with ChoicePoint to provide data processing services to the agency. ChoicePoint is one of the companies caught up in the identity theft crisis, as it allowed thieves to steal confidential information on more than 100,000 of its customers. Senator Patrick Leahy (D-VT) issued a press release yesterday blasting the IRS's move, calling it "especially galling right now to be rewarding firms that have been so careless with the public’s confidential information."
TaxProf Blog: "Head Cheerleader on the IRS Pom Pom Squad"
I have been called a lot of things as a result of this blog, but this gem in today's blogosphere is my favorite: "Paul L. Caron appears to be some kind of IRS cheerleader. He's probably the head cheerleader on the IRS pom pom squad."
Update: Joe Kristan offers some photographic proof (I'm the top one.)
June 28, 2005
Law School Lets Conservative Prof Teach Con Law After Outside Panel Attests to His Competence
We previously blogged the case of Montana law prof Robert G. Natelson, a self-described conservative who claimed he had been denied the opportunity to teach con law solely because of his political views (see here and here). News reports today say that he has prevailed in his quest to teach con law:
Law School Dean Ed Eck and UM President George Dennison handed Natelson the decision after considering a recent report by the three-person committee charged with assessing Natelson's suitability to teach the course. One member of the committee, Bozeman attorney James H. Goetz, dissented from the committee's final report. But UM officials agreed with the findings of James Weinstein of Arizona State University and Robert F. Nagel of the University of Colorado, each of whom holds an endowed chair in constitutional law at their respective universities.
Natelson is fully qualified for the job, the two academics concluded. In their final report, they wrote: "We are able to make this judgment with confidence. It is based on an evaluation that in its scope and thoroughness might well be unprecedented for any decision about a teaching assignment in the history of the American legal academy." Goetz argued the Law School should conduct a national search for a constitutional law professor and invite Natelson to apply.
The opinions were crafted after the committee reviewed Natelson's teaching abilities during spring semester 2005, conducted interviews with students, considered student evaluation forms that directly addressed Natelson's teaching abilities and examined Natelson's community service record and his published work.
Natelson was granted the opportunity to prove his skills and teach the course last spring after he won a grievance hearing filed against UM last summer. Natelson had been denied the teaching assignment four different times and claimed he was the victim of political discrimination and unfair hiring practices.
After a two-day, 15-hour hearing, the grievance officer didn't address the political discrimination complaint, but did determine Natelson was treated unfairly at the Law School. Dennison subsequently agreed to let Natelson teach the course, providing an independent evaluation committee would review his teaching performance and decide if he was fit to teach the course on a more permanent basis.
In their conclusion, Weinstein and Nagel wrote: "After due consideration of all the material presented to us, and with particular regard to Professor Natelson's performance in teaching Constitutional Law this semester, we conclude that Professor Natelson is both competent and fully qualified to continue to teach Constitutional Law. In light of of this finding, we recommend that he be assigned the Constitutional Law course."
(Hat tip: En Passant.)
IRS Tax Forum Rolls Into San Francisco
The Nationwide Tax Forums feature a variety of basic and advanced seminars that provide the tax professional community with the latest information on IRS policies and programs. Among the topics on the 2005 agenda are like-kind exchanges, estate and trust planning, identity theft, retirement plans for small businesses, alternative minimum tax and recent tax law changes. The seminars are conducted by IRS experts and tax industry leaders from the American Bar Association, the American Institute of Certified Public Accountants, the National Association of Enrolled Agents, the National Association of Tax Professionals, the National Society of Accountants and the National Society of Tax Professionals. Tax professionals are invited to bring unresolved cases or questions to IRS representatives for on-site resolution. For the full program, see here.
Case on Article I Courts, Substantive Rights, and Remedies for Government Misconduct
David A. Case has posted Article I Courts, Substantive Rights, and Remedies for Government Misconduct (forthcoming, Northern Illinois University Law Review) on SSRN. Here is the abstract:
So-called Article I courts (namely the Tax Court, Court of Federal Claims, and Court of Appeals for Veterans Claims) can provide petitioners with remedies for illegitimate conduct by government attorneys, in the form of more favorable decisions. While the debate regarding whether Article I Courts possess inherent powers, or can base their decisions on equitable concepts is ongoing, using the history of the doctrine of sovereign immunity, the history of these courts, and Professors Hart and Sacks' analysis of rights and remedies, the paper concludes that, when faced with government attorney misconduct these courts may provide litigants with a remedy. This issue is particularly important in light of Dixon v. CIR, 316 F.3d 1041 (9th Cir. 2003), in which the Ninth Circuit split with other circuits, and determined that the remedy for what resembled a Mary Carter agreement between the IRS and certain cooperating petitioners in a test case was to order the Tax Court to apply the favorable settlement arrangements to the injured petitioners. Thus, the Tax Court, effectively was told that it could and must apply the equitable doctrine of quasi-contract, in a court that other Courts of Appeals have held has no equitable powers.
This paper argues that this view is incorrect. In fact Article I Courts have equitable powers, and although equity cannot be used to vitiate a statutory regime, it can be used to provide litigants with remedies for abusive litigation behavior.
To reach this conclusion, this paper traces this history of claims against the government and sovereign immunity, as well as the effect of the petition clause, case or controversy clause and the Fifth Amendment's just compensation clause upon the adjudication of rights created by statute. This view is then applied to Hart and Sacks' rights and remedies dichotomy, to conclude that th Ninth Circuit was correct in ordering the Tax Court to impose, what amounts to an equitable remedy upon the Internal Revenue Service.
Burke & McCouch Review The Fight Over Taxing Inherited Wealth
Karen C. Burke (San Diego) & Grayson M.P. McCouch (San Diego) have published a review of Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth, by Michael J. Graetz (Yale) & Ian Shapiro (Yale) (blogged here and here), 107 Tax Notes 1583 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-12643, 2005 TNT 118-48:
Graetz and Shapiro have written a remarkable book that deserves a wide audience. Their account of "the fight over taxing inherited wealth" is notable not only for its sophisticated and penetrating analysis, but also for its scrupulous fairness. Despite the highly charged nature of their subject matter, Graetz and Shapiro manage to avoid imposing their own policy preferences and predilections, and different readers will undoubtedly draw different conclusions. No one who reads their book will ever look at the politics of tax reform in quite the same way again.
National Law Journal on Kanter/Ballard Case
The conflict between the original report and the Tax Court decision has prompted some to raise ethical questions about Tax Court procedures and to call on Congress to examine them....
[T]he report is "very different" from the 1999 opinion, said tax scholar Leandra Lederman of the Indiana University School of Law-Bloomington. "Most important, the original report did not find that the taxpayers committed fraud; the opinion did," she emphasized. "These differences are disturbing. They raise questions about what the Tax Court means in Rule 183 cases when it says it 'agrees with and adopts' the findings of the trier of fact. This type of question may undermine confidence in the Tax Court's practices in Rule 183 cases."
See also the follow-up story in the Chicago Tribune, Tax Court's Top Judge Quiet on Fraud Case:
The chief judge of U.S. Tax Court declined on Friday to discuss revelations that call into question the decision-making process of judges who oversee tax disputes between citizens and the IRS. In a brief telephone interview, Joel Gerber, a Chicago native who was appointed to the tax court in 1984 and named chief judge in 2004, said, "No judge will be able to discuss this. There is no way."
House Holds Hearing Today on Pension Protection Act
The Subcommittee on Select Revenue Measures of the House Ways and Means Committee holds a hearing today on Funding Rules for Multiemployer Defined Benefit Plans in H.R. 2830, the Pension Protection Act of 2005:
More than 9.8 million workers participate in multiemployer defined benefit plans, which are collectively bargained pension arrangements involving unrelated employers, usually in a common industry. The Pension Benefits Guaranty Corporation (PBGC) estimates that multiemployer pension programs are underfunded by more than $150 billion; that is, these pension programs have promised $150 billion more in benefits than they have assets to pay according to current funding levels in the plans.
To address the current underfunding in these plans, ... H.R. 2830 ... create[s] a structure for identifying multiemployer pension plans that may be facing funding problems and providing quantifiable benchmarks for measuring efforts to improve the plan’s funding. Plans that are between 65 and 80% funded are classified as “yellow zone” plans that are in intermediate financial problems. Trustees of yellow zone plans would be required to adopt a program that will improve the health of the plan by one-third within 10 years. Trustees would be prohibited from increasing benefits that could cause the plan to fall below the 65% funded status. Plans that are less than 65% funded and face significant funding problems would be classified as “red zone” plans. Trustees would be required to develop a plan to exit the red zone funding status within 10 years, among other requirements. Additionally, H.R. 2830 requires increased reporting and disclosure requirements for all plans.
The hearing will take place in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 am.
In connection with the hearing, the Joint Committee on Taxation has issued Present Law And Background Relating To Multiemployer Defined Benefit Pension Plans And Related Provisions Of H.R. 2830, The "Pension Protection Act Of 2005" (JCX-49-05) (47 Pages):
This document, prepared by the staff of the Joint Committee on Taxation, provides background and present law on multiemployer defined benefit pension plans, describes the multiemployer plan provisions of H.R. 2830, as introduced, and discusses issues relating to the funding status of multiemployer plans.
June 27, 2005
Buy a Highlander, Get a $2,000 Tax Deduction
The IRS announced today (IR-2005-69) that the model year 2006 Toyota Highlander Hybrid is eligible for the clean-burning fuel deduction. Taxpayers who purchase one of these hybrid vehicles new during calendar year 2005 may claim a tax deduction of up to $2000 on Form 1040. In 2006, the deduction drops to $500.
See here for a list of the vehicles that qualify for the deduction:
- Ford Escape Hybrid — Model Year 2005
- Honda Accord Hybrid — Model Year 2005
- Honda Insight — Model Years 2000 through 2005
- Honda Civic Hybrid — Model Years 2003 and 2005
- Lexus RX 400h — Model Year 2006
- Toyota Highlander Hybrid — Model Year 2006
- Toyota Prius — Model Years 2001 through 2005
Improvements to TaxProf Blog
Please email me other suggestions for improvements we can make to the site to better serve your tax scholarship and teaching needs.
Desai, Dharmapala & Fung on Taxation and the Evolution of Aggregate Corporate Ownership Concentration
Mihir A. Desai (Harvard Business School), Dhammika Dharmapala (University of Connecticut, Economics) & Winnie Fung (Harvard University, Department of Economics; Harvard Business School) have posted Taxation and the Evolution of Aggregate Corporate Ownership Concentration on SSRN. Here is the abstract:
Legal rules, politics and behavioral factors have all been emphasized as explanatory factors in analyses of the determinants of the concentration of corporate ownership and stock market participation. An extension of standard tax clientele arguments demonstrates that changes in the progressivity of taxes can also significantly influence patterns of equity ownership. A novel index of the concentration of corporate ownership over the twentieth century in the U.S. provides the opportunity to quantitatively test for the role of taxes in shaping ownership concentration. The index of ownership concentration is characterized by considerable time series variation, with significant diffusion of ownership in the post WWII era and reconcentration in the late 1990s. Analysis of this index indicates that the progressivity of taxation significantly influences corporate ownership concentration and equity market participation as predicted by the model. This evidence supports the intuition of Berle and Means (1932) that taxation can significantly influence patterns of equity ownership.
Berube, Gale & Kornblatt on Tax Policies to Help Working Families in Cities
Alan Berube, William G. Gale & Tracy Kornblatt (all of the Brookings Institution) have published Tax Policies to Help Working Families in Cities on the The Brookings Institution web site. Here is the abstract:
This paper examines ways that federal tax policy could improve the economic prospects of low- and middle-income working families in cities. We show how existing federal tax rules affect these families, and that a variety of public policies are available to provide better economic opportunities and incentives for these households. In particular, policies that expand and modify the child care and dependent care tax credit, the saver's credit, and subsidies for health insurance, or that alter the structure of homeownership subsidies away from deductions and toward capped credits for homeownership, have the potential to improve economic prospects for millions of working families who live in urban areas. The significant link between federal tax policies and the welfare of households in cities is an area of growing awareness and increasing importance and should receive the attention of both urban leaders and federal policy makers in the future.
Jones on It's the Ceiling Rule, Stupid!
Darryll K. Jones (Pittsburgh) has published It's the Ceiling Rule, Stupid!, 107 Tax Notes 1579 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-12754, 2005 TNT 118-41. Here is the opening:
In the fourth edition of their useful text, Partnership Income Taxation [Editor's Note: Blogged here], Alan Gunn and James R. Repetti point out an interesting collateral consequence of the recently enacted § 704(c)(1)(C). Without actually saying so, Gunn and Repetti prove that § 704(c)(1)(C) constitutes a partial repeal of the ceiling rule. Their proof also raises the possibility that § 704(c)(1)(C) creates unexpected distortions. Gunn and Repetti suggest that any repeal is probably unintended in light of the legislative history's failure to even mention the rule or any of its ameliorative counterparts. That at least a partial repeal occurs without the drafters' explicit acknowledgment or intent, though, proves only that total repeal is inevitable and even desirable. The ceiling rule, you may agree, is merely a label implementing a cerebral determination that a partnership should be viewed as an entity and not just an aggregation of its partners insofar as partnership allocations are concerned. The determination is ultimately an irrelevant diversion. Prof. Mark Gergen of the University of Texas explained some time ago that the decision to refer to a partnership as an entity or an aggregate is irrelevant to the real questions concerning the proper tax consequence to partners from partnership operations.
Leigh on Can Redistributive State Taxes Reduce Inequality?
Do income taxes levied at a state or regional level affect the after-tax distribution of income? Or do workers merely move between regions, causing pre-tax wages to adjust? This question is relevant both in across states in the United States, and across countries within the European Union. Using the full income tax parameters for all US states from 1977-2002, I create a "simulated tax redistribution index", which captures the mechanical impact of the changes in tax policy on the gini coefficient, but is exogenous to any behavioral response. Analyzing the effect of this redistribution index on inequality, I find that gross wages do not adjust so as to fully offset the effect of more redistributive taxes. Exploring the adjustment process further, I create a new class of tax redistribution measures, based on the S-Gini, which differentially weight effects at the bottom and top of the distribution, and conclude that neither taxes that particularly affect the rich or the poor seem to affect the distribution of wages. Redistributive taxes do not appear to affect interstate migration or total state personal income. From a political economy perspective, I also find some evidence that more inequality leads states to implement more redistributive taxes, which may help explain why earlier studies observed a positive relationship between redistribution and inequality.
- Top 5 Tax Paper Downloads
- The Mother of All Data Security Breaches?
- Sheppard on Draft Senate Finance APA Report Shows Incompetent IRS
- Article on Tax and Accounting Blogs
June 26, 2005
Top 5 Tax Paper Downloads
1. Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes, by Robert H. Sitkoff (Northwestern) & Max M. Schanzenbach (Northwestern)
2. Travails in Tax: KPMG and the Tax-Shelter Controversy, by Tanina Rostain (New York Law School)
The Mother of All Data Security Breaches?
Reuters reports that the IRS is investgating the possibility that hackers may have gained access to sensitive data from their computers. The potential security breach dwarfs those recently announced by ChoicePoint, Bank of America, Reed Elsevier, and others. (Thanks to Kerry Kerstetter for the tip.)
Sheppard on Draft Senate Finance APA Report Shows Incompetent IRS
Lee A. Sheppard (Contributing Editor, Tax Analysts) has published Draft Senate Finance APA Report Shows Incompetent IRS, also available on the Tax Analysts web site as Doc 2005-13514, 2005 TNT 119-1. Here is the opening:
"The National Office negotiates as if IRS needs the APA more than the taxpayer does." That is an IRS agent complaining about the generous dealmaking in the IRS Advance Pricing Agreement Program, wherein the IRS cuts transfer pricing deals with large corporate taxpayers. That's the sort of damaging information that is contained in the recently completed draft of the long-awaited report on the Senate Finance Committee investigation of the APA program. The draft is being reviewed on Capitol Hill pending final release and possibly a Senate hearing.
Separate-company accounting, the arm's length method, and transfer pricing are all basically unenforceable, and the APA program has been a fig leaf for the legislative and executive branches to avoid admitting that it doesn't work. That's all well and good -- other OECD countries are doing the same. The problem, as the draft report points out using case studies (drawn from real cases), is that the program is badly managed, and the IRS is giving away the store. No wonder the program is hugely popular with taxpayers and practitioners, as public hearings earlier this year showed.
The IRS is afraid of the report, and IRS officials have been trying to minimize the significance of the Senate investigation ever since it started. Yet the report was widely expected to be a whitewash, since senators on both sides of the aisle like the APA program because business likes it. The Court of Appeals for Aggrieved Business is not about to kill a program that business is happy with. So the draft report attempts to balance the good aspects of the APA program with the rather significant bad aspects.
Article on Tax and Accounting Blogs
TaxProf Blog is mentioned, along with several other tax blogs, in a wonderful article by Eva M. Lang in the June issue of the Journal of Accountancy, Would You, Could You, Should You Blog?
June 25, 2005
Tax Prof Profile, Extended Father's Day Edition: Jeffrey H. Kahn
Last Father's Day weekend, we brought you the first of a two-part profile of the Kahn father-son tax prof tandem. Doug shared his thoughts on the special joys and challenges of raising a tax prof son. This week, Jeff offers us his perspective on what it was like to grow up as the son of one of the true tax legends of our time:
I was born and raised in Ann Arbor, Michigan and it was wonderful growing up in a university town with an academic family. As a child, I decided that I wanted to teach because I was always so proud when people stopped my father on the street and told him how much they enjoyed his class and how much he meant to them. I realized then what kind of positive effect a teacher can have on a student.
Jeffrey H. Kahn (Santa Clara)
- B.A. 1994, Duke
- J.D. 1997, Michigan
After graduating from Duke where I double majored in Latin and Classics, I attended the University of Michigan Law School with the hope of becoming a law professor at some point in my career. At that time, I had no idea what area of law I wanted to specialize in. I did know, however, what area I did not want to enter: tax law. I decided when I entered law school that I would avoid tax as I did not want to be compared to my father. Fate (or my DNA) had other plans for me.
My corporate tax class, with Professor Terry Perris, was where everything clicked. I found that I enjoyed studying the complexity of the Code, regulations and business transactions, particularly the analytical nature of tax planning. After that class, I realized that I had no choice but to enter the family business of taxation.
After law school, I joined the tax department of the Chicago office of McDermott, Will & Emery. I very much enjoyed my two years there, particularly working with Lowell Yoder, a partner who specializes in international transactions. My entrance into teaching came when Kent Syverud, the dean of Vanderbilt and my former civil procedure professor at Michigan, asked me to teach two tax courses at Vanderbilt as a visiting professor. Jeff Schoenblum was a huge help to me in that first semester and made my visit an especially enjoyable one. That experience confirmed my desire to be a professor.
In the fall of 2000, I joined the faculty at Santa Clara. It is a wonderful place and I am surrounded by fantastic colleagues, including Brad Joondeph, the other tax specialist here. This past December, the faculty voted to grant me tenure and a promotion to associate professor. I have also been lucky to have had the opportunity to teach as a visitor at several schools including Stanford and Hastings. This fall, I will be visiting at the University of North Carolina.
I have particularly enjoyed the scholarship component of the academic profession. My scholarship, which has ranged from short Tax Notes pieces to general law review articles to co-authoring a student treatise, focuses on such divergent topics as the tax expenditure budget, the classification of deductions, the tax treatment of gifts and even the tax consequences to a reality television show winner (which, to my amusement, was noticed by the best friend of the contestant, who called to ask for advice). In addition, it has been a joy for me to have the opportunity to work with my father on both an article and a student treatise. While it is difficult at times being a tax professor and constantly comparing myself to him and his successes, I would not trade it for the world. I am always amazed at how lucky I am to have this job.
On a personal note, I am married to Jessica Kahn whom I met when we were both tennis instructors in Ann Arbor. Disregarding my warnings, Jessica attended the University of Chicago Law School and, when we first moved out here, joined Fenwick & West as a tax associate. She is now currently an assistant dean at Santa Clara and, despite doing more work than anyone else, finds time to teach legal profession and the school’s internship course. We live in San Jose with our three cats and our dog.
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.
NY Times on Tax Protester Case
The federal government's campaign against income tax protesters suffered a major setback yesterday when a federal jury in Sacramento acquitted a former Internal Revenue Service investigator on charges of helping to prepare false tax returns....
The jury verdict appeared to reflect the different way criminal tax laws apply to taxpayers and to professional advisers who promote tax cheating, said Jay Adkisson, a tax lawyer in Laguna Nigel, Calif., who tracks tax protesters at the Web site quatloos.com. "It is hard to convict promoters," Mr. Adkisson said. "Promoters make a lot of money off their marks, watch their marks go to jail for not paying taxes and then take advantage of a loophole that lets them prepare bogus returns that they characterize as protest returns" prepared at the direction of the client...
The verdict stirred concerns that it would encourage more Americans to refuse to pay taxes, which the Treasury, I.R.S. and the Justice Department have all acknowledged is a growing problem. The problem has prompted a renewed effort to seek civil injunctions against promoters like Mr. Banister and in some cases prosecutions of both tax protesters and their professional advisers.
"This is going to encourage thousands more people who were on the fence, who were paying taxes only because they were afraid they would be criminally prosecuted," said J. J. MacNab, a Maryland insurance analyst. She is writing a book about people who deny the legitimacy of the tax laws and attended the trial, which began June 14. "If too many people do this, the tax system will collapse because it is based on people voluntarily complying" with the law, Ms. MacNab said.
Sheppard on Tax Domicile and Residence
Lee A. Sheppard (Contributing Editor, Tax Analysts) has published Thinking About Domicile and Football, 107 Tax Notes 1494 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-13052, 2005 TNT 120-8, which explores how European nations deal with the question of domicile and residence for tax purposes.
Cloyd, Robinson & Weaver on Does Ownership Structure Affect Corporations’ Responses to Lower Dividend Tax Rates?
C. Bryan Cloyd (Virginia Tech, Department of Accounting and Information Systems), John R. Robinson (University of Texas at Austin, McCombs School of Business) & Connie D. Weaver (University of Texas at Austin, McCombs School of Business) have posted Does Ownership Structure Affect Corporations’ Responses to Lower Dividend Tax Rates? An Analysis of Public and Private Banks on SSRN. Here is the abstract:
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) significantly reduces the maximum tax rate imposed on dividend income received in 2003 through 2008 by individual shareholders. Using data from call reports filed with the Federal Reserve Board, we investigate whether federally regulated bank holding companies (BHCs) increased dividend distributions after JGTRRA. By focusing on BHCs, we are able to compare the responses to this important but temporary change in tax policy across publicly-traded and privately-held corporations, while controlling for industry-related factors. Examining private firms’ dividend payouts and reactions to JGTRRA allows us to estimate the effect of differential taxation on dividend policy in a setting that is relatively free of the information asymmetry and agency problems that may dominate the payout decisions of public firms. We find that dividend yield (i.e. dividend distributions deflated by assets) increased after the reduction of the dividend tax rate for both private and public BHCs. However, private BHCs increased dividend payouts to a greater extent than most public BHCs. Our findings have implications for tax policy and for understanding differences between public and private firms.
June 24, 2005
International Tax Writing Competition
- Subject: Any topic relating to U.S. taxation of income from international activities, including taxation under U.S. tax treaties
- Open to: All students during the 2004-05 academic year pursuing a graduate degree with a tax specialty.
- Submission Deadline: September 30, 2005
- Prize: $2,000 cash, plus expenses-paid invitation to IFA USA Branch Annual Meeting in San Antonio in February, 2006, where the winner will be presented with an award
ATPI To Host Conference on Making Work Really Pay
The American Tax Policy Institute is sponsoring a roundtable conference on July 7 to discuss a draft paper by Stephen Holt, Making Work Really Pay: Income Support & Marginal Effective Tax Rates Among Low-Income Working Households.
- Janet Holtzblatt (Treasury Department)
- Dan Shaviro (NYU)
- Eugene Steuerle (Urban Institute)
The roundtable will be held from 2:30 to 5:30 p.m. on Thursday, July 7, 2005, in the Ernst & Young Conference Center, 1225 Connecticut Ave. NW, Washington D.C. To attend, please RSVP to Janine Hoke here at by Monday, June 27, to obtain a copy of the paper prior to the conference.
Lederman, Roin Quoted in Tribune on Kanter Case
Interesting article in today's Chicago Tribune on the Kanter case, Tax Court Reversal "Incredible"; Judge Alters Secret Finding in Fraud Trial:
Lawyers and law professors familiar with the case are stunned by the disclosure. "How could the tax court judges essentially lie about what was in the report?" said Julie Roin, a law professor at the University of Chicago who has followed the case. "I find it incredible. ... It makes you wonder what's going on," Roin said. The dispute provides a rare look inside the court, located in Washington, D.C., and, according to tax experts, raises questions about the credibility of the court's decision-making process in what often are multimillion-dollar cases....
"The court order--that's a total lie," Roin said. "It strikes me as institutionally destructive to lie. ... I find this all mysterious. I don't understand what they have to gain by lying. It just seems bizarre."...
Leandra Lederman, the William W. Oliver professor of tax law at Indiana University School of Law in Bloomington, said the disclosure of Couvillion's report "does raise questions. Has it happened before? How many times has it happened before?" "I think it leads to questions about what was going on behind closed doors," she said. Lederman, who filed an amicus brief in the case urging release of Couvillion's findings, said the practice of keeping such findings secret is a "lack of transparency. And that leads to a lack of accountability. Transparency not only protects actual fairness, but the appearance of fairness, which is needed for people to have confidence in the system."
Raby & Raby on Golden Parachutes, Change of Control, and § 83(b)
Burgess J.W. Raby & William L. Raby have published Golden Parachutes, Change of Control, and Section 83(b), also available on the Tax Analysts web site as Doc 2005-13511, 2005 TNT 120-77. Here is part of the Conclusion:
The golden parachute rules have been in the tax law since 1984. They are complex, and most tax practitioners either have encountered few golden parachute situations or haven't recognized them when they did. It took 20 years for the IRS to put in place the regulations dealing with this complex area. Earlier this year, the Service released an MSSP audit guide covering golden parachute payments. Tax practitioners cannot afford to ignore the potential application of the regulations by revenue agents guided by the MSSP, and practitioners now have tools to work with, complex though the subject may be.
Eight Seven Six Five Four Three?
With KPMG's continued existence very much up in the air as the Feds contemplate indicting the entire firm for their tax shelter work in the late 1990s, Taxable Talk asks if folks remember the names of the original Big Eight accounting firms? [Answer below the fold.]
Arthur Andersen: Dead, 2002
Arthur Young: Merged with Ernst & Whinney in 1989 to form Ernst & Young
Coopers & Lybrand: Merged With Price Waterhouse in 1998 to form PriceWaterhouseCoopers
Deloitte Haskins: Merged with Touche Ross in 1989 to form Deloitte Touche
Ernst & Whinney: Merged with Arthur Young in 1989 to form Ernst & Young
Peat, Marwick & Mitchell: Merged with KMG (Klynveld Main Goerdeler) Main Hurdman in 1986 to form KPMG Peat Marwick (since shortened to KPMG)
Price Waterhouse: Merged with Coopers & Lybrand in 1989 to form PriceWaterhouseCoopers
Touche Ross: Merged with Deloitte Haskins in 1989 to form Deloitte Touche
Summer of the Tax Protesters?
A former Criminal Investigation (CI) Division special agent who left the IRS in 1999 over disagreements about the validity of the federal income tax, Banister was exonerated of conspiring to defraud the IRS and of helping Cencal Aviation Products proprietor Walter A. "Al" Thompson file false returns for tax years 1996-1998. Thompson was found guilty of tax evasion and failure to withhold in January 2005 and was sentenced to six years in prison.
Other big tax protestor cases scheduled for trial this summer include:
- Larken Rose (section 861 shtick) in Philadelphia in July
- Irwin Schiff (pay no income tax shtick) in Las Vegas in August
June 23, 2005
Circular 230 Fashion
New Issue of Atax's eJournal of Tax Research
Volume 3, Issue 1 of the eJournal of Tax Research, published by Atax (Australian Taxation Studies Program), University of New South Wales, Sydney, Australia, is available (with a free subscription) on its web site with these articles:
- Sandra Eden, Judicial Control of Tax Negotiation (pp 5-27)
- Lin Mei Tan & John Veal, Tax Knowledge for Undergraduate Accounting Majors: Conceptual v. Technical (pp 28-46)
- Ern Chen Loo & Juan Keng Ho, Competency of Malaysian Salaried Individuals in Relation to Tax Compliance under Self Assessment (pp 47-64)
- Jim O'Donnell, Quarantining Interest Deductions for Negatively Geared Rental Property Investments (pp 65-116)
- Neil Warren, Ann Harding and Rachel Lloyd GST and the Changing Incidence of Australian Taxes: 1994-95 to 2001-02 (pp 117-149)
AALU Provides Revenue Estimates and Number of Taxable Estates Under Current Law, Estate Tax Repeal, and Reform Alternatives
The Association for Advanced Life Underwriting (AALU) has prepared Revenue Estimates of Estate Tax Repeal and Revenue Estimates and Number of Taxable Estates Under Current Law, Estate Tax Repeal, and Reform Alternatives ($1m - $3.5m Exemption and 15% - 45% Top Rates). There is a separate page for each state with three tables:
- Table 1 (revenue estimates) and Table 2 (number of taxable estates) on each page contain national data.
- Table 3 contains data on the number of taxable returns for each state under both current law and various reform alternatives
Estimated Number of Estate Tax Returns Under Current Law, 2006-2020
Blattmachr, Gans, Zeydel & Bentley on Circular 230: Validity and Compliance Strategies
Jonathan G. Blattmachr (Milbank, Tweed, Hadley & McCloy, New York), Mitchell M. Gans (Hofstra), Diana S.C. Zeydel (Greenberg Traurig, Miami) & Tracy L. Bentley (Milbank, Tweed, Hadley & McCloy, New York) have published Circular 230 Redux: The Questions of Validity and Compliance Strategies, 107 Tax Notes 1533 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-12260, 2005 TNT 119-42. Here is the abstract:
In this article, the authors revisit their prior article on Circular 230 (see Tax Notes, Apr. 4, 2005, p. 61), focusing in particular on the amendments Treasury adopted on May 18. They consider the meaning of an important, new safe harbor under which transactions that are consistent with the Code and its purpose are subject to less rigorous standards. They go on to discuss strategies for making certain that the advice practitioners provide after June 20 will be in compliance with the circular. They also provide a decision tree that will enable practitioners to classify their written advice and thereby determine whether and how the circular applies. Finally, they suggest that because the circular adopts a system of rules that is not parallel to the penalty provisions in the code, it may be invalid as applied in estate planning and other contexts on First Amendment and statutory authority grounds.
More KPMG Tax Shelter Coverage
- Howard E. Abrams (Emory) and Tanina Rostain (New York Law School) were quoted in Tuesday's New York Times story, KPMG May Dodge One Bullet, Only to Face Another
- Vic Fleischer's post, Criminalizing Tax Shelters
- Joe Kristan's post, Vic Fleischer to KPMG: Die
- Larry's Ribstein's post, KPMG and Limited Liability of Professional Firms
Schnabel on The Exempt Status of Vigilante Nonprofits
Timothy Schnabel (Yale, Class of 2005) has published Vigilante Nonprofits: The Bob Jones Rule as Applied to the International Promotion of the Rule of Law, 24 Va. Tax Rev. 921 (2005). Here is part of the Introduction:
[M]any ... [nonprofit] organizations based in this country have motives and missions such as distributing Bibles or freeing slaves that Americans would consider laudable and charitable if carried out within the United States but that run afoul of the laws of the governments in whose territories they operate. What are the legal consequences when an American nonprofit operating abroad begins to act like a vigilante, promoting its own allegedly charitable agenda despite the prohibitions of foreign laws? The Supreme Court has held that an organization that violates a fundamental federal public policy is not charitable and is thus not eligible for tax exemption. The fundamental policy addressed by the Court was a domestic one: the elimination of racial discrimination in education. Should the loss of exemption rule also apply to a different fundamental policy -- the goal of promoting the growth of the rule of law -- that operates in the international sphere? An organization that violates another country's laws undermines the rule of law ideal that the law ought to bind everyone equally and effectively; should such an organization still be granted tax-exempt status?
June 22, 2005
Thuronyi Reports on European Association of Tax Professors Meeting
The European Association of Tax Law Professors met in Caserta, Italy (near Naples) for a two-day conference which has become an annual event (next year: Budapest, and the year thereafter Helsinki). This group, which is only a few years old, seems to be quite a successful way for tax law teachers all over Europe (a few members with an interest in comparative tax law, such as yours truly, are from outside Europe) to get together to network and discuss issues of common concern.
The main topic considered was the concept of tax. This is relevant for many European countries as a constitutional matter (for example, provisions in the constitution that require taxes to be imposed by law) or a matter of European law (various provisions in the EU treaty) or as a matter of treaty law (what does "tax" in the OECD Model mean?). Not surprisingly, the answer seemed to be "it depends" and that the meaning of "tax" might differ depending on the context and the country concerned.
A separate topic was the status of tax professor. The European situation differs substantially from that of the U.S. To become a tax law professor one must often write as many as two dissertations or pass comprehensive exams covering a number of areas of law besides tax. There are many fewer professors in Europe than in the U.S. Correspondingly, tax as a subject in law school enjoys a lower importance than in the U.S. There are also substantial differences within Europe on how one becomes a professor. Making it easier for those trained in one country to become a professor in another -- part of freedom of movement in Europe -- was also discussed. Such cross border movement has been achieved by very few so far.
I was asked whether there is a comparable association in the U.S. While tax law academics might get together for various smaller conferences, or for larger meetings like AALS or ABA, there is not a universal venue for tax law professors. Maybe an enterprising group could think about starting an association of U.S. (or North American) tax law professors.
Panel on the Nonprofit Sector Releases Final Report
The Panel on the Nonprofit Sector has released its final report with 120 recommendations for charitable organizations, Congress, and the IRS to strengthen the nonprofit sector’s transparency, governance, and accountability.
Here is the panel's summary of its recommendations:
To strengthen governance, the Panel recommends that charitable organizations adopt, implement, and publicize audit procedures and policies on travel expenses, conflicts of interest, and whistleblower protection.
To make financial information more reliable, the Panel recommends that Congress require audits by charitable organizations with annual revenues of $1 million or greater and an independent accountant’s review for organizations with annual revenues between $250,000 and $1 million. The Panel also calls for Congress to require mandatory electronic filing of charitable organizations’ annual information returns, the Forms 990; the IRS to improve the design of and instructions for Forms 990; and charitable organizations to have their CEOs or CFOs certify the accuracy of their information returns.
To prevent abuse of charitable entities, the Panel recommends that Congress establish clearer legal guidelines for donor-advised funds, Type III supporting organizations, and participation by tax-exempt entities in potentially abusive tax shelters. It also urges Congress to tighten up rules and strengthen penalties to help prevent transactions that benefit donors, rather than the public.
To ensure that non-cash contributions support charitable causes, rather than provide improper tax deductions for donors, the Panel recommends that Congress establish clearer rules for valuing donated property and mandate stricter guidelines for appraisals of land and other appreciated property.
To address instances of excessive executive compensation, the Panel recommends that Congress strengthen the penalties on board members who approve and executives who receive excessive compensation, that the IRS revise the Forms 990 to make the total compensation of executives clearer to the public and regulators, and that charitable organization boards approve executive compensation each year.
The Panel will offer supplemental comments in the fall on issues of financial reporting and transparency, accreditation and standard setting, and possible changes in the legal framework, including federal and state regulations of fundraising activities.
IRS Rules that Qualified Plan Cannot Provide Benefits to Same-Sex Domestic Partners
In companion rulings issued last week (Priv. Ltr. Rul. 200524016 & Priv. Ltr. Rul. 200524017), the IRS ruled that a county's collectively bargained deferred compensation plan must be interpreted to deny benefits to same-sex donestic partners in order to constitute a qualified plan for § 457 purposes. The Service ruled that the plan could not circumvent the federal Defense of Marriage:
Rev. Rul. 58-66, 1958-1 C.B. 60, provides that the marital status of individuals as determined under state law is recognized in the administration of tax laws. However, Section 3 of the "Defense of Marriage Act", P.L. 104-199 (September 21, 1996), provides that, "in determining the meaning of any Act of Congress, or of any ruling, regulation or interpretation of the various administrative bureaus or agencies of the United States, the word 'marriage' means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."...
A registered domestic partner, a former registered domestic partner, or a surviving registered domestic partner as defined in state X Act is not a spouse, a former spouse or a surviving spouse for purposes of § 457. Accordingly, in the event that the Spouse Provisions are not interpreted and applied in a manner consistent with the Defense of Marriage Act, the operation of the Plan will not be in compliance with § 457(b).
The IRS described the state law as follows:
State X Act provides that registered domestic partners have the same rights, protections and benefits and are subject to the obligations and duties “under law” as granted to and imposed on spouses. Likewise, former registered domestic partners and registered surviving domestic partners have the same rights, protections and benefits and are subject to the obligations and duties under law as granted to and imposed on former spouses and surviving spouses. To the extent that provisions of State X law adopt, refer to, or rely upon, provisions of federal law in a way that otherwise would cause registered domestic partners to be treated differently than spouses, registered domestic partners are to be treated under State X law as if federal law recognized a domestic partnership in the same manner as State X law. Accordingly, if applicable with respect to the Spouse Provisions, State X Act requires that a domestic partner be treated in the same manner as a spouse under Plan A. However, State X Act expressly provides that it does not amend, or modify federal law or the benefits, protections and responsibilities provided by federal law.
Manno on The Tax Treatment of Military Personnel
Theodore Paul Manno has published Federal Income Taxation of Soldiers, Sailors, Airmen and Marines, 50 S.D. L. Rev. 293 (2005). Here is the Conclusion:
[T]he aim of this article [is] to combine in one place . . . the most salient changes made by MFTRA, SCRA, and WFTRA in the context of discussing the overall federal income taxation of military personnel. These changes have increased payments to those who make the ultimate sacrifice for our nation, have created or enhanced income tax exclusions with respect to that death benefit, homeowners assistance payments, dependent care assistance programs, and sales of homes, and have alleviated the financial burden of overnight travel expenses for National Guard and Reserve members. Together, this trilogy of statutes has also expanded relief from filing, and in some cases, even from payment requirements for fighting men and women; has ameliorated technical drawbacks with respect to federal tax credits, and the imposition of state income taxes on spouses; and has aided veterans groups and service academy appointees. These developments, the other changes wrought by these statutes, and other tax topics of key importance to those who answer the call to arms, have been the focus of this article. It is hoped that the specialist and the general practitioner alike will find it both a depository of information and analysis, and a source of references for further research and reading.