Saturday, September 24, 2005
Friday, September 23, 2005
There is a compelling need for significant change in legal education in the United States. Law schools do some things well, some things poorly, and some things not at all. While law schools help students acquire some of the essential skills and knowledge required for law practice, they neglect many other aspects of preparation for the legal profession.
Law schools generally neglect their responsibility to prepare students for practice, focusing instead on preparing students to pass bar examinations. Bar examinations alone are not sufficient to test an applicant’s preparation for the practice of law, and it is generally conceded that most law school graduates are not as prepared for law practice as they should be and could be.
Our key recommendations for improving legal education are listed below. One can quickly grasp the full breadth of the project by reviewing the table of contents.
Here is an expanded list of Hurricane Katrina tax resources:
- Joint Committee on Taxation, Technical Explanation of the House Resolution of Concurrence with an Amendment to the Senate Amendment to H.R. 3768, The "Katrina Emergency Tax Relief Act Of 2005" (JCX-69-05) (9/21)
- Joint Committee on Taxation, Estimated Revenue Effects of the House Resolution of Concurrence with an Amendment to the Senate Amendment to H.R. 3768, The "Katrina Emergency Tax Relief Act Of 2005" (JCX-68-05) (9/21)
- Senate Finance Committee, Summary of H.R. 3768, Katrina Emergency Tax Relief Act of 2005 (9/21)
- House Ways & Means Committee, Summary of H.R. 3768, Hurricane Katrina Tax Relief Act of 2005 (9/21)
- H.R. 3768, Katrina Emergency Tax Relief Act of 2005 (9/21)
- Grassley Praises Passage of H.R. 3768 (9/21)
- Baucus Praises Passage of H.R. 3768 (9/21)
- Katrina Tax Relief Bill for Individuals Closer to Enactment (9/21)
- Joint Committee on Taxation, Technical Explanation of H.R. 3768, The "Hurricane Katrina Tax Relief Act Of 2005" as Amended by the Senate on September 15, 2005 (JCX-67-05) (9/20)
- Joint Committee on Taxation, Estimated Revenue Effects of H.R. 3768, The "Hurricane Katrina Tax Relief Act Of 2005" as Amended by the Senate on September 15, 2005 (66-05-R) (9/20)
- Senate Finance Committee, Memorandum on ouse-Senate Agreement on Short-Term Katrina Tax Relief Bill (9/20)
- Modifications to S.1696, Hurricane Katrina Tax Relief Act of 2005 (9/15)
- Summary of Grassley-Baucus Tax Relief Package for Individuals Affected by Hurricane Katrina (9/15)
- Senate Passes S.1696, Hurricane Katrina Tax Relief Act of 2005 (9/15)
- House Passes H.R. 3786, Hurricane Katrina Emergency Tax Relief Act of 2005 (9/15)
- Joint Committee on Taxation, Technical Explanation of H.R. 3786, The "Katrina Emergency Tax Relief Act Of 2005" (JCX-64-05) (9/15)
- Joint Committee on Taxation, Estimated Revenue Effects of H.R. 3786, The "Katrina Emergency Tax Relief Act Of 2005" (JCX-65-05) (9/15)
- Remarks of Senator Chuck Grassley of Iowa Chairman of the Committee on Finance News Conference regarding Emergency Tax Relief for Hurricane Katrina Victims (9/12)
- Statement of U.S. Senator Max Baucus on Hurricane Katrina Relief Package (9/12)
- Summary of Grassley-Baucus Tax Relief Package for Individuals Affected by Hurricane Katrina (9/12)
- Baucus Outlines Hurricane Katrina Relief Package (9/7)
- Hurricane Katrina: Information on Charitable Giving, Tax-Relief Issues
- Information for IRS Employees in Areas Affected by Hurricane Katrin
- IRS Updates Hurricane Katrina Tax Relief Guidelines for Taxpayers in Four States, Relief Workers and Others Impacted
- IRS Announces Additional Agreements to Assist Disaster Victims
- IR-2005-108 (9/21)
- IRS Defers Schedule M-3 Planned Effective Date for Insurance Corporations
- IR-2005-106 (9/16)
- Treasury and IRS to Allow Hurricane Katrina Victims to Make Withdrawals and Loans From Retirement Plans
- IRS Extends Diesel Fuel Penalty Relief Due to Hurricane Katrina
- IR-2005-104 (9/15)
- Katrina Relief Workers Have Until Jan. 3 to File and Pay Taxes
- IR-2005-103 (9/14)
- 5,000 IRS Telephone Operators Register Hurricane Victims for FEMA Benefits
- IR-2005-102 (9/14)
- Statement by the U.S. Treasury Regarding Requests to Postpone Pension Payments Due on September 15
- JS-2715 (9/13)
- Guidance Issued on Temporary Domestic Shipping Operations
- IR-2005-101 (9/12)
- Treasury and IRS Announce Guidance Regarding the Temporary Operation of Ships in the Domestic Trade as a Result of Hurricane Katrina
- Snow Announces Changes to the New Markets Tax Credit Program to Support Hurricane Katrina Recovery Efforts
- JS-2712 (9/9)
- U.S. Treasury Urges Waiver of ATM Surcharges for Katrina Evacuee
- JS-2707 (9/9)
- Extra Time Granted for Tax-Exempt Bond Issuers Affected By Katrin
- Treasury, IRS Announce Special Relief to Encourage Leave-Donation Programs for Victims of Hurricane Katrina
- Katrina Victims Will Have Until Jan. 3 to File and Pay Taxes, IRS Says
- IR-2005-96 (9/8)
- IRS Allows Highway Vehicle Removal of Aviation Fuel Due to Hurricane Katrina
- IR-2005-95 (9/7)
- IRS and AICPA Announce Agreement to Assist Disaster Victim
- IR-2005-94 (9/7)
- IRS Expedites Charity Applications, Urges Use of Existing Charities
- IR-2005-93 (9/6)
- Treasury and IRS Expand Availability of Housing for Hurricane Victims
- IRS Expands Relief Area for Katrina Victims
- IR-2005-91 (9/2)
- IRS Grants Relief Regarding Certain Employee Plan Contributions
- IRS Waives Diesel Fuel Penalty Due to Hurricane Katrina
- IR-2005-89 (9/2)
- IRS Creates Disaster Relief Toll-Free Number (1-866-562-5227)
- IR-2005-88 (9/1)
- IRS Urges Citizens to Seek Qualified Charities for Katrina Help
- IR-2005-86 (9/1)
- IRS Grants Tax Relief for Hurricane Katrina Victims
- IR-2005-84 (8/30)
Katrina's tragic devastation of New Orleans has necessitated the relocation of the 2006 Annual Meeting and requires moving the meeting one day earlier. On behalf of a unanimously supportive AALS Executive Committee, I am pleased to report the 2006 AALS Annual Meeting will be held in Washington D.C. at the Marriott Wardman Park Hotel (and nearby hotels). The meeting will now run from Tuesday, January 3rd through Saturday, January 7th. Except for special events unique to New Orleans, the meeting schedule will be the same as set forth in the Annual Meeting Program distributed during the summer with a shift to one day earlier. Room rates, event prices, catering costs and most other expenses for the Washington D.C. meeting will be no greater than they would have been in New Orleans.
Al Franken, liberal talk show host on the Air America radio network, author, and former writer for Saturday Night Live, delivers a Dean's Lecture at Yale Law School today at 5:30 p.m. in the Levinson Auditorium. According to the Yale press release:
While continuing to find the humor in American politics, his show regularly features distinguished commentators from both sides of the political aisle, including members of our own faculty and alumni.
(No word on when Rush Limbaugh, Sean Hannity, or Bill O'Reilly will be delivering lectures at Yale.)
The conference brings together leading economists, lawyers and accountants from across the political spectrum to discuss issues surrounding the choice of tax base. The approach is interdisciplinary and will benefit from the views of practitioners as well as academics and researchers. The conference will have four main sessions:
- "Do We Tax Capital Income" will examine which forms of capital income are now taxed and at what effective rates.
- "Should We Tax Capital Income" will present competing perspectives on whether capital income should be taxed at the same rate as labor income, a different rate or a zero rate. This session will focus on the benefits of a consumption tax cited in the theoretical literature and the political problems that may determine whether such a tax can achieve these benefits in practice.
- "Can We / Can we not tax capital income" will focus on whether the practical problems of taxing various forms of capital income are solvable, and also the problems in not taxing capital income if we switched to a consumption tax base.
- A wrap-up session.
Here is a list of paper presenters (including abstracts of, and links to, the papers) and commentators:
I. Do We? (9:00 am -10:00 am)
- Joel Slemrod, University of Michigan: Does the United States Tax Capital Income?:
Whether and how the United States taxes capital income is important both for understanding the impact of the existing current system and for understanding the impact of replacing the existing system with one that exempts capital income from tax, as any consumption tax would. How profound a change moving to a consumption tax would be has recently been called into question by the related claims that we now collect little or no tax on capital income, that the differences between income and consumption-based taxation of capital income are smaller than once believed, and that there is little capital income to be taxed. These arguments also suggest that piecemeal tax changes that extend tax preferences to saving might push the tax system “beyond” a consumption-based tax system to a net subsidy of saving and investment.
- Reed Shuldiner (Pennsylvania)
- Jane Gravelle (Congressional Research Service)
II. Should We? (10:15 am - 12:00 pm)
- George Zodrow (Rice): Should Capital Income be Subject to Consumption-Based Taxation?
Fundamental tax reform is once again high on the policy agenda in the United States, highlighted by the forthcoming report of the President's Advisory Panel on Federal Tax Reform. Recent discussions have focused on two familiar alternative routes for reform. The first is incremental improvements in the existing income tax; these often involve integration of the individual and business income taxes along the lines discussed in Treasury (1992), including the proposal for a “Comprehensive Business Income Tax” (CBIT) which would tax deductions for interest expense at the business level while largely eliminating individual level taxation of capital income. The second approach reflects a conviction that such reforms, like the celebrated Tax Reform Act of 1986, are not sufficiently “fundamental,” and advocates replacement of the income tax system with a consumption-based alternative; alternative approaches to achieving this goal include an expenditure tax system, the Hall-Rabushka Flat Tax, the Bradford X-Tax, a national retail sales tax, and a value-added tax.
- Eric Toder (Urban Institute & Tax Policy Center), and Kim Rueben (Urban Institute & Tax Policy Center): Should We Eliminate Taxation of Capital Income?
Current law taxes capital income only partially and taxes it unevenly across economic sectors and groups of taxpayers. Competing models of fundamental tax reform have sought either to broaden the tax base and make capital income taxation more comprehensive, or to eliminate all taxes on income from capital by replacing an income tax with a consumption tax that exempts income from capital. The Tax Reform Act of 1986 broadened the base of capital income taxation, while lowering tax rates, but fell far short of a comprehensive tax on accrued income. Major sections of the original U.S. Treasury Department proposal (1984) that would have moved towards a comprehensive tax on all capital income were discarded or modified before final enactment, while other provisions designed to curtain tax sheltering were added.
- Alan Auerbach (UC-Berkeley)
- David Weisbach (Chicago)
- Joe Thorndike (Tax Analysts)
III. Lunch (12:15 pm - 1:30 pm): Douglas Holtz-Eakin (Director, Congressional Budget Office)
IV. Can We? (1:45 pm - 3:30 pm)
- Edward D. Kleinbard (Cleary Gottlieb Steen & Hamilton): Designing an Income Tax on Capital
The “Business Enterprise Income Tax,” as proposed by the author in a paper earlier this year, attempts to reform fundamentally the income taxation of business income. One of the proposal’s core components is a uniform “Cost of Capital Allowance” to govern the taxation of both issuers and investors in respect of all forms of financial capital instruments.
- Julie Roin (Chicago): Can Income from Capital Be Taxed?
Although many politicians describe the United States as an “ownership society” because a large segment of the population participates in its capital markets, in fact few people have a significant direct stake in those markets. This fact reflects more than the nation’s savings rate; what savings there are are not evenly distributed. Indeed, the distribution of wealth in this country appears to be even more top-heavy than the oft-criticized distribution of income. Thus the question of whether income from capital can be taxed will be of increasing political importance
- Michael Keen (International Monetary Fund)
- Paul Oosterhuis (Skadden Arps)
- Rick Davino (General Electric)
V. Can We? Can We Not? (3:45 pm - 4:45 pm)
- Joseph Bankman (Stanford) & Michael Schler (Cravath, Swaine & Moore): Tax Planning Under the Flat Tax/X-Tax
An increasing number of academics and practitioners (including Bankman but most definitely not including Schler) now favor replacing the income tax with a consumption tax. This paper considers the possibilities for tax planning (or tax avoidance) that arise under a consumption tax, in particular in the context of the (somewhat misnamed) flat-tax or x-tax. The issue is whether such a tax will produce the same sort of undesirable behavioral effects and tax planning that bedevil the current income tax. If so, this would reduce or eliminate the principal reason for switching to a consumption tax.
- Ed Outslay (Michigan State)
- George Plesko (MIT)
VI. Wrap-up (4:45 pm - 5:15 pm)
- Henry Aaron (Brookings and Tax Policy Center)
- Leonard Burman (Urban Institute and Tax Policy Center)
- Dan Halperin (Harvard)
Burgess J.W. Raby & William L. Raby have published The IRS's Ability to Reduce Refunds by Amounts Owed, also available on the Tax Analysts web site as Doc 2005-19313, 2005 TNT 183-8. Here is the Introduction:
The statute itself is deceptively simple. Section 6402(a) provides that the IRS, "within the applicable period of limitations, may credit the amount of [any] overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall . . . refund any balance to such person."
But note that limiting phrase: "within the applicable period of limitations." And also note that the statute itself says nothing about the "right of offset" that is available to the government in court when the taxpayer sues for a refund. In this article, we will focus on those two phrases, both affecting the outcome of many refund claims filed each year. Note that we will not deal with the rest of section 6402, which mainly allows the IRS to act as a collection agency for such things as past-due support payments, debts owed to federal agencies, and past-due state income tax obligations.
Tulane University Law School invites applications from both entry-level and established scholars, for one or two tenure-track or tenured faculty positions to begin fall 2006. Identified needs include but are not limited to international law, international organizations and trade, property and real estate, tax, and energy law...Contact Professor Alan Childress, Chair, Faculty Appointments Committee here.
Thursday, September 22, 2005
Donald Tobin (Ohio State), co-author of the acclaimed student tax hornbook Principles of Federal Income Taxation Law (West, 7th ed. 2005) (with Daniel Posin), sparked an extended discussion in the TaxProf Discussion Group on the lurking tax issue faced by law students who work as representatives for Bar/Bri and other bar exam prep courses (and who organize spring break trips for tour companies). With their permission, we reprint below Donald's comments as well as those of two of the more active and thoughtful TaxProf members, Jim Maule (Villanova) and Mike McIntyre (Wayne State) [Note to third year student bar reps: you may want to stop reading here!]
I constantly tell my students in tax class that compensation is compensation, whether it is cash or property. But companies compensate students in such creative ways, it often becomes difficult to determine how to tax the compensation. For example, a tour group may provide a “free” spring break trip to a person who organizes a trip with at least 10 students, or a law bar review course may provide a free course to its sales representatives. The question is what should the tax result be for students who are compensated in this manner?
The first question is whether the students are employees or independent contractors. The employers may argue that the students are independent contractors, but in many cases, the companies exercise a significant degree of control over the students, thus making the independent contractor claim difficult. If the students are independent contractors, then they owe tax on the fair market value of the product or services they receive. They are also likely subject to employment tax at 15.3%. Thus a “free” spring break trip valued at $500, or a bar review course costing $2,500 may end up costing the student about $175 and $875, respectively, in total tax liability.
If the students are not independent contractors, then the students are only subject to the employee half of the employment tax. This raises the question if you can be an employee if your only compensation is the property you are trying to exclude as a fringe benefit. (This problem also arises in the cruise industry. Cruise lines often provide free cruises to individuals who give lectures on the cruise.) If the students are employees, they may be able to exclude some of the compensation as a fringe benefit under § 132 of the Code.
The compensation could be considered a no additional cost fringe benefit under § 132(a)(1), but that section only applies to services and requires that the employer incur “no substantial additional cost” in providing the service. In both the spring break and bar review context that argument may be hard to make. The extra spring break trip clearly costs the promoter money, and is likely not a “service.” The promoter needs to buy another plane ticket and another hotel room. But what about in the bar review situation? Are the books really a no additional cost fringe? Are they extra, or could they be kept in inventory and sold to others? They are not like an extra non-reserved seat on an airline. Even if the bar review is provided at no additional cost, is it a “service”? The bar review course includes books and materials, but the bar review lectures are arguably a service.
Even if students can’t exclude under § 132(a)(1), if they are employees, they can likely exclude some of the income under 132(a)(2), as a qualified employee discount. If bar review is considered a service they could receive a 20% discount on the price of the service without having to pay tax on that amount, and if it is property, they could receive a discount up to the gross profit percentage.
The informal comments I have received from former students is mixed. There is some indication that some of them have received 1099s and others have not. It may be that different providers treat students differently. I would be interested to know how this theoretical issue is treated outside the classroom.
- An Introduction to U.S. Immigration Law for the Estate Planner, by Michael A. Heimos (Dean & Heimos, Denver, CO)
- Structuring CRTs as Delaware APTs To Provide Protection From Creditors and Surviving Spouses, by Richard W. Nenno (Wilmington Trust Company, Wilmington, DE)
- Asset Protection Planning — Current Strategies and Pitfalls, by Gideon Rothschild (Moses & Singer, New York, NY)
Following up on yesterday's post about Harvard's decision to reverse its position and allow the military to recruit at the law school after the Pentagon threatened to withhold federal grants under the Solomon Amendment: Doug Lederman has a wonderful article in today's Inside Higher Ed summarizing the arguments in the briefs filed by yesterday's deadline in the Supreme Court case challenging the constitutionality of the Solomon Amendment, Rumsfeld v. Forum for Academic and Institutional Rights (04-1152):
A broad array of institutions, law students and professors, and other groups have weighed in with legal arguments on behalf both of the federal government and of the law schools that are challenging the law.
Briefs Supporting Constitutionality of Solomon Amendment:
- Amicus Brief of 32 Law Professors and 57 Law Students at Over Two Dozen Law Schools (led by George Mason Dean Daniel Polsby)
- Amicus Brief of Attorneys General of Eleven States (Alabama, Colorado, Delaware, Florida, Indiana, Kansas, Michigan, South Dakota, Texas, Utah and West Virginia)
Briefs Challenging Constitutionality of Solomon Amendment:
For a copy of the 3rd Circuit's decision, see here.
Tulane announced yesterday that it will force its 1,000 law students displaced by Hurricane Katrina to return for classes in the Spring Semetser beginning January 9, 2006:
I want to explain to everyone the decision we have made not to allow students to visit at another law school next spring absent the usual compelling circumstances that would have justified a visit away before the storm. As you might imagine, there are a substantial number of our 2L and 3L students who have been forced to relocate to another community, find living accommodations, and settle in for the fall semester. Many have lost many of their possessions and their residences back in New Orleans. Some have spouses who have found jobs. Often they have settled where they want to return upon graduation and where they intend to look for a job and take the bar exam. For all of these students, they quite understandably would find it much more convenient to remain where they are through the spring semester. Everyone at the University and the law school understands this perfectly well and is sympathetic to these student desires. Unfortunately, the request by each of these students to visit away from Tulane for the spring semester cannot be granted.
Everyone has to appreciate that these are truly perilous times for Tulane and the law school. The financial cost of the storm and having to shut down operations for a semester will run in the tens of millions of dollars. But an even greater cost is the loss of credibility with prospective students, faculty, staff, donors, government, and the many other constituencies upon all of which Tulane depends for its viability. It is absolutely imperative if Tulane is to emerge from this disaster as a strong and viable institution that it not only minimize its financial losses (which is why we absolutely have to receive all student tuition revenues for the fall semester) but also that it get back to running a full and vibrant university as soon as possible so the world will know that Tulane is back and will survive as a major university. Failure to do so would result in irreparable damage to Tulane and possible jeopardize its very survival.
In that regard, it is simply not possible for Tulane to allow its students to remain away for another semester. The arrangement other schools have made to take our students for free or at minimal cost so that Tulane can receive the tuition revenue it needs to pay its faculty and staff and to repair its campus is one few would likely be able or willing to continue for another semester. Thus, for every student who continues to visit away in the spring, Tulane would lose substantial revenue that it desperately needs. Furthermore, even if Tulane could collect that revenue, the absence of a substantial percentage of its students would leave the academic environment decimated and a mere shell of what it needs to be. If you all are going to have an institution around to award you a degree that is worth the paper it is written on, Tulane needs to bring back in the spring both most of its normal revenues and most of its students.
Recognizing this harsh reality facing Tulane and other New Orleans schools, we are told that most U.S. law schools and undergraduate colleges will refuse to allow displaced New Orleans students, including those from Tulane, to stay at their institutions during the spring. Remember that our students attending other campuses are not really students of those schools but simply Tulane students paying Tulane tuition and taking their courses this semester on another campus. Once Tulane’s campus is again open for business, these students need to return. We know that a few deans or assistant deans at some schools have told some students that they could stay for another semester, but this kind gesture was made at most institutions by those unaware of the overarching policy decision made their by senior university administrators or boards of trustees in an effort to preserve the viability of their New Orleans sister institutions.
If only a handful of students were in the situation of finding it much more convenient to remain somewhere else in the spring, there might be some flexibility in the University’s position on this under these extraordinary circumstances. But it is not just a few students. Every day we are receiving requests from a dozen or more law students alone who are asking that we let them stay where they are through the spring. Each of their stories is moving and their requests reasonable. But there is no way to grant just one or two of these requests without granting virtually all of them. And if we were to grant all of them, Tulane University, including the law school, would have so few students in the spring that it would be unable to run a credible academic program and it would likely be insolvent. By next August, there might well be no Tulane University or law school. On the other hand, if most of our students return in the spring, Tulane can survive this catastrophe and come back strong. That is why everyone within the University has been working day and night to make sure that we are up and running at full steam come January 9 – there is simply no other choice.
I realize that requiring all of our students to return in January will impose a significant inconvenience and expense on many. (However, as noted above, the University is going to extraordinary lengths to make sure that all of its students have comfortable and healthy housing and all of the other amenities needed to live at little or no incremental cost above what you would have normally spent. Thus, the inconvenience and expense will probably not be nearly as great as it might seem today.) This decision and its effect does not make anyone at Tulane happy, just as it makes no one happy to tell the faculty that their sabbaticals, leaves, summer grants, book and travel money, and summer free to do research are all being taken from them. But the alternative is just too unacceptable to do anything else. And from the student standpoint, what good is convenience and saving some expense if there is no institution worth mentioning left to grant you a degree. I hope that all of our students understand this. Hurricane Katrina has upset all of our lives to an unprecedented degree. It has required and will continue to require everyone to make substantial sacrifices. Tulane’s leadership has taken the students’ best interests into account in all of the decisions it has made, but the decision not to allow students to remain away for the spring was one decision that could not be made any other way.
I hope to see everyone come January back at 6329 Freret Street. We have worked hard and asked the faculty to make substantial sacrifices in order to give our students a high quality experience and to make them academically whole by next summer. This has been a surreal experience for us all, but despite the turmoil and cost it has imposed on everyone, I am confident that with a positive attitude and a commitment to excellence, we will all come through it stronger and better, both as individuals and as an institution.
Gary Roberts, Deputy Dean, Tulane Law School
Wendy C. Gerzog (Baltimore) has published Duty of Consistency and Marital Deduction: Horse and Carriage, 108 Tax Notes 1463 (Sept. 19, 2005), also available on the Tax Analysts web site as Doc 2005-18444, 2005 TNT 181-43. Here is the Introduction:
As the Tax Court in Letts explained, the "duty of consistency" is founded on the equitable principles of estoppel as enunciated in R.H. Stearns Co., a 1934 Supreme Court case. "He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned." In other words, it is "the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong." "The doctrine thus prevents a taxpayer from claiming that he or she should have paid more tax before and so avoiding the present tax." In applying that rule, courts have "prevented taxpayers from permanently excluding income that is taxable in some year . . . or from deducting the same expense in 2 or more taxable years."
The Statistics of Income Division has released twenty-seven tables in Publication 16, Statistics of Income - 2002, Corporation Income Tax Returns that show statistics for balance sheets, income statements, and tax computation items (in addition to 4 text sections that cover an introduction, the changes in the law, a description of the sample, and an explanation of the terms):
The data are classified by industry, accounting period, and size of total assets, business receipts, and total income tax after credits. In addition to tables that cover all corporations and those with net income, there are tables that specifically cover S Corporations, consolidated returns, foreign corporations with U.S. effectively connected income, and domestic corporations controlled by foreign persons. Other areas that are specifically featured in the tables are the alternative minimum tax, cost of goods sold, dividends, investment data, statutory special deductions, and tax and credit items.
The three-day Sixth Annual Global Conference on Environmental Taxation kicks off today in Leuven, Belgium. The conference, hosted by the University of Leuven's Institute for Environmental and Energy Law, will focus on the intersection of renewable energy and tax policy. Presenters include:
- Markets, Incentives and Wind Power: Promoting Wind Power in Canada, by David Duff (Toronto) & Andrew Green (Toronto)
- The United States’ Experience with Energy-Based Tax Incentives: The Evidence Supporting Tax Incentives for Renewable Energy, by Mona Hymel (Arizona)
- Improving the Environment But Violating the Polluter Pays Principle ? Case Studies of American Tax Incentives, by Janet Milne (Vermont)
- Recent Developments in the Use of Environmental and Energy Taxes in the USA, by Kenneth Richards (Indiana)
- Getting into the Act: Enticing the Consumer to Become "Green" Through Tax Incentives, by Roberta Mann (Widener) & Mona Hymel (Arizona)
- Tax Incentives Policy for Fuel Efficiency: Does It Really Work?, by Rahmat Tavallali (Walsh) & Paul Lee (Cleveland State)
For the full program, see here.
Wednesday, September 21, 2005
It started simply enough. With these sorts of things, that's often the case. A person who teaches tax, but not in a law school, asked Paul Caron, master of the TaxProfBlog and founder of the TaxProf Listserv, if he would canvass the list members for their suggestions of tax cases that illustrate the seven deadly sins.
What are the seven deadly sins?
Why these? According to this, "The history of this list goes back at least to Pope St. Gregory the Great and St. John Cassian, but while the list itself is not strictly biblical, the Bible proscribes all seven." From here, we learn that Gregory the Great set forth seven deadly sins in XXXI cap. xlv of Moralia in Job, listing pride, envy, anger, avarice, sadness, gluttony, and lust, in latin, superbia, invidia, ira, avaritia, tristia, gula, and luxuria. Luxuria = lust? Hmm. Later, tristia was replaced by accidia, or sloth. Had Evaagrius had his way, we'd be dealing with the eight evil thoughts, and Cassian contended there were eight principal vices. The seven sins are also called capital sins and cardinal sins. Why do I share this? To demonstrate that complexity did not originate with the federal tax law. For those, like many of the tax professors populating the listserve, who cannot resist quizzes, there's even a "Which of the Seven Deadly Sins Are You?" Quiz here.
This sort of challenge was a temptation that the tax professors could not resist. Sin and tax. What a fitting combination. So here are the candidates:
The University of Tulsa College of Law invites applications from both entry-level and experienced faculty for one or more tenure-track and/or visiting faculty position(s) beginning in the 2006-2007 academic year. Areas of teaching interest likely include: UCC, corporate law, commercial law and tax, as well as general curricular subjects.
For further information, contact Professor Janet Levit, Chair, Appointments Committee here.
Nina J. Crimm (St. John's) has published Do Fiduciary Duties Contained in Federal Tax Laws Effectively Promote National Health Care Policies and Practices?, 15 Health Matrix: Journal of Law-Medicine 125 (Winter, 2005), as part of a Symposium on Health Care and Tax Exemption: The Push and Pull of Tax Exemption Law on the Organization and Delivery of Health Care Services. Here is part of the Introduction:
The essay concentrates first on whether the fiduciary responsibilities of the governing board of a tax-exempt § 501(c)(3) hospital under current federal tax laws effectively promotes national health care policies and practices. Then it considers whether expansion of the duties imposed by federal tax statutes would further contribute to the advancement of our health care goals by promoting more publicly beneficial health care policies and practices of § 501(c)(3) hospitals. This issue is especially timely because, once again, Congress is debating whether to expand the IRS's oversight role over the broad spectrum of tax-exempt § 501(c)(3) charitable organizations and their governing boards. Of particular note, Congress is considering legislation to create a new federal fiduciary duty of care for governing boards of § 501(c)(3) organizations based on a standard similar to the one contained in many state substantive nonprofit corporation statutes. Recent empirical evidence, however, suggests that current moral, social, and legal fiduciary duties suffice to ensure that governing bodies of § 501(c)(3) hospitals already seriously pursue their responsibilities to further their hospitals' charitable health care missions, and consequently to advance national health care policy. With respect to § 501(c)(3) hospitals, the benefit of the proposed additional federal tax legislation is, therefore, highly questionable. As discussed below, in search of a largely non-existent problem in the § 501(c)(3) hospital industry, the proposed regulatory tool supplies an essentially redundant remedy outside the traditional competencies of the IRS.
Harvard Reverses Course, Gives Access to Military Recruiters After Pentagon Threatens to Invoke Solomon Amendment
Last week, we blogged the U.S. Defense Department's decision barring New York, Vermont, and William Mitchell law schools from receiving federal grants for violating the Solomon Amendment by denying access to military recruiters. An Inside Higher Ed story questioned the Defense Department's decision to go after "the little guys" while "Harvard’s law school, which last fall declared its intention to bar military recruiters, seems to have been left alone so far." Todd Zywicki at The Volokh Conspiracy noted that since these three are stand alone law schools unattached to larger universities, the Government's action was narrowly focused on law schools and did not raise the issue of withholding funding for an entire university as a result of the law school's decisions.
The Harvard Crimson reported yesterday that Harvard has changed course and will permit the military to recruit at the law school after the Pentagon threatened to withhold federal grants to Harvard:
Harvard Law School will actively cooperate with military recruiters this fall, despite the Pentagon’s refusal to sign the school’s nondiscrimination pledge, Dean Elena Kagan announced this evening.
Kagan’s announcement marks a reversal of her November 2004 decision to bar Pentagon recruiters from using the law school’s Office of Career Services. For most of the last 26 years, the office has only provided its resources to recruiters who promise not to discriminate against gay and lesbian employees and job applicants. The Pentagon’s “don’t ask, don’t tell” policy prohibits gays and lesbians from serving openly in the military.
In an e-mail to students and faculty this evening, Kagan wrote that the Pentagon had notified the University this summer that it would withhold most federal grants to Harvard unless the Law School altered its policy to allow military recruiters access to the resources of the career services office. Harvard receives more than $400 million per year in federal grants.
Meanwhile, University President Lawrence H. Summers said in a statement tonight that Harvard will file a friend-of-the-court brief tomorrow urging the Supreme Court to invalidate the Solomon Amendment, the statute passed by Congress in 1994 that allows the secretary of defense to block federal funds to universities that deny military recruiters “equal access” to campuses.
(Hat tip: lawschool.com.)
Update II: The Wall Street Journal chides Harvard: "Now we know where Harvard stands when given the choice between sticking to its 'principles' and feeding from the government trough."
Darryll K. Jones (Pittsburgh) has published Back to the Future with Forfeiture Allocations, 108 Tax Notes 1457 (Sept. 19, 2005), also available on the Tax Analysts web site as Doc 2005-18365, 2005 TNT 181-42. Here is part of the Introduction:
The concept of "forfeiture allocations" is the most intriguing feature of the proposed service partner regulations. Forfeiture allocations apply when a service partner makes an 83(b) election (and thus becomes an "83(b) partner") with respect to a partnership interest obtained as compensation for services, and then later forfeits the interest. The apparent goal of forfeiture allocations is to retroactively erase the 83(b) partner's existence and then recast past events as if the 83(b) partner never even existed. Allocations made to the 83(b) partner are reversed and those reversed partnership items are allocated back to the original partners. To consider that to be going "back to the future" is not entirely accurate because, in some instances, forfeiture allocations do not completely restore the reality that would have been if the 83(b) partner never existed. Under the proposed regulations, forfeiture allocations sometimes take us only partially back to the future. The subtle paradox is more than rhetorical. It is implicit in the IRS's internal debate, about which the Service seeks comment, regarding the extent to which forfeiture allocations should operate.
Patricia Bryan (North Carolina) speaks today at North Carolina on her new book, Midnight Assassin: A Murder in America’s Heartland (Algonquin Books 2005), as part of UNC's Community Speaker Series. From the press release:
The book is a nonfiction account of the 1900 murder of John Hossack, an Iowa farmer who was killed with an ax while he slept. His wife, Margaret, was accused of the crime and prosecuted in one of the most sensational legal dramas of the time. Although the defendant claimed to be innocent, the prosecutors relied on testimony that she had been abused by her husband to prove that she had a motive to kill him.
Professor Bryan's interest in the case originated from a short story she assigns in her Law and Literature seminar: Susan Glaspell's "A Jury of Her Peers." Glaspell, as a young reporter for the Des Moines Daily News, covered the Hossack case and wrote more than twenty news articles about it. Midnight Assassin, which is based on primary sources, describes the murder, the investigation, and the legal arguments, as well as telling the story of the family and the community. According to Publishers Weekly, the book "vividly portray[s] the era's attitudes toward women (indicated by a tolerance of domestic abuse) while crafting a tale that reads like a good novel."
The speech is at 4:15 pm in the law school rotunda.
Ingraham, Singer & Thibodeau on Inter-City Competition for Retail Trade: Can Tax Increment Financing Generate Incremental Tax Receipts?
Allan T Ingraham (Criterion Auctions), Hal J. Singer (Criterion Economics) & Thomas G. Thibodeau (University of Colorado, Leeds School of Business) have posted Inter-City Competition for Retail Trade: Can Tax Increment Financing Generate Incremental Tax Receipts? on SSRN. Here is the abstract:
Tax increment financing (TIF) is an increasingly common form of economic development incentive used by local governments to encourage private sector investment. In this study, we focus attention on a specific TIF proposal in the City of Dallas. In the empirical section, we present a regression analysis of retail spending across North Texas cities. We estimate the extent to which the growth in retail sales in a given city can be explained by the growth in retail sales in surrounding cities. Next, we solve for the “critical” cannibalization rate for retail sales within the City of Dallas such that a proposed TIF would be in the City's economic interest. In particular, we find that for any cannibalization rate less than 93 percent, the City of Dallas would benefit from the proposed TIF. Next, we estimate the cannibalization rate for various geographic markets containing Dallas. We find that the cannibalization rate for a geographic market that contains the City of Dallas is 34 percent—that is, 66 percent of all new sales in that area are incremental to that area. Because the cannibalization rate for Dallas must be less than the cannibalization rate for a larger geographic market that contains Dallas, and because the estimated 34 percent cannibalization rate is less than the critical level of 93 percent, the City of Dallas should endorse the proposed TIF from the standpoint of revenue maximization. . We also present a case study of a TIF used by the neighboring city of Frisco, with a special emphasis on the economic effect of that TIF on the City of Dallas.
Tuesday, September 20, 2005
As if Sammy Sosa did not have enough troubles -- his record-setting home run spree of 1998-2002 (he averaged 58 home runs annually over the 5-year period) is now tarnished by steroid suspicions as his performance has fallen precipitously since then (his home run total has fallen this year from 35 to 14). The Boca Raton law firm of Tescher, Gutter, Chaves, Josepher, Rubin, Ruffin and Forman sued Sosa earlier this month for failing to pay $22,000 in legal fees arising out of tax work the firm did for Sosa and his charitable foundation in two Tax Court cases. The suit alleged that Sosa stopped paying the legal fees once the cases were settled in December. The parties settled last week, but terms were not disclosed. See press reports here, here, here, here, and here.
We previously blogged the effect of the IRS's new rules requiring the withholding of tax from NBA players' paychecks for complimentary tickets they receive and give to family and friends. USA Today notes the impact of the rule on major league baseball:
Players still get free tickets, but the face value is tacked on to their salaries and increases the amount of income tax they have to pay. Not surprisingly, most players are cutting back. "In the case of my club, I've seen a tremendous decline," says Jimmy Bank, the Chicago Cubs traveling secretary. "This year it's weeded out the guy in the parking lot who says, 'Hey, can you leave me two?' In the past, a player might say, 'Sure.' I'd say the new policy is having an effect on peripheral people."
(Thanks to Jeff Kahn (Santa Clara) for the tip.)
Villanova University School of Law is seeking to fill up to three tenure-track faculty positions beginning in the 2006-2007 academic year. Both entry-level and experienced candidates are encouraged to apply. The school has a particular need for candidates qualified to teach and conduct scholarship in tax (especially estate and gift tax, international tax, and deferred compensation), torts, or evidence. Applications from individuals who will enhance the school's diversity and/or Catholic and Augustinian mission are especially welcome. Please submit letters of interest and resumes to Professor Michelle Anderson, Chair, Appointments Committee, by e-mail here.
Rafael Gely and I have posted our Introduction to the Indiana rankings symposium, Dead Poets and Academic Progenitors: The Next Generation of Law School Rankings, on SSRN. Here is the abstract:
This Symposium is an outgrowth of our article, What Law Schools Can Learn from Billy Beane and the Oakland Athletics, 82 Tex. L. Rev. 1483 (2004). With the approaching twentieth anniversary of the first U.S. News & World Report law school rankings, it is a particularly propitious time to take a fresh look, to hear new voices, and to reconsider issues surrounding law school rankings. Many of America's most thoughtful law professors (as well as academics in other disciplines) gathered on April 15, 2005 at the Indiana University School of Law - Bloomington to discuss The Next Generation of Law School Rankings. The papers and commentary presented at the event and recorded in these pages reflect a wide array of creative, challenging, and captivating perspectives on the rankings tableau. In the pages that follow, we are confident that you will agree that we have fulfilled the goal we set for the Symposium:
The goal of this Symposium is to deepen our understanding of rankings and their effects on legal education. The participants in this Symposium will examine the need for law school rankings; the effects of rankings on legal education; and the various new approaches to addressing the public's insatiable demand for ever more and increasingly sophisticated rankings, which permeate not only legal education but also all aspects of American life.
We believe the Symposium papers and commentary make an enormous contribution to our understanding of rankings and their effects on legal education.
[The title comes from the movie The Dead Poet's Society, and particularly the scene in which Robin William (as teacher John Keating) responds with derision (and barnyard language) to a fictional scholar's attempt to measure the greatness of poetry.]
William J. Kambas (Ernst & Young) has published Reform and Modernization of the Tax Compliance Process, 108 Tax Notes 1447 (Sept. 19, 2005), also available on the Tax Analysts web site as Doc 2005-18311, 2005 TNT 181-40. The article responds to the earlier piece by Joseph Bankman (Stanford), Simple Filing for Average Citizens: The California ReadyReturn, 107 Tax Notes 1431 (June 13, 2005). Here is part of Mr. Kambas's Introduction:
In Simple Filing for Average Citizens: The California ReadyReturn, Prof. Joseph Bankman describes a simplified tax-filing program developed to streamline the compliance process. California's Ready Return program allows eligible taxpayers to receive state completed returns for review, correction, and subsequent remittance for final processing by the state. The program is based on the idea that governments already have enough information to provide prepared returns to large portions of society and therefore should. It automates portions of the tax compliance process.
Prof. Bankman believes that an automated tax return preparation program, if adopted by the federal government, will save taxpayers and government "time, money, anxiety, frustration and anger" thereby relieving the "headache of burdensome record-keeping, lengthy instructions, and complicated schedules, worksheets, and forms" that defines the tax compliance process for large portions of society.
Automation may be beneficial to the tax compliance process, but protection of taxpayers' personal data is an important aspect of the proposed procedural tax reform. Accordingly, the development of a data protection infrastructure should be part and parcel of tax compliance modernization. This article seeks to expand the discussion regarding the development and implementation of an automated system. It is intended to buttress Prof. Bankman's position by acknowledging the valuable contribution of modern technology toward an efficient tax compliance system. However, the article questions whether sufficient efforts have been taken to protect taxpayer data. In so doing, this article highlights some recent events that illustrate taxpayer data vulnerabilities and suggests methods of minimizing those vulnerabilities. This article concludes with a discussion of the shift in relationship between the taxpayer and the governments resulting from automation.
- Presentation to President's Panel on Tax Reform
- What Taxpayers Thought of ReadyReturn
- ReadyReturn: A Brief Explanation
- ReadyReturn FAQ
For press reports, see here.
Robert Halperin (University of Illinois, College of Business) & Richard C. Sansing (Dartmouth, Tuck School of Business) have posted Is the Effective Tax Rate an Effective Performance Measure? on SSRN. Here is the abstract:
This paper examines the properties of the effective tax rate (ETR) as a measure of managerial tax planning effectiveness using a principal-agent model. ETR is calculated as Tax Expense (computed pursuant to SFAS No. 109) divided by Income Before Taxes. The changes in ETR due to the agent's actions are systematically different from the changes in the principal's tax burden. These differences suggest that ETR is an ineffective measure of the agent's performance.
Monday, September 19, 2005
Last week, we brought you the news of the death of Boris Bittker (Yale), one of the true tax giants of the 20th century. Boris's life and work influenced generations of tax professors, many of whom offer their rembrances below:
- Joseph Bankman (Stanford)
- Martin Begleiter (Drake)
- John A. Bogdanski (Lewis & Clark)
- Paul L. Caron (Cincinnati)
- Sheldon S. Cohen (Morgan Lewis & Bockius, Washington, D.C.)
- Gersham Goldstein (Stoel Rives, Portland, OR)
- Michael J. Graetz (Yale)
- John Lee (William & Mary)
- Michael A. Livingston (Rutgers-Camden)
- Michael J. McIntyre (Wayne State)
- Martin J. McMahon, Jr. (Florida)
- Karla W. Simon (Catholic)
- Norton L. Steuben (Colorado)
- John A. Swain (Arizona)
Robin Wright Westbrook (Washington & Lee)
I want to add to these remembrances a story from the Yale Daily News that captures Boris's humor and modesty that are highlighted in the tributes below:
There was one story Bittker liked to retell, [Dean] Koh recalled. It was about the day Bittker's daughter was born, which coincidentally was the same day he found out from Myres McDougal he had received tenure at Yale. The next morning when Bittker came to class, his students cheered for the new father. But Bittker, assuming the applause was because of his tenure appointment, said modestly, "It's thanks to McDougal," leaving the students laughing and confused.
Amy Morris Hess (Tennessee) has won the 2005 Treat Award for Excellence from the National College of Probate Judges in recognition of her many contributions to the development of probate and trust law. According to the Tennessee press release, she has received many other awards at Tennessee in recognition of her scholarship, teaching, and service, including:
- Bass, Berry & Sims Award for Service to the Bench and Bar (twice)
- Harold C. Warner Outstanding Teacher Award (twice)
- UTK National Alumni Outstanding Teacher Award
- Carden Award for Outstanding Achievement in Scholarship
Mark Fenster (Florida) at PrawfsBlawg discusses an interesting article in Inside Higher Ed, The Faculty Salary Game, by John Lombardi (Chancellor of the University of Massachusetts). The article notes that faculty who feel they are underpaid can demonstate their market value by obtaining a competing offer from another school. If faculty are unable to obtain such a competing offer — "embedded faculty who are good but not spectacular" — they have only one other choice: enter the high-paying world of university administration. Fenster notes:
Lombardi’s story of university administration is that the people who enter it (a) don’t really want to do it, but are seeking refuge from a stalled scholarly career; (b) aren’t necessarily good at it – that is, they may be good at it, but that’s not a prerequisite for entry, and perhaps it’s not even essential for advancement; and (c) an entire class of employees who are successful scholars are discouraged from entering administration because it might throw off their career trajectories (since only productive scholars advance) and because it might be perceived as an abandonment of their scholarly careers. Oh, and finally, don't forget that while academia trains and screens for scholarship and kinda maybe trains for teaching (except, of course, for legal academia, in which many, though a decreasing number, of entry level hires have little or no graduate school experience), it doesn't train or screen for management.
Mark was kind enough to mention our discussion of the ideal law school dean in our Moneyball article, What Can Law Schools Learn from Billy Beane and the Oakland Athletics, 82 Tex. L. Rev. 1483 (2004). We examined the scholarly records of deans and found that higher ranked schools tend to hire stronger scholars as deans (p.1550):
Table 8: Scholarly Performance of Deans by Rank of School (Mean Values)
Number of Articles
Articles in Top 10
Articles in Top 25
We concluded (pp. 1552-53):
The conventional wisdom in legal education — by insisting that deans when hired be leading scholars and that they continue to be engaged in substantial scholarship during their deanship — is contrary to the lessons in Moneyball. Billy Beane’s example suggests that the revolutionary dean . . . may turn out to rank below the mid-range in scholarly productivity and impact measures. But Dean Beane will have the requisite talents, tenacity, and temperament to drive all law school players to better performance. Dean Beane will confront tradition head on, challenging the conventional wisdom with the certainty of one who has seen (and lived) its limits first-hand.... The innovative law school of the future (like the Oakland A’s of today) very well might be one which would never have hired its dean as a faculty member (or its general manager as a player) in the first place.
The Lombardi article cites an interesting study of faculty salaries, Why Do Field Differentials in Average Faculty Salaries Vary Across Universities?, published by the Cornell Higher Education research Institute.
Cardozo is hosting a conference today on Trust Law in the 21st Century:
The last 15 years have brought dramatic changes to the law of trusts, an area long known for stability rather than innovation. The conference will explore three doctrinal areas in which significant developments have occurred:
- The growth of the perpetual trust, fueled by the demise of the Rule Against Perpetuities
- The move by many states and offshore jurisdictions to increase the availability of trusts for asset protection purposes
- Changing conceptions of fiduciary duty
9:15 am: Perpetual Trusts
- Moderator: Eric Rakowski (UC-Berkeley)
- Robert H. Sitkoff (Northwestern)
- Max Schanzenbach (Northwestern)
- Susan F. French (UCLA)
- Joel Dobris (UC-Davis)
- Mary Louise Fellows (Minnesota)
11:15 am: Asset Protection
- Moderator: Mark L. Ascher (Texas)
- Robert T. Danforth (Washington & Lee)
- John K. Eason (Tulane)
- Jeffrey A. Schoenblum (Vanderbilt)
- Adam J. Hirsch (Florida State)
2:30 pm: Fiduciary Duties
- Moderator: Ray D. Madoff (Boston College)
- Melanie B. Leslie (Cardozo)
- Stewart E. Sterk (Cardozo)
- Gregory S. Alexander (Cornell)
- Karen E. Boxx (Washington)
Ian Ayres (Yale) has published an interesting op-ed in the New York Times, Just What the Professor Ordered. The op-ed follows up on the recent GAO report, College Textbooks: Enhanced Offerings Appear to Drive Price Increases (05-806) (51 pages). The GAO report notes:
College textbook prices have risen at twice the rate of annual inflation over the last two decades, . . . rising at an average of 6% each year .... While there are many factors that affect textbook pricing, the price of textbooks has increased in recent years, according to experts we spoke with, as a result of the increase in costs associated with new features, such as Web sites and other instructional supplements.
Ayres argues instead that the price run-up is due to the lack of price competition:
It's easy for prices to drift upward when the person choosing the product doesn't really care how much it costs. Instead of competing on price, publishers compete for professors' attention with an excess of computerized bells and whistles.
He proposes a TMO -- Textbook Maintenance Organization -- patterned after HMOs, in which universities would provide textbooks to their students as part of the tuition package. As a result, universities for the first time would start caring about whether their professors were too extravagant in the selection of class materials. He also argues that the TMO would eliminate the conflict of interest faced by professors who use their own books in their classes:
Such a system at the university level would also do away with some conflicts of interest. Because at the moment, professors' incentives in choosing textbooks are in some ways more distorted than doctors' incentives in choosing drugs. You see, I earn a $10.30 royalty on every copy of my textbook that a student buys. Instead of just trying to get the best book for my class (and to do so I should weigh both quality and price), I might also consider assigning my own book and increasing my profit.
This is a self-dealing transaction, which would be presumptively illegal if professors owed a fiduciary duty to students. Some professors realize this and donate to charity the royalties they earn when they assign students their own books.
So this year, I am going to do something different. I will give $11 to each of my contracts students who buys my book. That way, we will all know that I assigned the book for the right reason. The textbook isn't included with my students' tuition, but at least in my contracts class the royalty will be.
In contrast, I tell my classes in my opening day remarks each year that the students who have historically done the best in the course purchase two copies of my book -- one for use at the law school and the other for use at home!
(Hat tip: Christine Hurt at Conglomerate.)
Edward A. Zelinsky (Cardozo) has published Ohio Incentives Decision Revisited, 37 State Tax Notes 859 (Sept. 19, 2005), also available on the Tax Analysts web site as Doc 2005-18369, 2005 STT 180-1. Here is the Introduction:
Cuno v. DaimlerChrysler Inc. is an important case. In Cuno, the U.S. Court of Appeals for the Sixth Circuit struck on dormant Commerce Clause grounds the state income tax investment credits DaimlerChrysler had claimed for the replacement facility DaimlerChrysler built in Toledo, Ohio.
As I write these words, the ultimate fate of Cuno is uncertain. We do not know whether the U.S. Supreme Court will hear Cuno or whether any of the various legislative responses to Cuno will make its way through Congress. Subcommittees of the House Judiciary Committee have held an oversight hearing on Cuno and the legislation introduced in response to that decision. Cuno has provoked much thoughtful commentary, both pro and con. Precisely because the Cuno story is a work in progress, now is a good time to clarify the various issues raised by Cuno.
I contend that Cuno makes sense neither as a matter of tax policy nor as a matter of Commerce Clause doctrine. Moreover, Cuno fails to prevent corporations from whipsawing states with demands for subsidies. Indeed, Cuno permits most tax and all nontax subsidies. Many Cuno supporters evince an unhealthy distrust of democratic decisionmaking. Paradoxically, the greatest and most beneficial impact of Cuno will be to provoke broader debate about state and municipal subsidies for corporations like DaimlerChrysler.
- Top 5 Tax Paper Downloads
- Germain on Tax Treatment of Oracle CEO Ellison's Settlement of Insider Trading Charges
- Must New Orleans College Students Ousted by Katrina Report Scholarships as Income?
- Tax Analysts: Willens on Selling Stocks and Bonds
- Summary Table of Energy Tax Incentives
Sunday, September 18, 2005
1. [306 Downloads] Ranking Law Schools: Using SSRN to Measure Scholarly Performance, by Bernard S. Black (Texas) & Paul L. Caron (Cincinnati) [blogged here]
2. [218 Downloads] The Story of Limited Liability Company: Combining the Best Features of a Flawed Business Tax Structure, by Susan Pace Hamill (Alabama) [blogged here]
4. [170 Downloads] The Superiority of an Ideal Consumption Tax over an Ideal Income Tax, by Joseph Bankman (Stanford) & David A. Weisbach (Chicago) [blogged here]
5. [114 Downloads] The Abolition of Wealth Transfer Taxes: Lessons from Canada, Australia and New Zealand, by David G. Duff (Toronto) [blogged here]
Gregory Germain (Syracuse) follows up on Thursday's post on the proper tax treatment of Oracle CEO Larry Ellison's payment of $100 million (over 5 years) to a charity of his choosing to settle insider trading charges involving his sale of $900 million of Oracle stock before the share price sank 50% when it announced it would fail to meet earnings expectations:
I've been thinking about how Larry Ellison's $100 million settlement of the California securities fraud case should be treated for tax purposes. I think there are a number of separate things going on.
- Ellison is making a constructive payment of $100 million to Oracle to settle the 10b-5 lawsuit - which is a claim for misappropriating or misusing Oracle's confidential information in breach of his fiduciary duty to Oracle. The normal remedy for breach of fiduciary duty is disgorgement of profits. As Gregg Polsky, I think correctly, pointed out, if he received LTCG treatment on the income from selling the stock, then under the Arrowsmith case he should have LTCL treatment when he disgorges some or all of the income. So, presumably, Ellison would be entitled to a $100 million LTCL.
- Oracle constructively receives $100 million on its claim, and therefore has $100 million of ordinary income. It had no basis in the misappropriated confidential information. If the money is received as a windfall instead of for damages for use of its confidential information, it would be windfall income. Either way, I think it's ordinary income to Oracle.
- Oracle is then constructively paying $100 million to Ellison's favorite charity. This should be a constructive payment of $100 million of compensation to Ellison under North American Trust and cases like BofA v. Giannini. Unlike Giannini (at least according to the Ninth Circuit's opinion in the case), Ellison has complete control over who gets the charitable contribution. Oracle therefore should get a $100 million compensation deduction.
- Ellison has $100 million of compensation income from Oracle under 3.
- Ellison should qualify for a charitable deduction when he gives the $100 million to his favorite charity (subject to all applicable rules on charitable deductions). It's only by mixing the two transactions (the settlement and the charitable contribution) that a question arises concerning the qualification of the charitable contribution.
- Oracle's $100 million income and $100 million compensation will set each other off. What's left is (1) Ellison's $100 million LTCL, (2) Ellison's $100 million of compensation income, and (3) Ellison's $100 million charitable deduction.
[The New Orleans area] schools, for the semester, and perhaps for the entire academic year, do not have an operating campus. Those schools do not have a "place where its educational activities are regularly carried on" [within the meaning of Code § 117]. At least not for a while. Depending on how that phrase is interpreted in light of the current situation, the scholarship recipient may or may not be a candidate for a degree at an "educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on."
Robert Willens (Managing Director, Lehman Brothers, New York) has published Selling Stocks and Bonds: Ascertaining Basis,108 Tax Notes 1267 (Sept. 12, 2005), also available on the Tax Analysts web site as Doc 2005-18434, 2005 TNT 176-32. The article reviews some tax considerations for sellers of stocks and bonds.
Saturday, September 17, 2005
This week's Tax Prof Spotlight continues our series of profiles of folks starting their careers this fall as tax professors at American law schools. We hope the profiles will help introduce our newest colleagues to the tax community. [If you are, or know of someone who is, a beginning tax professor, please email me here to be included in the series.]
Adam Rosenzweig (Northwestern)
- B.A. 1995, UCLA
- J.D. 1998, Georgetown
- LL.M. (Taxation) 2002, NYU
As with most beginning law students, tax law was not the field in which I envisioned I would dedicate my professional and academic life. However, my path was laid by exposure to the intrigue, challenge and wonder of the tax law by the tax faculty at Georgetown, including David Weisbach, Marty Ginsburg and Peter Weidenbruch. My second year led to membership (and eventually an editorial position) on The Tax Lawyer law journal, and by my third year (and after several tax courses), my path to a career in tax was a certainty. After Georgetown, I was incredibly fortunate to be able to pursue both my academic and professional interests in tax by practicing in the tax department at Simpson Thacher & Bartlett in New York while attending the graduate tax program at NYU part-time. I took one year off from the practice of tax law and the NYU LLM program to clerk for Judge James L. Dennis of the U.S. Court of Appeals for the Fifth Circuit in New Orleans (Judge Dennis and his wife are doing fine and are relocated in Lafayette, LA temporarily, although his chambers in the John Minor Wisdom US Court of Appeals building is probably not doing so well). I returned from New Orleans to New York to continue practice at Simpson Thacher and finish my LLM at NYU.
James C. Young (Northern Illinois University, Department of Accountancy) has published A Summary of 2006 Inflation Adjustments Impacting Individuals: Standard Deductions, Exemptions (and Phase-Outs), Itemized Deduction Limitations, and Tax Rate Schedules, also available on the Tax Analysts web site as Doc 2005-19011, 2005 TNT 179-39.
On Sunday, September 11, 2005 an accident occurred involving a courier transporting mostly 1040ES payments to an IRS Lockbox. Following are details regarding the accident:
- Where – San Mateo Bridge, San Francisco, CA
- Approximately 30,000 pieces of mail went into the San Francisco Bay
- Effected States – Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Virginia, Washington, and Wyoming
Update: Jim Maule (Villanova) has more on the story here.
Friday, September 16, 2005
Tax Profs once again have prominent speaking roles at the ABA Tax Section's Fall Meeting in San Francisco. The keynote speaker at the meeting is Joseph Bankman (Stanford), who gave a speech on Tax Shelters at yesterday's Joint Section Breakfast Plenary Session.
Thursday, Sept. 15:
- 1:00 pm - 6:00 pm: Low Income Taxpayer Clinic Worskhop: Collection of Federal Tax Debt -- Rules of the Road
- 2:40 pm - 3:40 pm: Bankruptcy v. OIC
- Moderator: Toni Robinson (Quinnipiac)
- Panelist: Jerome Borison (Denver)
- 3:50 - 4:50 pm: Collection Due Process Hearings
- Panelist: Danshera Cords (Capital)
- 2:40 pm - 3:40 pm: Bankruptcy v. OIC
Friday, Sept. 16:
- 7:30 am - 8:30 am: Exempt Organizations Subcommittee on Political & Lobbying Organizations and Activities
- Co-Chair: Miriam Galston (George Washington)
- 8:30 am - 11:30 am: Administrative Practice
- 9:00 am: The Role of Administrative Law in IRS Collection Review
- Panelist: Danshera Cords (Capital)
- 9:00 am: The Role of Administrative Law in IRS Collection Review
- 8:30 am - 11:30 am: Affiliated and Related Corporations
- Consolidated Return Issues Relating to 2004 Act Anti-Loss Duplication/Importation Provisions Section 362(e)(1)-(2)
- Moderator: Don Leatherman (Tennessee)
- Consolidated Return Issues Relating to 2004 Act Anti-Loss Duplication/Importation Provisions Section 362(e)(1)-(2)
- 8:30 am - 11:30 am: Domestic Relations and Low Income Taxpayers
- Domestic Relations Chair: Toni Robinson (Quinnipiac)
- 8:45 am: An Update on the State of the Innocent Spouse Program
- Panelist: Toni Robinson (Quinnipiac)
- 10:45 am: The New California Domestic Partners Property Law
- Moderator: Toni Robinson (Quinnipiac)
- 8:45 am - 5:00 pm: Exempt Organizations
- 10:00 am: Task Force Report: Tax Shelters and Tax Exempt Organizations
- Panelist: Frances R. Hill (Miami)
- 10:30 am - 12:30 pm: Non-Tax Estate Planning Considerations
- Panelist: William LaPiana (New York Law School)
- 10:00 am: Task Force Report: Tax Shelters and Tax Exempt Organizations
- 12:30 pm - 1:30 pm: Estate & Gift Tax, Fiduciary Income Tax, and Probate & Trust Division Committee Luncheon
- Speaker: David English (Missouri): Uniform Acts from the Inside Out: How They Are Made and Implemented
- 2:30 pm - 5:30 pm: Court Procedure and Practice
- 5:00 pm: Spotlight on Tax Procedure
- Moderator: Christopher M. Pietruszkiewicz (LSU)
- 5:00 pm: Spotlight on Tax Procedure
- 2:30 pm - 4:30 pm: Elder Law & Disability Group
- Exploring the Uniform Power of Atorney Act
- Panelist: Linda S. Whitton (Valparaiso)
- Exploring the Uniform Power of Atorney Act
- 2:30 pm - 4:30 pm: Income & Transfer Tax Planning Group
- Co-Chair: Jeffrey Pennell (Emory)
- Demonstration of Document Assembly Programs for Estate Planning and 706 Preparation Program
- Panelist: Mark R. Gillett (Oklahoma)
- 2:30 pm - 4:30 pm: Teaching Taxation
- Chair: Michael B. Lang (Chapman)
- The Future of the AMT: Repeal, Reform or Replacement of the Individual Income Tax?
- Moderator: Daniel J. Lathrope (Hastings)
- Linda M. Beale (Illinois)
- Francine J. Lipman (Chapman)
- Gail Levin Richmond (Nova)
Saturday, Sept. 17:
- 8:00 am - 9:45 am: Partnerships and LLCs: Legal and Tax Effects of Charging Orders and Foreclosure - The Myths and The Realities
- Carter G. Bishop (George Washington)
- Daniel S. Kleinberger (William Mitchell)
- 8:30 am - 11:45 am: Sales, Exchanges and Basis
- 8:35 am: Real Estate Exchanges: All State Survey Results
- Moderator: Brad Borden (Washburn)
- 9:05 am: Automation of Rule-Oriented Tax Computations
- Panelist: Brad Borden (Washburn)
- 11:15 am: Sales and Exchanges: Current Developments
- Moderator: Erik Jensen (Case Western)
- 8:35 am: Real Estate Exchanges: All State Survey Results
- 9:00 am - 12:00 pm: Community Outreach Program: How to Plan and Administer Trusts and Estates
- Speaker: Thomas M. Featherston (Baylor)
- 9:00 am - 11:30 am: Individual Income Tax
- Chair: Roberta F. Mann (Widener)
- 9:05 am: Beyond Enforcement: Encouraging Tax Compliance
- Moderator: Roberta F. Mann (Widener)
- Steven Mazza (Kansas)
- Joshua D. Rosenberg (San Francisco)
- 10:05 am: Representing Individual Taxpayers: Practicitioner Responses to the New Circular 230 Requirements
- Moderator: Mona Hymel (Arizona)
- 10:00 am - 11:30 am: Current Developments in Assignment of Rents and Other Issues of Interest Only to Those Who Value Money
- Patrick A. Randolph, Jr. (Missouri-Kansas City)
- R. Wilson Freyermuth (Missouri-Columbia)
Today's law.com has an interesting story, Widow's Suit Seeks Return of $50M in 'Excessive' Fees and Gifts:
A Manhattan law firm has been hit with a suit claiming some of its partners tried to extract almost $50 million in "gifts" and unearned fees from a longtime client, the 80-year-old widow of one of New York City's largest real estate developers. In a suit filed Tuesday in Manhattan Supreme Court, Alice Lawrence, the widow of developer Sylvan Lawrence, who died in 1981, claims three partners at 26-lawyer Graubard Miller, which had represented her in a decades-long battle over her late husband's estate, talked her into paying them $5 million in individual, taxable gifts, a practice they allegedly described as typical of longstanding attorney-client relationships....
Rubenstein and a number of other lawyers said they had never heard of a case where individual partners received a bonus directly from the client separate from fees paid to the firm. Ms. Lawrence wrote personal checks to the three Graubard Miller partners. Chill received $2 million. Reich received $1.55 million and Mallis received $1.5 million. According to the suit, they specifically told her not to pay this money to the firm, but to each of them individually. Chill allegedly instructed her to denote the payment as a "gift" on each check's memo line. The following April, Chill allegedly told Ms. Lawrence she would need to pay gift taxes on the bonuses to the three partners or else their bonus payments would be dramatically reduced. She then paid $2.7 million in gift taxes to the federal government.
New York Law School, Vermont & William Mitchell Barred from Receiving Federal Funds Under Solomon Amendment
Inside Higher Ed reports today that the U.S. Defense Department has added New York Law School to the list of law schools barred from receiving federal funds for violating the Solomon Amendment. Other law schools on the list are Vermont and William Mitchell. Here is the lead in the Inside Higher Ed story:
The U.S. Defense Department is taking another run at law schools that have refused to let military recruiters visit their campuses because of the Pentagon’s stance on gay servicemen and women. But so far, the only institutions the department has singled out for possible loss of federal funds are three independent law schools. One other law school that has barred military recruiters — Yale’s — is shielded from Pentagon retribution by a court’s injunction, while Harvard’s law school, which last fall declared its intention to bar military recruiters, seems to have been left alone so far.
Update: Todd Zywicki of The Volokh Conspiracy notes that since these three are stand alone law schools unattached to larger universities, the Government's action is narrowly focused on law schools and does not raise the issue of withholding funding for an entire university as a result of the law school's decisions.
Ever since the tragedy inflicted on the Gulf Coast by Hurricane Katrina, AALS has been committed to doing all it can to help the New Orleans' law schools, their faculty, students, staff, and the citizens of New Orleans in their efforts to recover. Part of that commitment has involved a decision not to move the Annual Meeting without having a reasonably high degree of certainty that the meeting could not be held in New Orleans. Unfortunately, despite the somewhat more encouraging recent news about the possible pace of recovery, our New Orleans hotels have indicated to us that , for a variety of reasons, they don't expect to be able to host our meeting and that we should therefore move the meeting.
AALS has been investigating other possibilities for the 2006 Annual Meeting for more than two weeks and we are now involved in the reasonably late stages of negotiation for an alternative city. As I'm sure you can imagine, our options at this late date are limited; nevertheless, we hope to be able to announce a decision within a week. Our negotiations are designed to produce the best possible hotel rates, and costs to the AALS, in a city that can offer the usual options for restaurants and other attractions available in an Annual Meeting city.
Burgess J.W. Raby & William L. Raby have published Painting the Accounting Practitioner Into a Tax Practice Corner, also available on the Tax Analysts web site as Doc 2005-18877, 2005 TNT 178-4. Here is the Introduction:
Start with the proposition that tax practice standards include levels of confidence prescribed by authoritative bodies as necessary for filing returns or taking opinion positions. By the time year-end 2005 work is being done for business clients, it seems likely that standards will be in place covering (in order of increasing confidence):
- nonfrivolous positions (a level of confidence sufficient for return preparers, if accompanied by disclosure, but not sufficient for taxpayers to avoid penalties);
- reasonable basis (the level of confidence generally needed for the taxpayer to take a disclosed position without penalty);
- realistic possibility of success on the merits, assuming the treatment was challenged by the IRS (the level generally sufficient for return preparers to take undisclosed positions without penalty, but not quite sufficient for taxpayers to avoid penalties);
- substantial authority (the level of confidence needed for taxpayers to generally take undisclosed positions without penalty when "tax shelters" are not involved);
- more likely than not (both the level of confidence needed for taxpayers to take positions when tax shelters are involved, although, in the case of reportable transactions, this must be accompanied by a Form 8886 disclosure, and the standard for practitioner opinions covered by Circular 230, section 10.35); and
- probable of being sustained if challenged by the IRS (the level of confidence needed under generally accepted accounting principles, under the pending interpretation of Financial Accounting Standards Board Statements (FAS) 5 and 109, to reflect a tax asset on the balance sheet or to avoid reflecting a tax liability greater than shown on the tax return).