Monday, October 31, 2005
The dividend puzzle of economic theory asks why firms pay substantial dividends, given the classical tax rate preference for capital gains and deferral of capital gains taxation until realization. A new dividend puzzle arises at the level of practice in the wake of The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the JGTRRA), which aligns tax rates on shareholder capital gains and dividend income at a maximum 15 percent even as it leaves in place the capital gains deferral. The new tax regime puts a difficult question to corporate boards: Whether, assuming payout, dividends hold out relative advantages over stock repurchases as the mode of payment.
Interesting "family tree" of over 600 bloggers. They do not list TaxProf Blog's "blogfather," nor do they credit TaxProf Blog with siring any other blogs (even though we have been particularly fertile with over 20 direct descendants). (Hat Tip: Steve Bainbridge (who has been disowned by his blogfather).
Interesting article by Norman Bradburn (Tiffany and Margaret Blake Distinguished Service Professor Emeritus, Department of Psychology, Harris School, Graduate School of Business, University of Chicago) in Legal Affairs (Nov.-Dec. 2005), Outranked and Underrated:
[The U.S. News law school rankings is] not quite the menace it has been made out to be....At a time when greater accountability is being demanded at all levels of education, head-to-head assessments are inevitable and often have merit.
I made a similar point in What Law Schools Can Learn from Billy Beane and the Oakland Athletics, 82 Texas L. Rev. 1483, 1553 (2004):
Law schools are faced with a clear choice. We can continue resisting public demands for accountability and transparency through rankings. But such resistance is futile, as a market that demands rankings of brain surgeons and heart-transplant programs will not accept protestations from the legal academy that what we do is simply too special to be evaluated with objective measures.
While many ratings systems are deficient, those that conform to accepted social science standards can convey valuable information about the law schools under scrutiny. The real problem lies with the focus on rankings rather than ratings. Done correctly, ratings--standardized quantitative measures--can be very effective at revealing institutions' relative strengths and weaknesses.
But ratings are invariably distorted by rankings, which use this underlying data to make a claim about the precise ordering of schools While the law school community should stick to its guns about the problems of rankings, it needs to accept that academic evaluations are here to stay, and it should push for more rigorous and accurate ratings....
Law schools are absolutely right to complain about rankings. And when we talk about law school rankings, it is almost always with the highly influential U.S. News rankings in mind. While the magazine's ratings system is reasonably sound, it presents the final rankings in a way that misleads prospective students and does a disservice to law schools. The law school community can push the U.S. News guide and other evaluations to strengthen their ratings mechanisms by, among other things, adopting a unified position on quality measures and on the methods used to combine them. The cat may be loose, but the pigeons need not stand by helplessly.
Indeed, this is how I closed my Texas piece:
As institutions and as individuals, we have nothing to fear from the accountability and transparency spotlight. Indeed, we do our best work in the light. We should welcome the opportunity to tell the world what we do and help them measure our performance as teachers and scholars. If we do not, the story will be told by others and it will no longer be our own.
Following up on this morning's two Halloween tax posts (here and here): the TaxProf Discussion Group was abuzz today about a follow up on a story we blogged earlier: Tax Breaks for Witches. From today's Associated Press:
Dutch witches were guaranteed a financial treat when the Leeuwarden District Court reaffirmed their legal right to write off the costs of schooling -- including in witchcraft -- against their tax bills. Those costs run to thousands of euros....
When he asked about it in parliament, Junior Finance Minister Joop Wijn wrote, "Under the circumstances, the cost of a course to become a witch qualifies as school fees."
We previously have blogged at some length the tax rules for deducting education expenses in the United States, albeit in the more pedestrian area of M.B.A. expenses (here, here, here, here, and here). Under Reg. § 1.162-5, to be deductible the education cannot (1) meet the minimum educational requirements of the taxpayer's current trade or business, or (2) qualify the taxpayer for a new trade or business. As several Tax Profs pointed out, the Dutch witches mentioned in the story would not be able to deduct their education expenses in this country because they are not currently in the witching biz, but those already practicing as witches presumably would be able to deduct courses in advanced witchcraft (if they had a profit motive and thus did not run afoul of the § 183 hobby loss rules. Jim Maule has much more here.
Updates: John Colombo (Illinois) & John Swain (Arizon) both called my attention to GCM 36993 (Feb. 3, 1977), which approved nonprofit church status for a group whose members "considered themselves to be pagans engaged in the practice of witchcraft" and who worshipped "the horned god," though it was specifically alleged that the horned god was not the devil.
I promised that my last post on the sordid tale of Benjamin Ladner, forced out as President of American University after he came under fire for his lavish spending habits and for failing to pay income tax on a variety of perks, would be my last (see prior posts here, here, here, here, and here). But there is more to report: The Senate Finance Committee on Thursday began investigating the matter, and today's Chronicle of Higher Education provides more details.
Jack F. Williams (Georgia State) & Jacob L. Todres (St. John's) have posted Tax Consequences of Postpetition Income as Property of the Estate in an Individual Debtor Chapter 11 Case and Tax Disclosure in Chapter 11 on SSRN. Here is the abstract:
In this article the authors discuss the tax consequences and ramifications of two changes to the Bankruptcy Code ("B.C.") made by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("2005 Act"). One of the changes made by the 2005 Act is the addition of new B.C. Section 1115. B.C. Section 1115(a)(2) provides that during the pendency of a case in chapter 11, all earnings from services performed by a debtor who is an individual belong to the bankruptcy estate. As a result, the authors argue that Section 1398 of the Internal Revenue Code ("I.R.C.") which treats an individual and his/her bankruptcy estate as separate taxpayers is no longer symmetrical with the Bankruptcy Code and should be changed. Failure to change I.R.C. Section 1398 will also result in imposing substantial administrative burdens on the IRS. Another change made by the 2005 Act is the amendment of B.C. Section 1125(a)(1) to provide that adequate information in a chapter 11 disclosure statement requires the discussion of the material federal tax consequences of the plan. The authors argue that this change should not be interpreted to dispense with the need for discussion of state and local tax consequences of the plan in disclosure statements. The authors also point out that it is likely that the tax discussion in chapter 11 disclosure statements are now subject to the recently strengthened requirements of Treasury Department Circular 230.
- White House Press Release
- White House Bio
- Other bios (here, here and here)
- Discussion of Judge Alito's opinions in business law cases:
Martin A. Sullivan (Contributing Editor, Tax Analysts) has published Lower the Rates, Strengthen the Base, 109 Tax Notes 571 (Oct. 31, 2005), also available on the Tax Analysts web page as Doc 2005-21844, 2005 TNT 209-3. The article argues that if President Bush fought for radical reform of the tax system, he would regain the support of rebellious conservatives.
Sondra Beverly (University of Kansas), Peter Tufano (Harvard Business School) & Daniel Schneider (Harvard Business School) have posted Splitting Tax Refunds and Building Savings: An Empirical Test on SSRN. Here is the abstract:
Families are more likely to save if they can commit to savings before funds are in-hand (and subject to spending temptations). For low- and moderate-income U.S. families, an important savings opportunity arises annually, during income tax season. We study a group of low-income individuals in Tulsa, Oklahoma, who, at the time of tax filing, were encouraged to save parts of their federal refunds. Those who agreed directed a portion of their refund to a savings account, and arranged to have the rest sent to them in the form of a check. Eligible individuals could also open low-cost savings accounts. We document the demand for these services, the characteristics of those who sought to participate, the savings goals of those who participated, the immediate savings generated by the program, and the disposition of savings a few months after receipt. This pilot study suggests that there may be demand among low-income families for a refund-splitting program that supports emergency needs as well as asset building, especially if a basic savings product is available to all at the time of tax filing.
Sunday, October 30, 2005
In homage to The Volokh Conspiracy's links to cool optical illusions (see here, here, and most recently, here), my 15-year old son wants to share this Halloween treat with the tax community: if you watch the car commercial carefully and turn up the volume, you will be able to spot something in the mist and hear a faint ghostly voice. (My wife (age undisclosed), on the other hand, offers this Halloween optical illusion -- can you spot the difference in the two photographs?)
- Tax Prof Profile, New Professor Edition: Keith Blair
- Tax Analysts: Levy on The Limited and the Congressional Response: How Well Did Congress Do?
- Brooks on The Share of Income Tax Paid by the Rich in Canada
- IRS Releases 2006 Inflation Adjustments
- Tax Poll: Public Support Dwindles for Raising Taxes to Reduce Deficit
- Christians on Social Security in United States Treaties and Executive Agreements
- The Onion on Al Capone's Tax Conviction
- GAO Releases Activities of the Treasury Inspector General for Tax Administration
- Top 5 Tax Paper Downloads
- Galanter on Lawyer Jokes and Legal Culture
- Gas Taxes Exceed Oil Companies' Profits
- ABA Tax Section Sponsors Pro Bono Help for Hurricane Victims
- FactCheck.org Assails Tax Untruths in NJ Ad War
- Knoll on Restricted Stock and the Section 83(b) Election: A Joint Tax Perspective
- Tax Analysts: Joseph on Estate Taxation Is Integral to Income Taxation
1. [220 Downloads] Brand New Deal: The Google IPO and the Branding Effect of Corporate Deal Structures, by Victor Fleischer (UCLA) [blogged here]
2. [197 Downloads] The Ethics of Tax Evasion: A Survey of International Business Academics, by Robert W. McGee (Barry University, Andreas School of Business) [blogged here]
3. [136 Downloads] Anatomy of a Disaster Under the Internal Revenue Code, by Francine J. Lipman (Chapman) [blogged here]
4. [102 Downloads] U.S. Tax Treaty Policy and the European Court of Justice, by Ruth Mason (NYU) [blogged here]
Brian Z. Tamanaha (St. John’s) has published a book review of Marc Galanter, Lowering the Bar: Lawyer Jokes and Legal Culture (University of Wisconsin Press, 2005), in the Law & Politics Book Review. Here is the opening:
It is rare to find a book that skillfully weaves together empirical data, sociological analysis, and broad knowledge about the legal profession, in a pleasantly readable package that delivers multiple insights about contemporary legal culture in the United States. It is unique to find a book with all of these qualities that is also funny. Marc Galanter manages to pull off this feat in Lowering the Bar.
Here are some of my favorite lawyer jokes:
Did you hear about the post office having to cancel its commemorative issue honoring lawyers? It seems that it was too confusing—people didn’t know which side of the stamp to spit on. (p.198)
[A lawyer explaining his fees to his client] “If you want justice, it’s two hundred dollars an hour. Obstruction of justice runs a bit more.” (p.238)
Hear the good news and the bad news? The good news is that a bus load of lawyers just ran off the cliff. The bad news is that there were three empty seats on the bus. (p.213)
There is an old story of a lawyer named Strange and his wife having a conference as to the things he wished done after he had departed this life. “I want a headstone put over me, my dear,” said the lawyer, “with the simple inscription—‘Here lies an honest lawyer.’” The wife expressed surprise that he did not wish his name put on the headstone. “It will not be needful,” he responded, “for those who pass by and read that inscription will invariably remark: ‘That’s Strange.’” (p. 36)
I recounted some tax lawyer humor in one of my earliest articles, Tax Myopia, or Mamas Don't Let Your Babies Grow Up to be Tax Lawyers, 13 Va. Tax Rev. 517 (1994). Here are some of my favorites:
A tax lawyer is a person who is good with numbers but who does not have enough personality to be an accountant.
The perceived differences separating tax law and tax lawyers from their nontax counterparts are reinforced by the legal profession. I received my first hint of this attitude my first day as a summer associate at a Wall Street firm. At a presentation by senior partners of the firm's various departments, the tax partner extolled the virtues of his department by emphasizing that because of the intellectual rigor of the field,20 tax associates were encouraged to go home at 5:30 every day; tax practice was simply too complex to be done when an associate was tired. (Only later when I spoke with some of the permanent tax associates did I learn that he was referring to 5:30 a.m.).
The view that tax law is less interesting or important than other areas of law pervades even the Supreme Court....[W]hen asked why he sings along with the Chief Justice at the Court's annual Christmas party, Justice Souter replied, "I have to. Otherwise I get all the tax cases."
With BP, Exxon-Mobil, and Shell reporting record profits, the Tax Foundation reminds us in its latest Fiscal Fact that the biggest beneficiaries of gasoline sales are federal and state governments, not the oil industry:
High gas prices and strong oil company earnings have generated a rash of new tax proposals in recent months. Some lawmakers have called for new “windfall profits” taxes—similar to the one signed into federal law in 1980 by President Jimmy Carter—that would tax the profits of major oil companies at a rate of 50%. Meanwhile, many commentators have voiced support for the idea of increasing gas taxes to keep the price of gasoline at post-Katrina highs, thereby reducing gas consumption. However, often ignored in this debate is the fact that oil industry profits are highly cyclical, making them just as prone to “busts” as to “booms.” Additionally, tax collections on the production and import of gasoline by state and federal governments are already near historic highs. In fact, in recent decades governments have collected far more revenue from gasoline taxes than the largest U.S. oil companies have collectively earned in domestic profits....
[F]ederal and state taxes on gasoline production and imports have been climbing steadily since the late 1970s and now total roughly $58.4 billion. Due in part to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993, annual tax revenues have continued to grow. Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues—more than twice the amount of domestic profits earned by major U.S. oil companies during the same period:
[click to enlarge]
The ABA Tax Section is encouraging those with experience in tax law to participate in a 2-hour telephone training to help those affected by Hurricanes Katrina and Rita. The workshop, on Wednesday, November 9, 2005 from 2:00 – 4:00 p.m. EST, is presented by the IRS through its Taxpayer Advocate Service, and will explain new tax provisions designed to assist those in affected regions rebuild their lives and livelihoods. To learn more about the training, including how to register, see here.
Additional ABA Tax Section Hurricanes Katrina and Rita resources:
Saturday, October 29, 2005
Anyone who doubts that political ads are a poor source of reliable information might wish to examine the absurd degree of fact-twisting taking place in New Jersey's gubernatorial campaign, where Sen. Jon Corzine is the Democratic candidate and Doug Forrester is the Republican.
Both men are making exaggerated claims about Corzine's voting record on taxes, with Forrester claiming Corzine cast 133 votes for "higher taxes" and Corzine saying he cast 70 votes "to lower taxes." Both lists are padded with multiple votes on the same tax measure, and most of the votes Forrester says are for "higher taxes" actually would not have resulted in any tax increase at all. Laughably, both men are counting some of the same votes.
For video of the two ads, see here. For both parties' supporting documentation, see:
For tax blogosphers commentary, see:
Michael S. Knoll (Penn) has posted Restricted Stock and the Section 83(b) Election: A Joint Tax Perspective on SSRN. Here is the abstract:
In the wake of the Financial Accounting Standard Board's decision to require firms that grant employee stock options (ESOs) to treat such options as an expense, many large and sophisticated firms are switching from ESOs to restricted stock. Restricted stock - stock granted to an employee as part of her compensation and subject to the condition that if she leaves the firm within a period of time (often 3 years) she forfeits the stock - appears to be on its way to becoming the dominant form of equity-based pay in the United States. Yet, in spite of its prominence, little attention has been paid to how employers should design their restricted stock programs in light of tax considerations. The tax consequences to both the employee and the employer of a grant of restricted stock are deferred until the restriction lapses and the stock vests. There is however an exception to that general rule: If, within 30 days of receiving the stock, the employee makes what is called the Section 83(b) election, then both the employer and the employee are taxed at the time of grant.
Employing a joint tax perspective that looks at the tax consequences to both the employer and the employee, this paper attempts to answer several compensation design issues raised by the use of restricted stock. Specifically, I address the question under what circumstances should the employer charge the employee explicitly for her restricted shares and when should the employer charge implicitly for the restricted stock through a lower salary. I also look at the desirability to the employee, the employer, and the employee and employer together of the employee making the Section 83(b) election. Finally, I look at the value to the employee and cost to the employer of the employee's option to wait 30 days until making the Section 83(b) election.
Richard J. Joseph (University of Texas, McCombs School of Business) has published Estate Taxation Is Integral to Income Taxation, 109 Tax Notes 527 (Oct. 24, 2005), also available on the Tax Analysts web site as Doc 2005-21028, 2005 TNT 205-42. Here is the opening:
Last April the U.S. House of Representatives voted to abolish the estate tax. At some point the U.S. Senate will consider repeal or reform. The estate tax, critics charge, cripples family farms and small businesses. It also results in the double taxation of lifetime earnings, they claim. Whatever the merits of those arguments, senators should consider the legislative history of the tax in deciding whether to eliminate it. They should bear in mind that the estate tax was intended to supplement the income tax and that eliminating it will affect how the federal tax burden is distributed.
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.]
Keith Blair (Baltimore)
- B.S. 1982, Andrews
- J.D. 1993, Brooklyn
Law is a second career for me. I was a systems programmer for the eight years after I graduated from college. I always had the bug to go to law school, and finally decided that I either was going to go then or not go at all. I went to Brooklyn Law School and didn't really have a clue on what type of law I wanted practice. I had a vague notion that I wanted to litigate, so I took the year-long Federal Litigation Clinic at Brooklyn. The experience in that clinic, which was directed by Professor Minna Kotkin, convinced me that litigation was for me. During the year that I was in the clinic I also took the basic income tax class. To this day I have no idea why I took the class as one thing that I knew was that I did not plan on practicing in the tax field.
Micah A. Levy (Senior Attorney, Office of Chief Counsel, Treasury Department) has published The Limited and the Congressional Response: How Well Did Congress Do?, 109 Tax Notes 483 (Oct. 24, 2005), also available on the Tax Analysts web site as Doc 2005-20665, 2005 TNT 205-37. Here is the abstract:
This article examines the issues litigated in The Limited v. Commissioner, 286 F.3d 324 (6th Cir. 2002), a high-profile case in which the Sixth Circuit (reversing the Tax Court in no uncertain terms) allowed the taxpayer to avoid immediate taxation on $175 million of untaxed foreign income that it had repatriated through a series of related transactions among its various foreign and domestic subsidiaries. That result hinged on the Sixth Circuit's taxpayer-friendly interpretation of a narrow exception to the general rule of taxation for repatriated foreign earnings. Congress, unhappy with the outcome, sought to remedy the perceived abuse by amending the exception as part of historic tax legislation enacted in late 2004. This article concludes that Congress's "fix," while perhaps not optimal, adequately solves the immediate problem prospectively. For disputes governed by preamendment law, the Tax Court should stick to its guns.
Neil Brooks (Osgoode Hall Law School, York University) has published The Share of Income Tax Paid by the Rich, available on the Canadian Centre for Policy Aletrnatives web site. From the Centre's press release:
Despite recent reports to the contrary, Canada’s high-income earners do not pay a disproportionately large share of personal income tax. A new analysis by Prof. Neil Brooks of Osgoode Hall Law School, released today by the Canadian Centre for Policy Alternatives, takes a closer look at the numbers in Statistics Canada’s “Tax Incidence in Canada.” The Stats Can report sparked a series of news stories this spring claiming the top 10% of income earners pay 52% of the total tax bill but Brooks finds these figures both misleading and incomplete in assessing the fairness of the tax system.
The Statistics Canada study showed that the share of federal income taxes paid by the top 10% increased from 46% in 1990 to 52.6% in 2002. Brooks points out, however, that this increase is not a result of the tax system becoming more progressive. Instead, the main reason for the increase was because the share of earned income going to the most affluent among us increased by 12.6% over that same period, while the share going to the bottom 50% of tax-filers declined.
- Personal Exemption: $3,300
- Standard Deduction: $10,300 (married), $5,150 (single)
- Annual Gift Tax Exemption: $12,000
- Tax Rate Tables:
Married Couple Filing Jointly
Not over $15,100
$15,101 - $61,300
$1,510 + 15% of excess over $15,100
$61,301 - $123,700
$8,440 + 25% of excess over $61.300
$123,701 - $188,450
$24,040 + 28% of excess over $123,700
$188,451 - $336,550
$42,170 + 33% of excess over $188,450
$91,043 + 35% of excess over $336,550
Not over $7,550
$7,501 - $30,650
$755 + 15% of excess over $7,500
$30,651 - $74,200
$4,220 + 25% of excess over $30.650
$74,201 - $154,800
$15,107.50 + 28% of excess over $74,200
$154,800 - $336,550
$37,675.50 + 33% of excess over $94,225
$97,653 + 35% of excess over $336,550
- Unearned Income of Minor Children Subject to "Kiddie Tax": $850
- Adoption Credit: $10,960
- Child Tax Credit: $11,300
A recent Pew Research Center for the People & the Press survey conducted by Princeton Survey Research Associates International reports dwindling public support for raising taxes to reduce the federal budget deficit:
Would you favor or oppose raising taxes as a way to reduce the budget deficit?
N = 1,500 adults nationwide; MoE +/- 3
(Thanks to Ben Cunningham for the tip.)
Allison Christians (Wisconsin) has posted Social Security in United States Treaties and Executive Agreements on SSRN. Here is the abstract:
The employee dispatched by her company to work temporarily in international destinations is not a new phenomenon, but social structures between which the worker may move have arguably never been more complex. In a world of social insurance programs that feature broad contribution requirements coupled with limitations on benefits, global workers may be required to contribute in multiple jurisdictions, yet be eligible for benefits in none. Having introduced its own social insurance program in the 1930s when workers were much less likely to be sent on temporary cross-border assignments, the United States social security system has had to adapt to the increasingly international workforce. Adaptation has occurred over the last two decades in the form of coordination of taxes and benefits through treaty-like instruments called executive agreements. However, some matters of social security taxation, like other tax matters, have traditionally been addressed in income tax treaties. This article examines the role of tax treaties and executive agreements in the administration of the United States social security program, discusses some of the conflicts and issues that arise due to the use of multiple and potentially conflicting instruments, and suggests ways in which international coordination of social security could be improved in the United States.
Funny mock Onion front page from October 19, 1931:
Al Capone's Reign of Tax-Evading Terror Finally Brought to an End; Non-Paying Monster Will Prowl City's Loopholes No Longer; Chicagoans Relieved as Feds Out Stop to "Scarface" Al's String of Brutal Non-Filings:
Al Capone, whose tax evasion has held Chicago in a grip of terror for over a decade, was finally convicted of five counts of first-degree neglect to File Form 1040 in federal court today. The arrest ends a ruthless string of tax evading which has resulted in the loss of several hundred dollars in federal revenue....
Friday, October 28, 2005
The Government Accountability Office has released Activities of the Treasury Inspector General for Tax Administration (GAO-05-999R) (GAO-05-999R) (22 pages). Here is the opening:
The Department of the Treasury Inspector General for Tax Administration (TIGTA) audits and investigates the IRS’s operations to (1) promote economy and efficiency and detect and prevent fraud and abuse and (2) recommend actions for improvement....
This report responds to your request that we review the activities of TIGTA. As discussed with your staff, we are providing information regarding (1) TIGTA’s budget and staffing levels; (2) TIGTA’s audit and investigative coverage of IRS, including oversight of IRS’s offices and identified weaknesses in IRS’s operations, and audit coverage of specific requirements of the IRS Reform Act; (3) TIGTA’s audit and investigative accomplishments; (4) the quality assurance program, including the results of peer reviews; and (5) the audit follow-up process to track IRS’s implementation of TIGTA’s audit recommendations.
The Treasury Department announced today (JS-2994) that the President's Advisory Panel on Federal Tax Reform will deliver its recommendations to Treasury Secretary John Snow on Tuesday, November 1 at 10:00 a.m. in the Treasury Department's Diplomatic Reception Room. A briefing by Senators Mack and Breaux will follow.
The Organisation for Economic Co-operation and Development has published Economic Survey of the United States, 2005, which recommends that the U.S. replace the corporate income tax with a broad-based value added tax and eliminate or cap several tax deductions:
The complexity of the personal and corporate income taxes has steadily increased since the last major tax reform in 1986, largely due to the continued proliferation of deductions, exemptions, credits and tax shelters that have substantially narrowed the tax base and created many distortions, several of which harm incentives to save. The Administration has charged an advisory panel with submitting options for federal tax reform with the aim of making the tax code simpler, fairer and more conducive to economic growth. A number of measures should be undertaken, even if the basic structure of the current income tax is retained:
- The deductibility of interest on home equity loans (which are for consumption purposes) should be eliminated. The deductibility of interest on loans for the purchase, construction or improvement of houses should be limited to a much lower threshold and eventually phased out.
- The exclusion of employer-provided health insurance premiums should be capped. The deductibility on federal tax returns of state and local tax payments and the exemption of interest on public-purpose state and local government debt should be dropped.
- A more wide-ranging simplification of the personal and corporate income taxes with substantial base broadening and reduction in marginal rates as well as improved integration of corporate and personal income taxes would likely have substantial beneficial effects. The negative income tax for low-income workers (EITC) should be maintained, as should the current preferential treatment of major forms of retirement saving, even though its effect on household saving may be limited.
Beyond these reforms, further efficiency gains might be obtained through greater reliance on consumption taxation. The replacement of the grossly inefficient corporate income tax by a federal VAT should be considered. With a broad base, such a VAT would probably raise enough revenue to reduce reliance on income tax revenues and exempt an even larger share of the population from paying federal income tax; at the same time, retaining a personal income tax would allow the desired degree of progressivity of the overall tax system to be achieved. In addition, if states changed their own sales taxes to a VAT, jointly administered federal and state VATs could lead to substantial efficiency gains for economic decisions and tax compliance and administration.
Volume 53, Issue 2 of the Canadian Tax Journal is now available with these articles:
- p. 305: Some Reflections on Corporate Control?, by Robert Couzin
- p. 333: The Tax Court's Informal Procedure and Self-Represented Litigants: Problems and Solutions, by André Gallant
- p. 367: The Canadian Underground Economy: An Examination of Giles and Tedds, by Trevor Breusch
- p. 392: Response to Breusch's Critique, by Lindsay M. Tedds and David E.A. Giles
- p. 396: Policy Forum: Attribution of Profits to a Permanent Establishment
- p. 401: The OECD Project: Transfer Pricing Meets Permanent Establishment, by Robert Couzin
- p. 409: Transfer Pricing and Attribution of Income to Permanent Establishments: The Case for Systematic Global Profit Splits (Just Don't Say Formulary Apportionment), by François Vincent
- p. 417: 2003-4 Award-Winning Student Paper: The Canadian Tax Foundation—Jean Potvin Award for Quebec
- p. 459: Current Cases:
- p. 481: International Tax Planning: Characterization of Foreign Business Associations
- p. 506: Personal Tax Planning: Charitable Remainder Trusts
- p. 539: Planification fiscale personelle
- p. 574: Selected US Tax Developments: Recent Developments Make It Easier for US-Based Multinationals To Dispose of Foreign Subsidiaries
- p. 589: Current Tax Reading
- Reuven S. Avi-Yonah, International Tax as International Law, 57 Tax Law Review 483 (2004) [blogged here]
- Lorraine Eden & Robert T. Kudrle, Tax Havens: Renegade States in the International Tax Regime?, 27 Law & Policy 100 (2005) [blogged here]
- Mitchell A. Kane, Strategy and Cooperation in National Responses to International Tax Arbitrage, 53 Emory Law Journal 89 (2005) [blogged here]
- p. 605: Correspondence
GAO Releases Tax Gap: Multiple Strategies, Better Compliance Data, and Long-Term Goals Are Needed to Improve Taxpayer Compliance
The Government Accountability Office has released Tax Gap: Multiple Strategies, Better Compliance Data, and Long-Term Goals Are Needed to Improve Taxpayer Compliance (GAO-06-208T) (10/26/05) (19 pages). Here are the Highlights:
IRS’s recent estimate of the tax gap in 2001 ranged from $312 billion to $353 billion. IRS estimates it will eventually recover some of this tax gap, resulting in a net tax gap of $257 billion to $298 billion. Reducing the tax gap will be challenging given persistent levels of noncompliance. Still, given its size, even small or moderate reductions in the net tax gap could yield substantial returns, which could improve the government’s fiscal position. For example, based on IRS’s most recent estimate, each 1 percent reduction in the net tax gap would likely yield more than $2.5 billion annually. Thus, a 10 percent to 20 percent reduction of the net tax gap would translate into from $25 billion to $50 billion or more in additional revenue annually.
The absent-minded professor becomes more difficult to handle, however, when his behavior verges on the dysfunctional. All vocations attract certain personality types; academe appeals particularly to introspective, narcissistic, obsessive characters who occasionally suffer from mood disorders or other psychological problems. Often, these difficulties go untreated because they are closely tied to enhanced creativity, as can be the case with obsessive-compulsive disorder, major depression, bipolar disorder, and the kind of high-functioning autism known as Asperger's syndrome.
“Nutty Professors” is a facile, tendentious work of self-aggrandizement, projection and “othering” -- that is, the reinforcement of social hierarchy by means of the devaluation of individuals who do not fall within social norms. The article constitutes an act of symbolic violence against the subjects of its author’s disdain and against all disabled individuals. It opens with a chaotic pastiche of imagery drawn from film, television, literature, and history, followed by a superficial, inaccurate description of Asperger Syndrome. The author retroactively “diagnoses” two disliked former colleagues, then baldly announces her inclination to discriminate against academic job applicants based on her speculations about their possible disability status. As I read the article, I shivered to think that my family members on the autistic spectrum, who have considerable potential to excel in academia, might encounter the kinds of harsh judgments and inflexibility on the part of potential employers and colleagues that are so abundantly displayed by Mikita Brottman.
The advisory panel appointed by George W. Bush to recommend changes to the Byzantine US tax system will call for an end to taxes on US companies' foreign profits, eliminating a competitive handicap for US businesses.
The Tax Foundation has published Countdown to Tax Reform, Part VI: Cost of Living and Tax Burdens as part of a series in anticipation of the expected November 1 release of the report of the President’s Advisory Panel on Federal Tax Reform. Here is a taste:
To demonstrate how cost of living can affect a family’s tax liability, Tax Foundation economists adjusted the income of a median, dual-income childless married couple to various cities using the ACCRA cost of living index, one of the nation’s leading providers of cost-of-living data. In 2004, the typical dual-income childless couple in America earned $74,443—an income large enough to put them into the top 20% of taxpayers, with a tax liability of roughly $8,081 and an effective federal income tax rate of 10.4%. As it happens, the city with the closest average income to the national average is Milwaukee, Wisconsin:
New York City
("Income Needed" = income needed to buy median standard of living)
While the tax code was indexed for inflation in 1985 to protect Americans from “bracket creep,” nothing has been done to protect them from “cost of living creep.”
For prior TaxProf Blog coverage of other pieces in the series, see:
- Countdown to Tax Reform: Ten Core Principles of Tax Policy
- Countdown to Tax Reform I: Not Your Father's Middle Class
- Countdown to Tax Reform II: Taxpayers and Non-Payers
- Countdown to Tax Reform III: Who Payns Income Tax in America?
- Countdown to Tax Reform IV: Life Cycle and Income Inequality
- Countdown to Tax Reform V: High-Income Taxpayers and the Entrepreneurial Class
Robert W. Wood (Robert W. Wood, P.C., San Francisco) has published Resolving Litigation by Payments to Charity, also available on the Tax Analysts web site as Doc 2005-21715, 2005 TNT 207-30. Here is the opening:
Occasionally, it may be possible to resolve legal disputes by plaintiff and defendant agreeing that the defendant will make a payment to a charity.... I first encountered a payment to charity in this context with the enormous Microsoft class action brought in California. One of the elements of that settlement involved Microsoft making contributions to charity. Although I was not representing Microsoft (I was, instead, providing tax advice to the class of plaintiffs), I wondered at the time whether Microsoft could legitimately claim charitable contribution deductions for contributions to charity that were hardly voluntary. Perhaps it is an academic point. I'm rather certain that Microsoft did claim the charitable contribution deductions.
If a plaintiff could receive a settlement or judgment but rather directs the defendant to make payment to a charity, there are some interesting assignment of income issues, too. In the case of a judgment, there seems little doubt that a plaintiff cannot avoid the incidence of the income tax by directing that he does not want the payment and rather wants the judgment paid to a charity. A settlement is arguably different, in that the plaintiff has no right to income until he signs the settlement agreement releasing his legal rights.
The recent announcement that Oracle's CEO, Larry Ellison, reached an agreement to pay $100 million to charity to resolve an insider trading lawsuit raises the stakes. That unusual settlement arrangement requires Oracle board approval, and it certainly is possible that it will not be paid as planned. Still, it raises some interesting tax questions if it is ultimately consummated.
Following up on yesterday's post on the IRS's new web site to help taxpayers search for their tax refunds: The National Taxpayers Union (NTU) claims its online tax refund search site can help people locate their money more quickly and easily than the IRS's online version:
The NTU database is designed to provide the maximum flexibility of search options (by full name, partial name, or state), so users can find refunds (or those of relatives and friends) that may be in limbo because of these problems. If they have a refund to claim, then the site directs taxpayers to the IRS toll-free number or the IRS website where they can securely arrange to receive their money.
Although the IRS's website also has an interactive refund feature, the agency requires taxpayers to provide information that makes it difficult to use for citizens who aren't sure whether they have a refund coming, or who can't remember how much it might be.
Wall Street Journal (Paul T. Mero): In Utah, the Flat Tax Doesn't Have a Prayer:
After nearly a year together, the Utah Legislature and Gov. Huntsman are in the midst of a potentially historic debate that, to date, has centered on the flat tax. It is no secret that a flat tax has tremendous appeal in conservative politics....And which state legislature is more conservative than Utah's? Slam dunk, right? Wrong....
Like the old E.F. Hutton ads, when the Mormon Church speaks, the state legislature listens. Frankly, Mormon elected officials worth their salt do not want to be at odds with the leaders of their church....
This held true for the flat tax. There was some quiet speculation about how the idea would sit with the Mormon Church due to its longstanding support of charitable deductions until Sept. 15. That's when the church reiterated its "support of retaining a state tax deduction for charitable giving." The meaning was crystal clear. With whiplash speed, the governor's office spoke of implementing a "flatter" tax, one that included a charitable deduction....
There will not be a pure flat tax in Utah. This is just the way it is. Mormon legislators understand, struggle and cope with this ever-present personal conflict in policy making.
The Mormon Church did not kill the flat tax in Utah. The church implicitly pointed to two underlying factors, always present but conveniently ignored, that doomed the proposal: First, a pure flat tax is inconsistent with the values and priorities of Utah. And second, a flat tax won't go to the root of the problem -- overspending....
Faith plays a unique role in the life and politics of this state -- and there just wouldn't be voter support, especially among conservatives, for a tax scheme that failed to support families and faith. Here in Utah, good public policy is more than efficient policy. Good public policy will actually reflect the values and priorities of the people it serves. And a flat tax with no deductions, exemptions or credits simply does not reflect the values and priorities of Utahans....
[T]he Mormon Church rightly understands that the tax code should be used to incentivize individual and societal behaviors that help us to be our better selves and, at the same time, serve to unburden our reliance on government programs. A proactive, not "neutral," tax policy does this. ...
[T]he tax code can be used to influence behavior and promote a definition of the common good that goes beyond simple pro-growth, efficient revenue generation.
New York Times (Stephanie Strom): In Hurricane Tax Package, a Boon for Wealthy Donors:
A little-noted provision in the tax relief package to aid victims of Hurricane Katrina is shaping up as a windfall for charity and a drain on government coffers. It allows donors who make cash gifts to almost any charity by the end of this year to deduct an amount equal to virtually 100% of their adjusted gross incomes, double the normal limit of 50% of income. The tantalizing prospect has set off a financial scramble among some wealthy donors and charities vying for their dollars....
Not all charities are rushing to take advantage of the provision. "You don't want to appear to be greedy or inappropriate," said Arthur J. Ochoa, senior vice president for community relations at Cedars-Sinai Medical Center in Los Angeles. "The legislative intent was drawn more broadly, but if you asked members of Congress what they were voting for, they would say relief for the Katrina victims....
Christopher R. Hoyt, a professor of tax law at the University of Missouri-Kansas City, said donors also needed to consider their state tax liability because some states did not allow charitable deductions that were allowed at the federal level. "I suspect this will produce relatively few additional gifts," Mr. Hoyt said, "but of much bigger dollars."
Thursday, October 27, 2005
The IRS announced (IR-2005-128) relief for taxpayers affected by Hurricane Wilma:
Deadlines for affected taxpayers to file returns, pay taxes and perform other time-sensitive acts have been postponed to Feb. 28, 2006, the same date granted to taxpayers affected by Hurricanes Katrina and Rita.
Twenty Florida counties have been included in the Federal Emergency Management Agency (FEMA) disaster area: Brevard, Broward, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Osceola, Palm Beach, Polk, St. Lucie and Sarasota.
For affected taxpayers, the IRS has postponed deadlines for any tax return or tax payment with an original or extended due date falling on or after Oct. 23, 2005. This postponement of deadlines includes the Oct. 31 deadline for filing quarterly federal employment and excise tax returns; the Dec. 15 due date for corporate estimated tax payments; and the Jan. 15 due date for individual estimated tax payments. In addition, the IRS will waive the failure to deposit penalty for employment and excise deposits due before Nov. 4, 2005, as long as the deposits are made by that date. If any affected taxpayer receives a penalty notice from the IRS the taxpayer should call the number on the notice to have the IRS abate any interest and any late filing, late payment or failure to deposit penalties that would otherwise apply during the period from Oct. 23, 2005, to Feb. 28, 2006.
See IRS tax relief for victims of
Texas is hosting a two-day symposium on the new book by Calvin Johnson (Texas), Righteous Anger of the Wicked States: The Meaning of the Founders' Constitution (Cambridge University Press, 2005):
Righteous Anger of the Wicked States is a history of why the U.S. Constitution was adopted. The most pressing need was to allow the federal government to tax to pay off the debts of the common defense. The Constitution went far beyond the immediate fiscal needs to create a supreme, three-part national government. The book argues that the Founders' anger at the states for their recurring breaches of duty to the united cause explains both critical steps and the driving impetus for the revolution.
Here are the panels and the speakers:
Panel 1: Political Science (3:30–5:00 pm Thurs. Oct. 27)
- Walter Dean Burnham (Texas, Political Science)
- Sotioris Barber (Notre Dame, Political Science)
- Keith Whittington (Princeton, Political Science)
- Moderator: Jeffrey Tulis (Texas, Political Science)
Panel 2: History (1:00 – 3:00 pm Fri. Oct. 28)
- Jack Rakove (Stanford, History)
- Jack Greene (Johns Hopkins, History)
- John Kaminski (Wisconsin, History)
- Robin Einhorn (Berkeley, History)
- Moderator: Alan Tully (Texas, History)
Panel 3: Law (3:15 – 5:00 pm)
- Philip Bobbitt (Texas, Law)
- Lynn Baker (Texas, Law)
- Ernest Young (Texas, Law)
- Mitch Berman (Texas, Law)
- Moderator: Jordan Steiker (Texas, Law)
The IRS announced today (IR-2005-129) that it has launched a tax shelter settlement initiative:
IRS officials today announced a broad-based, limited-in-time opportunity for taxpayers to come forward and settle an array of transactions the IRS considers abusive. Taxpayers who undertook these deals will have until January 23, 2006 to submit their settlement papers to the IRS. The initiative, described in Announcement 2005-80, identifies 21 transactions eligible for the program. Consisting of both listed and non-listed transactions, they include a wide cluster of schemes involving funds used for employee benefits, charitable remainder trusts, offsetting foreign currency option contracts, debt straddles, lease strips and certain abusive conservation easements. All eligible transactions carry the same settlement terms except the applicable penalty level. Further details on the 21 covered transactions are available in FS-2005-17....
Under the settlement terms, participants, both individuals and companies, will be required to pay 100% of the taxes owed, interest and, depending on the transaction, either a quarter or a half of the penalty the IRS will otherwise seek. There is penalty relief for transactions disclosed to the IRS or where the taxpayer got a tax opinion from an independent tax advisor. Transaction costs paid by the taxpayer to do the deal, including professional and promoter fees, will be allowed.
This program follows the fundamental terms of prior settlement initiatives including Son of Boss transactions and schemes involving transfers by executives of stock options to family controlled entities.
This initiative reflects the outcome of a 30-month strategy to restore enforcement and deter abusive tax shelter deals. Intensified civil and criminal promoter investigations, targeted summons enforcement actions and litigation and a more robust oversight program of tax professionals have all played a key role in the effort to combat these transactions.
450 law professors, led by Bruce Ackerman (Yale), David Cole (Georgetown), Rosa Ehrenreich Brooks (Virginia), Deena Hurwitz (Virginia), and Judith Resnik (Yale), have issued a statement calling on the Supreme Court to grant review of Hamdan v. Rumsfeld (No. 05-184), a case challenging the President's creation of military commissions to try "unlawful combatants":
We, the undersigned law professors at many law schools, urge that lawyers, jurists, and the public take every opportunity to reassert the rule of law, to reiterate America's constitutional commitments, and to insist on humane treatment that gives each person a fair opportunity to be heard before impartial tribunals, not ones controlled by the executive.
Among the Tax Prof signatories are:
- Michael Asimow (UCLA)
- Linda Beale (Illionos)
- Daniel Halperin (Harvard)
- Mary Heen (Richmond)
- Joel Newman (Wake Forest)
- Stephen Utz (Connecticut)
Arthur Cockfield (Queen's University) has published NAFTA Tax Law and Policy: Resolving the Clash between Economic and Sovereignty Interests (University of Toronto Press, 2005). Here is the publisher's abstract:
Under the North American Free Trade Agreement (NAFTA), Canada, the United States, and Mexico continue to maintain their own distinct tax regimes, jealously guarding their sovereign right to do so. At times, these different tax systems harm the economic welfare of the trade bloc by imposing barriers to cross-border flows of capital. In NAFTA Tax Law and Policy, Arthur J. Cockfield analyzes these different tax systems and proposes a number of recommendations to reduce the harm caused by these barriers.
Cockfield argues that it is unrealistic to expect the NAFTA countries to negotiate comprehensive reform efforts such as full-fledged tax harmonization. Rather, a strategy of heightened multilateral tax coordination is the appropriate solution as it permits the countries to maintain national tax differences, but strives to smooth over many of the problems created by the interaction of the tax regimes. The NAFTA countries should promote binding arbitration for transfer pricing disputes, multilateral tax treaty negotiations, the elimination of parent/subsidiary dividend withholding taxes, and enhanced administrative cooperation to reduce tax compliance costs for multinational firms. Only then, can NAFTA function in the way it was designed to.
Richard M. Bird (Joseph L. Rotman School of Management, University of Toronto) says the book is "an essential addition to the shelf of anyone who wants to gain an appreciation of how the complex picture of international tax law and policy fits together in the current continental context." For the full review, see here.
Our recent posts on the U.S. News rankings (here and here), which invoked the "law porn" term coined by Pam Karlan (Stanford) to refer to the mountains of law school publicity mailings sent to law profs around the country in futile attempts to influence the U.S. News peer reputation survey, generated a spirited critique by David Giacalone on on the f/k/a blog, which is dedicated to "one-breath poetry & breathless punditry with haikuEsq," for engaging in "bad neology":
Lawyers and law professors are purportedly "wordsmiths." Their word-smithing skills are particularly important when they are playing neologist -- coining new words or nomenclature. Therefore, Prof. Yabut and the f/k/a gang are particularly annoyed to see the phrase "law porn" catching on in legal academia and the blawgisphere. You see, the term refers to materials that are neither "law" nor "porn."...
So, why are otherwise smart folk like Pam Karlan, Brian Leiter, The Conglomerate's Victor Fleischer, TaxProf's Paul Caron, and Dan Markel at PrawfsBlawg, using such a nonsense term? Do they really call everything they don't like (that's slick or glossy?) "porn." (Surely, it doesn't become "porn" merely because there's a lot of it in their mailboxes. Or, is that the connection?) Are they so isolated that the little four-letter word "porn" is titillating for them? Especially catchy? Do they really think "law" and "law school" mean the same thing?...
We've been preaching at this website rather consistently, that neologisms should actually help explain the concept they're naming -- and, at least, shouldn't create more confusion than explanation. It seems to us that we have some pretty good terminology available already to describe large amounts of unsolicited materials: "junk mail" and "spam." We also have a pretty good term for highly exaggerated claims about a product or service: puffery. Law schools are sending out massive quantities of magazines and other forms of prospectus-like promotional materials, which are filled with puffery. Can you dear reader come up with a better name than "law porn" for such items? If it needs to be cute and "neo", maybe "law school puffspam" will do. Or, "puffspectus."putting holesin my argumentthe woodpecker
Pam Karlan has graciosuly allowed me to share with TaxProf Blog readers her defense of the term "law porn" in an email exchange last night:
When I started using the term "law porn" to refer to the glossy promotional materials from various law schools (and I don't know whether someone else used it first and I just picked it up or whether I was the originator), I was playing off an existing expression -- "food porn." That phrase referred to a kind of breathless, over-the-top journalism about obscure recipes, usually accompanied by arty photos of food shot with annoying lighting techniques and the like. My guess is that the word "porn" was being used there to refer to the titillating way the articles appealed to the senses. Lots of people had been using that term. I was struck by the resemblances between the law school magazines and the foodie publications. Like the food magazines, the law school magazines were characterized by arty photos that often seemed designed to make the buildings or the faculty look vaguely sexy, using come-hither photos. Like the food magazines, the law school magazines used overblown language littered with adjectives designed to convey a sort of excitement. All you need to do is to look at the cover of the current issue of NYU's magazine, with its "Dworkin on Dworkin" cover, and, at least if you're in the legal academy, you'd see what I mean by law porn.
The entire point of calling the magazines "law porn" was to make fun of them, so the fact that the term seems nonsensical to you suggests its utility. At least within the community to which I was directing my remarks -- namely, friends in my faculty lounge and colleagues at other law schools -- my experience has been that the phrase communicates exactly what I intended: people instantly recognize the phenomenon and share my reaction to it.
Mr. Giacalone refuses to yield:
[S]ince your off-the-cuff phrase is now being repeated in the blawgisphere, I am a bit concerned that it will become imbedded -- along with the confusing "porn" suffix -- in a language that continues to lose its commonality and therefore its ability to communicate outside tiny cliques.
Gregory L. Colvin (Silk Adler & Colvin, San Francisco) has published IRS Gives Christian Coalition a Green Light for New Voter Guides, also available on the Tax Analysts web site as Doc 2005-21692, 2005 TNT 207-29. Here is the opening:
We have just learned of a major development affecting how tax-exempt organizations can educate voters about the views and positions of candidates for public office. The IRS has recognized the Christian Coalition and its distribution of voter guides as tax-exempt and nonpartisan under section 501(c)(4) of the Internal Revenue Code. We have been waiting for guidance from IRS on this subject for a long time.
This could have significant implications, not only for the further activation of Christian conservative voters, but for many section 501(c)(3) charitable groups concerned with the issues debated in American elections across the political spectrum, including environmentalists, tax activists, health reformers, antiwar groups, and foundations. It also portends the opening of another front in election contests, as candidates pay more attention to answering voter guide questionnaires and voters are bombarded with a variety of charts comparing the candidates, from ideological interest groups of every stripe.
The IRS has announced (IR-2005-125) that it is looking for 84,290 owners of undelivered tax refund checks:
The IRS is seeking 84,290 taxpayers whose income tax refund checks could not be delivered in 2005. Checks totaling approximately $73 million can be reissued as soon as taxpayers correct or update their addresses with the IRS. In some cases, a taxpayer has more than one check waiting. The average amount owed to each taxpayer is $871.
If you have been waiting more than 28 days for your tax refund, go to Where's My Refund? to check on the status of your refund. You must enter your:
- Social Security number
- Filing Status (such as single or married filing jointly)
- Refund amount shown on your 2004 tax return
Gulf Coast residents affected by Hurricane Katrina can call the special toll-free Katrina disaster line at 1-866-562-5227 to expedite the process.
Taxpayers who have moved since filing their last tax return can ensure that the IRS has their correct address by filing Form 8822, Change of Address, with the IRS.
To put an end to undelivered refunds, taxpayers can join the more than 52 million individuals this year who have taken advantage of Direct Deposit. Taxpayers who choose this service receive their refunds directly into a personal checking or savings account. Direct Deposit, which also guards against theft or lost refund checks, is available for filers of both paper and electronic returns.
Wednesday, October 26, 2005
We previously blogged the sordid tale of Benjamin Ladner, forced out as President of American University after he came under fire for his lavish spending habits and for failing to pay income tax on a variety of perks that would make the most piggish corporate executive blushlavish spending (see here, here, here, here, and here). Inside Higher Ed reports on the multi-million dollar severage package the board gave to Mr. Ladner to walk out the door:
For the last two weeks, Ladner and board members have negotiated the financial terms of his departure, with faculty members and students expressing outrage over reports that he would receive a multi-million dollar settlement. He did receive such a settlement, but American University officials maintained that most of the money was already earned in deferred compensation plans and that there was nothing that the board could do now. In a statement outlining the agreement, the board said that Ladner has earned an insurance policy worth $1 million and two trusts with a total value of $1.75 million. On top of that, the board agreed to pay Ladner $950,000 to leave the university — both as president and professor. However, in addition to deducting taxes on that $950,000, American will also deduct $125,000 for expenses for which the university believes it should be reimbursed, and the taxes on $398,000 in income that the university now believes Ladner should have declared earlier because of the value of all of the benefits he received as president.