Wednesday, October 26, 2005
The IRS has announced (IR-2005-124) that it is seeking applications for vacancies on the Advisory Committee on Tax Exempt and Government Entities (ACT). The committee provides a venue for public input into critical tax administration areas. Vacancies exist in the following areas:
- Employee Plans — two vacancies
- Exempt Organizations — two vacancies
- Federal, State and Local Governments — one vacancy
- Tax Exempt Bonds — one vacancy
- Indian Tribal Governments – two vacancies
The ACT is an organized public forum for the IRS and representatives who deal with employee plans, exempt organizations, tax-exempt bonds, and federal, state, local and Indian tribal governments. The ACT allows IRS to receive regular input on administrative policy and procedures of the Tax Exempt and Government Entities Division. For reports of the ACT, see here.
Members are appointed by the Secretary of the Treasury and serve two-year terms, beginning in May 2006. Applications can be made by letter or by completing this application form. This notice published in the Federal Register contains more details about the ACT and the application process. Applications will be accepted through November 25, 2005.
Applications should be sent to Steven Pyrek, TE/GE Communications and Liaison Director, Internal Revenue Service, 1111 Constitution Ave. NW — SE:T:CL Penn Bldg, Washington, D.C. 20224, or by fax to 202-283-9956 (not a toll-free number).
Jonathan Gruber (MIT, Department of Economics) has posted Religious Market Structure, Religious Participation, and Outcomes: Is Religion Good for You? on the NBER web site. Here is a description of the paper from the NBER Digest (Oct. 2005):
A number of researchers have found striking correlations between religion and various measures of well being. For example, religious participation is correlated with lower levels of deviant behavior and better health. And, attending religious services weekly, rather than not at all, has the same effect on individuals' reported happiness as moving from the bottom to the top quartile of the income distribution.
However, the same factors that determine religious attendance may also determine these outcomes; for example, it may be that happier people go to church, not that going to church makes you happier. Jonathan Gruber seeks to solve the problem of estimating the effects of religious participation on earnings and other economic measures. His solution draws on the fact that individuals are more likely to attend religious services if they live near others of their religion (that is, where there is a "higher density of co-religionists" in Gruber's terms). Catholics who live in more heavily Catholic areas attend church more than those who live in less Catholic areas. Further, living near others of one's religion can be predicted by living near others in certain ethnic groups that share the religious preferences of your ethnic group. For Italian Catholics, for example, living near persons of Polish extraction will mean being more likely to be near other Catholics than, say, living near persons of Swedish extraction. Yet living near persons of Polish rather than Swedish extraction should not affect any other aspect of the Italians' life, so that any effects of living near such "complementary" ethnic groups should reflect religious attendance only.
Gruber first uses data on religious preferences, ethnic heritage, and religious participation from the General Social Survey to show that the people living in an area with a higher density of co-religionists are more likely to participate in religious activities. This is true even after controlling for general differences in religiosity across areas and across ethnic groups. Moreover, they are no more likely to participate in other civic or social enterprises, suggesting that this co-religionist density measure is having effects only through religious participation.
He then turns to the 1990 U.S. Census to measure the effects of co-religionist density on economic outcomes such as education, income, employment, welfare participation, disability, marital status, and number of children. Gruber's results suggest a "very strong positive correlation" between religious market density, religious participation, and positive economic outcomes." People living in an area with a higher density of co-religionists have higher incomes, they are less likely to be high school dropouts, and more likely to have a college degree." Living in such an area also reduces the odds of receiving welfare, decreases the odds of being divorced, and increases the odds of being married. The effects can be substantial. Doubling the rate of religious attendance raises household income by 9.1% decreases welfare participation by 16% from baseline rates, decreases the odds of being divorced by 4%, and increases the odds of being married by 4.4%.
Gruber concludes that being in an area with more co-religionists leads to better economic outcomes through the channel of increased religious participation. Although this paper does not investigate the mechanism through which religiosity creates these results, Gruber suggests four possibilities: that religious attendance increases the number of social interactions in a way peculiar to religious settings; that religious institutions provide financial and emotional "insurance" that help people mitigate their losses when setbacks occur; that attendance at religious schools may be an advantage; and, finally, that religious faith may simply improve well-being directly by enabling the faithful to be "less stressed out" by the problems of every day life.
One of the most pressing issues in the philanthropic world today is that of donor intent. In recent years, a number of prominent foundations have funded charitable activities that appear to depart starkly from their founders' original philanthropic ideals. They have also invested trust funds, selectively, in "socially responsible" businesses only. These developments implicate a number of issues important to the charitable world: Must future generations honor a donor's intent after his or her death? How can donor intent be ascertained, and how should issues of doubt be resolved (and by whom)? Who should be charged with enforcing donor intent? How can donors best express their philanthropic goals and develop a structure to protect that vision? Is one option limiting the lives of charitable foundations and trusts?
- Evelyn Brody (Chicago-Kent)
- Sean Delany (Executive Director, Lawyers Alliance for New York)
- Robert L. Freedman (Dechert LLP)
- James Piereson (Board of Directors, William E. Simon Foundation)
- Charles E. Rounds Jr. (Suffolk)--Moderator
Location: The Cornell Club, 6 East 44th Street, New York, N.Y.
- 6:00 - 7:00 pm: Reception
- 7:00 - 8:30 pm: Panel Discussion
James R. Hines Jr. & Joel Slemrod of the University of Michigan's Office of Tax Policy and Research have released a paper with 12 questions about the state of the federal tax steps and reforms that the President's Advisory Panel on Federal Tax Reform could take in these areas. Here are the 12 questions:
- Is the current tax system broken?
- Making the cut
- What’s an X-tax?
- Soak the rich, or the middle class?
- Whose ox is gored?
- No more April 15 jokes?
- The long and winding road
- Two cheers from the business community
- Taxes and the deficit
- Sacred cows
- Taxes and growth
- The grass is always greener
Kirk J. Stark (UCLA) presents Time Consistency and the Choice of Tax Base, at the University of Toronto today at 12:10 pm - 1:45 pm as part of the James Hausman Tax Law and Policy Workshop Series. Here is the abstract:
This article examines how time consistency problems (i.e., an inability to commit to future government policies) complicate the debate over the choice of tax base, with a specific emphasis on arguments in support of consumption taxes. Tax policy literature generally categorizes consumption taxes as either “prepaid” (the yield-exempt model) or “postpaid” (the cash-flow model). Conventional wisdom among tax scholars is that these two types of consumption taxes are economic equivalents under certain assumptions. The principal advantage of a consumption tax of either form, it is generally argued, is its neutrality with regard to the timing of the taxpayer’s consumption. I argue that the two models require very different government precommitments in order to deliver this neutrality benefit. Prepaid consumption taxes require a commitment from the government not to tax investment gains (interest, dividends, etc…)—what I will call a yield-exemption commitment. By contrast, postpaid consumption taxes require a commitment from the government not to vary tax rates across time—what I will call a constant tax rate commitment. The article considers precommitment norms in U.S. tax policy and attempts to show that yield-exemption commitments are familiar and credible, while constant tax rate commitments are extremely rare. Consequently, prepaid consumption taxes are superior to postpaid consumption taxes in terms of their ability to deliver the neutrality benefits commonly cited in support of consumption taxes. In addition, where the government’s commitment to constant tax rates is especially weak, postpaid consumption taxes and income taxes will have similar effects on the timing of taxpayers’ consumption decisions.
I am sorry to bring you the news of the death on October 5 of Meade Whitaker, who served as a Judge on the U.S. Tax Court from 1981-1995. After practicing with Cabaniss, Johnston & Gardner in Birmingham, AL for 25 years (1948-73), with a brief stint as Tax Legislation Counsel in the Treasury Department (1969-70), he served as Chief Counsel of the IRS (1973-77) and then practiced with Arter & Hadden in Washington, D.C and was Federal Tax Director, Office of General Counsel, Ford Motor Co.
For more details of Judge Whitaker's distinguished career, see here, here, and here. For the announcement of President Reagan's nomination of Judge Whitaker to serve on the Tax Court, see here. (Thanks to Jim Maule (Villanova) for the tip.)
The Tax Foundation has published Countdown to Tax Reform, Part V: High-Income Taxpayers and the Entrepreneurial Class 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:
A key issue surrounding tax reform is the extent to which the current system affects business activity by taxing sole proprietorships, partnerships and S-Corporations through the individual income tax code....Over the past 25 years, the number of taxpayers reporting business activity on their individual tax returns has grown at an exceptionally rapid rate....[B]etween 1980 and 2004 the total number of sole proprietorships, partnerships, farms, and S-Corporations more than doubled, from 13.3 million in 1980 to 27.5 million in 2004....
When we look carefully at the distribution of these tax returns a clear picture emerges: an extraordinarily high proportion of high-income taxpayers have some form of business income (schedule C, E, or F) and that as their incomes rise, so too does the likelihood that they have business activity. As shown in Figure 2, overall 43% of taxpayers in the top 20% have business income, twice the percentage of those in the middle income group. Of those taxpayers in the top 1%—those earning more than $300,000 and subject to the highest marginal tax rates—nearly three quarters have business income. And for taxpayers with incomes above $1 million per year, nearly 83% have business income.
[click to enlarge]
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
The ABA Tax Section offers a teleconference and webcast today on Dealing With the New IRS Form 1023 (Application for Section 501(c)(3) Charitable Status) -- Tips and Traps as part of its "Last Wednesday" CLE series from 1:00–2:30 pm EST:
An organization seeking qualification as a tax exempt charity under IRC section 501(c)(3) must complete and submit to the IRS an Application for Recognition of Exemption (IRS Form 1023.) The IRS recently substantially revised the application. Effective May 2005, all applicants must use the revised version. The new Form 1023 consists of 26 pages of questions and requires a broad range of detailed information. Many experienced practitioners have encountered difficult issues in attempting to complete the new application. The purpose of this program is to identify and provide insight regarding key issues in completing the new application. The program will also provide useful guidance on avoiding traps for the unwary and how to complete the application in a manner that may avoid unnecessary delays in processing for a qualified organization.
- Michael A. Clark, Sidley Austin Brown & Wood, Chicago, IL (moderator)
- Eve R. Borenstein, Borenstein & McVeigh Law Office, Minneapolis, MN
- Kristen M. Gurdin, Davis Wright Tremaine, Portland, OR
- Peggy L. Combs, EO Determinations Group Manager and Customer Satisfaction Improvement Team Leader, IRS, Cincinnati, OH
Lee A. Sheppard (Contributing Editor, Tax Analysts) has published Industry Practice as the Arm's-Length Method, 109 Tax Notes 438 (Oct. 24, 2005), also available on the Tax Analysts web site as Doc 2005-21364, 2005 TNT 205-10. The article examines the potential effect of the Tax Court's decision in Xilinx Inc. v. Commissioner, 125 T.C. No. 4 (Aug. 29, 2005), on the IRS's rules for cost-sharing agreements.
Eva Farkas-DiNardo (Alston & Bird, New York) has published Is the Nation of Immigrants Punishing Its Emigrants: A Critical Review of the Expatriation Rules Revised by the American Jobs Creation Act of 2004, 7 Fla. Tax Rev. 5 (2005). Here part of the Introduction:
The thesis of this article is that the revised U.S. tax expatriation provisions fail to correct the most important defects of the prior U.S. tax expatriation regimes. Under the new rules, expatriating U.S. citizens and resident aliens subject to the U.S. tax expatriation rules can still avoid U.S. tax on items properly taxable by the U.S. On the other hand, they remain subject to U.S. tax on income that should fall outside of U.S. tax jurisdiction....
Tuesday, October 25, 2005
The nine-member panel today rescheduled for Oct. 31 a conference call to discuss a draft of its final report. The call had initially been scheduled for Oct. 27. Federal law requires any materials given to a presidential advisory panel be made available for public inspection and copying before any public meetings...."We will comply with our FACA rules," said panel director Jeffrey Kupfer, referring to the Federal Advisory Committee Act, which sets rules for public disclosure of materials presented to a presidential panel. The panel may publish some or all of its final recommendations on its Web site before the Oct. 31 conference call, he said.
IRS Signs 4-Year Deal with Intuit, H&R Block: Companies to Provide Free Electronic Filing, IRS to Stay Out of Tax Software Market
IR-2005-126: IRS and Free File Alliance Reach Agreement:
The IRS and the Free File Alliance today announced agreement to renew their partnership, extending free tax services and electronic filing to an eligible 93 million taxpayers and providing important new consumer protections. This year, the Free File program served more than 5 million taxpayers with free tax software and IRS e-file.
The pact – an innovative public-private arrangement – will mean enhanced services to taxpayers, improved disclosure regarding refund anticipation loans and greater assurances of privacy protection. Free File made its debut during the 2003 filing season as a way to provide free services to moderate and low-income taxpayers. We think this is a constructive step forward. It allows Free File to continue to grow, but it also contains important new consumer protections," said Mark W. Everson, IRS Commissioner. Free File is an easy, fast and secure way for citizens to file taxes and will also allow Americans to get refunds in half the time.
As part of the agreement, the IRS provides to taxpayers a listing of the Alliance members via the Free File web page, which is hosted on IRS.gov. The Free File Alliance members are a consortium of tax software manufacturers that set their own criteria for taxpayer eligibility for free use of their software. The agreement calls for services to be provided to 70 percent of the nation’s taxpayers. Taxpayers access Free File through IRS.gov. Alliance members and their services will be available beginning in January 2006 on the IRS Web site.
The new agreement includes the following:
• Alliance members who offer refund anticipation loans (RALs) will provide the highest standards of consumer protection upholding greater disclosure and consent requirements related to ancillary financial products i.e., fees and interest rates, information on other options for refunds, and full disclosure of RALs as loans rather than refunds;
• Alliance members will provide additional tax forms such as Form 4868 that allows for extensions to file;
• Alliance members’ Web sites will display whether state online tax preparation and filing services are available and the associated fees, if any.
• This program will extend the benefits of on-line federal tax preparation and electronic filing to the taxpayers least able to afford e-filing their returns on their own.
From Bloomberg (by Ryan J. Donmoyer): Intuit, H&R Block Offer Free Tax Filing to 93 Mlllion
Intuit Inc., H&R Block Inc., and 18 other companies that sell tax return preparation services agreed to offer free electronic filing to as many as 93 million taxpayers in a four-year agreement that keeps the IRS out of the tax software market.
The agreement makes taxpayers with adjusted gross incomes of less than $49,600 eligible for free filing services from the companies, which qualifies about 70 percent of the taxpaying public. About 5.1 million tax returns were filed for free under the program last year.
Intuit has sought the agreement in part because it places limits on the strategy of some rivals of offering free filing to all customers while profiting from selling short-term tax refund loans with high interest rates and other auxiliary products. The agreement also prevents the IRS from developing its own free tax- filing systems and making them available to the public.
The Internal Revenue Services said the agreement would help the agency meet a congressional mandate to have 80 percent of all tax returns filed electronically by 2007. It would also impose new consumer protections for taxpayers enticed by the short-term refund loans that carry high fees, IRS Commissioner Mark Everson said in a statement....
The companies ended their negotiations with the tax collector two days after Mountain View, California-based Intuit, the world's biggest maker of tax-preparation software, won a legislative victory when the U.S. Senate voted to ban the IRS from developing its own products to help taxpayers file electronic returns.
There has been a fascinating discussion today in the blogosphere about the value of law professor blogs. Daniel J. Solove (George Washington) at Concurring Opinion discussed the calculator at Business Opportunities Weblog, which computes the value of blogs based on AOL's recent purchase of Weblogs, Inc. The valuation is based on the number of links to a blog, not on the amount of traffic the blog generates. This methodology results in these valuations of some popular law professor blogs:
- Instapundit (Glenn Reynolds (Tennessee)): $3,826,452.12
- The Volokh Conspiracy (Eugene Volokh (UCLA) et al.): $1,327,798.08
- ProfessorBainbridge.com (Stephen Bainbridge (UCLA)): $750,838.20
- Balkinization (Jack Balkin (Yale) et al.): $285,092.70
- Leiter Reports (Brian Leiter (Texas)): $260,817.48
- Discourse.net (Michael Froomkin (Miami)): $173,878.32
- Legal Theory Blog (Larry Solum (Illinois)): $166,539.30
- PrawfsBlawg (Dan Markel (Florida State) et al.): $149,603.10
- The Right Coast (Tom Smith (San Diego) et al.): $146,215.86
- Conglomerate (Gordon Smith (Wisconsin) et al.): $135,489.60
- Sentencing Law & Policy (Doug Berman (Ohio State): $88,632.78
- White Collar Crime Prof Blog (Ellen Podgor (Georgia State) & Peter Henning (Wayne State)): $59,841.24
- Ideoblog (Larry Ribstein (Illinois)): $55,889.46
Business Opportunities Weblog values TaxProf Blog at $155,813.04. Please contact me if you would like to acquire this blog -- I would be happy to close the deal by year-end!
Here are the values of other tax blogs using this methodology:
- Jack Bog's Blog (Jack Bogdanski (Lewis & Clark)): $76,777.44
- Tax Policy Blog (Tax Foundation): $40,082.34
- Benefits Blog (Janell Greiner): $34,436.94
- Mauled Again (Jim Maule (Villanova)): $14,113.50
- Roth & Company (Joe Kristan): $11,855.34
- Tax Guru (Kerry Kerstetter): $11,855.34
- Death and Taxes Blog (Joel Schoenmeyer): $4,516.32
- Start Making Sense (Dan Shaviro (NYU)): $4,516.32
- Everything Tax Law (Kreig Mitchell): $1,693.62
I think I speak for the other tax bloggers in saying that we would be happy to give a discount to anyone wanting to acquire the entire tax blogosphere!
Steven H. Sholk (Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, NJ) has published A Guide to Election Year Activities of Section 501(c)(3) Organizations, in Tax Strategies for Corporate Acquisitions, Divisions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings (PLI 2005).
Fascinating Boston Globe Series on Charity and Sports:
Part One (10/23):
- Not Giving It Their All; Records Reveal Many Local Athletes Aren't Putting up Charity Numbers
- How Charitable Are Boston's Prominent Professional Athletes?
- Some Charities Have Been Less than Charitable
Part Two (10/24):
- Team Players Red Sox, Patriots Set High Standard of Giving to Community, but Celtics, Bruins Aim to Make Gains
- Bruins Frustrated in Plans to Fix Rink
- Yawkey Foundation Spreads Proceeds from Sale
Senator Max Baucus (D-MT), Ranking Member of the Senate Finance Committee, has called on Harriet Miers to release her tax returns:
- Sen. Baucus' Press Release (10/24):
With Supreme Court nomination hearings set to start in early November, U.S. Senator Max Baucus today called on Supreme Court nominee Harriet Miers to comply with his October 12 letter requesting copies of her Federal income tax returns....
In September, Senator Baucus wrote to the White House requesting that nominees to the Supreme Court, including Judge John Roberts, submit copies of their Federal tax returns as part of the confirmation process. Ms. Harriet Miers, then Counsel to the President, denied the request suggesting that nominee answers to a committee questionnaire and information contained in the background investigation are sufficient.
“As part of the Finance Committee’s rigorous due diligence process, all nominees are required to submit copies of their tax returns for review,” Baucus said. “This requirement applies whether the nominees are for the President’s Cabinet, the U.S. Tax Court or part-time positions on various government boards. It is important to the Constitutional process of advice and consent for the Senate to have access to information relevant to make informed decisions and not to rely on the Executive Branch to provide oversight.” In releasing the exchange of letters, Senator Baucus emphasized that confidentiality afforded to tax returns will be protected.
- Counsel to the President Harriet Miers' Letter to Sen. Baucus (9/23)
- Sen. Baucus' Letter to Harriet Miers (10/12):
Thank you for your letter dated September 23,2005, responding to my request that nominees to the Supreme Court ofthe United States provide copies oftheir Federal income tax returns. Your letter correctly recites the current level of informationprovided by the Administration. I am, however, not satisfied that the process you describe adequately considers whether a nominee has complied with our nation's tax laws at a level beyond reproach and commensurate with the high position of responsibility and honor of a Supreme Court Justice
Those nominated have a duty and responsibility to assure the American public that they are complying with our tax laws and paying their fair share of the Nation's revenue needs. Information currently provided by the Administration regarding a nominee's tax status does not include a thorough review of recently filed tax returns. Accordingly, I am requesting that you provide copies of your Federal income tax returns for the past three years. These tax returns will be made available to appropriate tax law experts on the Committee on Finance and the nonpartisan Joint Committeeon Taxation for review. The tax returns will not be made available for public inspection.
What taxpayers do on their tax returns is a window into what they would do in private and is a good barometer of their integrity, character, and suitability for office. That is why every nominee that is referred to the Committee on Finance provides copies of their Federal income tax returns. It is important to the Constitutional process of advice and consent for the Senate to have access to this information and not rely solely on the Executive Branch to provide oversight.
Robert Willens (Managing Director, Lehman Brothers, New York) has published Does the Tribune Decision Endanger Cash-Rich Split-Offs?,109 Tax Notes 547 (Oct. 24, 2005), also available on the Tax Analysts web site as Doc 2005-21152, 2005 TNT 205-48. Here is the opening:
Tribune Corp., the successor to Times Mirror Corp. (TMC), recently suffered a crushing defeat in the Tax Court [blogged here], and as a result a $552 million deficiency came home to roost. The transaction was a business combination that was structured carefully to constitute a reorganization.
TMC transferred the stock of its subsidiary, Matthew Bender, to a new company (MB Parent), created by both TMC and Reed Elsevier, in exchange for MB Parent's common stock; that stock possessed 20% of the voting power of all MB Parent's outstanding stock. The balance of the voting rights resided in the preferred stock, issued to Reed Elsevier. In addition to its stock in Matthew Bender, MB Parent possessed $1.375 billion (derived from Reed Elsevier), and that cash was conveyed as part of the plan by MB Parent to a single- member LLC of which TMC was appointed the sole manager.
The Tax Court, deciding the case on narrow technical grounds, held that the acquisition (by MB Parent of Matthew Bender from TMC), which was structured as a reverse triangular merger, did not qualify as a reorganization under § 368(a)(1)(A) by reason of § 368(a)(2)(E), and, therefore, the disposition by TMC of the Matthew Bender stock was taxable. The transaction did not qualify as a reorganization because the "control for voting stock" requirement of § 368(a)(2)(E) was not met. That requirement provides that the former shareholders of the acquired corporation must, "in the transaction," exchange for voting stock of the controlling corporation an amount of stock in the acquired corporation that constitutes control (within the meaning of § 368(c)) of the acquired corporation. See Treas. reg. § 1.368-2(j)(3)(i).
DiRusso on Supporting the Supporting Organization: The Potential and Exploitation of 509(a)(3) Charities
Alyssa DiRusso (Cumberland) has posted Supporting the Supporting Organization: The Potential and Exploitation of 509(a)(3) Charities, 39 Ind. L. Rev. ___ (forthcoming 2006) on SSRN. Here is the abstract:
Supporting organizations, a type of charity defined in section 509(a)(3) of the Internal Revenue Code, have vast potential for philanthropic impact but perhaps equally vast potential for abuse. Donors who establish supporting organizations may retain inappropriate levels of control over the assets they contribute, or may purloin charitable funds for their personal uses. This article discusses the complex tax rules that apply to supporting organizations and explains their unique role in charitable giving. It then explores the allegations of abuse in the supporting organization realm and reviews current proposals for reforming the system. The article concludes by proposing that the public disclosure rules be amended to require greater transparency of the activities of supporting organizations and greater dispersement of this information.
Ira B. Shepard (Houston) & Martin J. McMahon, Jr. (Florida) have published Recent Developments in Federal Income Taxation: The Year 2004, 7 Fla. Tax Rev. 47 (2005). Here is the abstract:
This current developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the IRS and Treasury Department during the year 2004. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail; only the basic topic and fundamental principles are highlighted. Amendments to the Internal Revenue Code generally are not discussed unless they are significant or have led to administrative rulings and regulations that are covered by the outline. The outline focuses primarily on topics of broad general interest: income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, but generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services.
Associated Press: Japan May Hike Consumption Tax:
Japan's ruling party will consider hiking the consumption tax from 5% to between 10% and 15% in an effort to tackle the country's mushrooming public debt -- the highest in the industrial world -- a newspaper reported Monday.
Sixteen people accused in the sale of illegal tax shelters, including 15 former executives of KMPG LLP, the No. 4 U.S. accounting firm, pleaded innocent to fraud, in what prosecutors say may be the biggest criminal tax case ever.
Ten defendants, including a onetime KPMG finance chief and another man accused in the sale of illegal shelters, were named in an indictment last week that added new allegations and brought to 19 the total number of people charged in the case. Seventeen are former KPMG executives. One is a lawyer accused of writing letters endorsing the shelters. All are charged with engaging in a scheme to deprive the U.S. of $2.5 billion in tax revenue.
Eight former KPMG executives, including a former deputy chairman, and attorney Raymond J. Ruble, a former partner at Chicago-based Sidley Austin Brown & Wood LLP, were indicted in August and pleaded innocent on Sept. 6. All appeared in Manhattan federal court today to enter not guilty pleas to the new indictment, along with seven of the 10 new defendants.
A federal jury in Las Vegas, Nevada convicted Irwin Schiff and two associates, Cynthia Neun and Lawrence Cohen, of aiding and assisting in the preparation of false income tax returns filed by other taxpayers in connection with a tax scam, and convicted Schiff and Neun of conspiring to defraud the United States, the Department of Justice and the Internal Revenue Service (IRS) announced today.
Schiff was convicted on all counts, including income tax evasion and of filing false income tax returns for the years 1997 through 2002, and Neun was convicted of willfully failing to file federal income tax returns, Social Security disability fraud, and theft of government property in connection with Neun's improper receipt of Social Security disability benefits.
According to the indictment and the evidence introduced at trial, beginning in 1995, the defendants directed thousands of taxpayers to file false federal income tax returns with the IRS that reported zero taxable income in spite of the taxpayers earning large amounts of reportable income. The defendants operated the scam through Freedom Books-a business owned by Schiff-that sold books, tapes, and packets encouraging customers not to pay income tax. According to a government witness who testified at trial, between 1997 and 2002 Freedom Books sold more than $4.2 million in products that promoted Schiff's "anti-tax" scheme.
For other press reports on the Schiff conviction, see:
Monday, October 24, 2005
It was often claimed in the founding period - and it is claimed today by jurists like Justice Souter and by scholars like Noah Feldman - that citizens have a right of conscience not to pay taxes that will be used to advance religious teachings which they do not believe. But advocates of this position typically reject the corresponding claim that citizens have a right of conscience not to pay taxes that will be used to advance non-religious (or, in their view, anti-religious) teachings in which they do not believe. Are these positions reconcilable? This essay investigates the question and concludes that they are not. Nor is it a tenable position to hold that conscience is violated by the use of a citizen's tax dollars to promote any beliefs, religious or non-religious, that particular taxpayers reject. So jurists and scholars would do well to drop the selective and opportunistic appeal to the ostensible connection between taxes and conscience.
Neil Buchanan (Rutgers-Newark) has issued his annual call on the TaxProf Email Discussion Group for Tax Profs to join with him in organizing one or more tax panels for next year's Law & Society annual meeting in Baltimore on July 6-9, 2006 (reprinted here with permission):
Because of the great success of our three tax sessions at last summer's meetings of the Law & Society Association [blogged here and here], I am excited again to serve as point man for organizing tax sessions at next year's Law & Society meetings.
Not being a savvy marketer, I feel obliged to admit that conference attendees will be immersed in mid-Atlantic humidity this year, with the meetings scheduled for July 6-9, 2006 at the Marriott in Baltimore. (I lived near Baltimore for four years, and July is -- to put it politely -- extremely moist.) Nevertheless, the quality of the city and of the meetings should easily overcome any concerns about the weather.
The official Call for Participation is now available here.
I am NOT yet taking names to begin the organizing process. At this point, I just wanted to alert everyone on this list to the CFP and to let you know that I will invite proposals from you in early December.
I encourage you to think seriously about attending. Many of the taxprofs who attended last year in Las Vegas were first-time attendees at Law & Society, and the feedback was quite positive. We also had a very enjoyable taxprofs-only dinner -- one that was only partly dominated by an animated discussion of Cottage Savings.
Stuart Levine offer his thoughts on two tax stories in the news:
Rising Stock Buybacks Align With Repatriated Profits, Wall Street Journal (10/24):
Talk about a coincidence. Just as U.S. companies are repatriating huge sums from overseas under a special one-year tax break -- more than $200 billion and counting -- they are using more cash than ever to buy back their own stock. Companies in the Standard & Poor's 500-stock index, a list that reads like a Who's Who of beneficiaries of the tax break, have announced $164 billion in buybacks in the first two quarters of the year, nearly twice the rate of a year ago, and that rapid pace of spending is expected to continue. Companies say repatriation and buybacks are unrelated, and they have good reason to say so. Among the few things forbidden under the American Jobs Creation Act of 2004, which established the tax break, is using the money for buybacks. The same prohibition applies to dividends and executive pay....
Cash is fungible and companies aren't required to isolate the profits brought back or pledge to spend more than they normally would on things like training or buying machinery. So even though the tax break was meant to encourage certain activities, above all hiring, it ultimately frees money to be used however a company sees fit. Kimberly Clausing, an associate professor of economics at Reed College in Portland, Ore., who studies taxation of multinational corporations, likens it to a student getting $20 from a grandparent to buy schoolbooks. "You buy $20 in books, but it frees up your spending, so you probably spend it on beer," she says.
Stuart Levine: "Of course, the repatriation coupled with the massive stock buy-backs will cause a temporary, one-time uptick in income tax revenues, reducing the predicted deficit. The Bush Administration will then point to this aberration as evidence that its tax cuts are generating additional revenue and reducing the deficit. In fact, the uptick will be caused by accelerated recognition of income, not the creation of additional income or wealth. And, over time, the increase will be offset in subsequent years by reduced amounts of taxable income and tax revenues."
Senate's Treasury Bill Would Bar IRS From Creating Tax Prep Software, Tax Analysts (10/24):
The Senate on October 20 passed its fiscal 2006 Treasury funding bill, which included a controversial measure to bar the IRS from creating its own tax return preparation software. The measure, originally authored by Sen. John Ensign, R-Nev., would ensure that the IRS can’t compete with private industry tax software providers and could affect the future of the agency’s “Free File” initiative. The IRS and private industry are currently negotiating over an extension of the program, under which private tax software companies provide free tax return filing services for low-income taxpayers. Some Washington observers have speculated, however, that the IRS could be looking into developing its own free software. The IRS declined to comment on the situation.
Stuart Levine: "Congressional Republicans have made it clear that their blather about reducing tax compliance costs should not be taken seriously. The argument is offered not for its merits, but to obscure the intent of their effort to undermine the federal tax system."
Following up on earlier posts about the shoddy tax shelter opinions issued by the Locke, Liddell & Sapp law firm while Harriet Miers was co-managing partner (here, here, and here): Texas Lawyer (Miers' Nomination May Be a Mixed Blessing for Locke Liddell) reports this morning:
Another issue is the firm's tax work. The firm is mentioned in a report -- "The Role of Professional Firms in the U.S. Tax Shelter Industry" -- issued in February by the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs. In 1999, according to the report, Locke Liddell provided accounting firm Ernst & Young with a legal opinion indicating that, if challenged by the Internal Revenue Service, a certain type of tax shelter known as CDS (contingent deferred swap strategy) "should" be upheld in court. According to the report, Ernst & Young sold the tax product to clients from 1998 to 2002 despite evidence that it was "potentially abusive or illegal."\
In response, [head of Locke Liddell & Sapp's litigation section Jerry] Clements says, "there's not been any finding by anybody that any of the tax opinions or tax advice that our tax lawyers gave were improper, or illegal or invalid." She also says the firm stands by its tax advice.
This morning's Chronicle of Higher Education reports that BusinessWeek Will Begin Ranking Undergraduate Business Programs Next Year:
BusinessWeek magazine, which has ranked graduate business programs since 1988, is taking steps to grade undergraduate business programs as well. The expanded rankings will use essentially the same consumer-oriented methodology that underlies the magazine's ordering of M.B.A. programs. BusinessWeek editors have been meeting with undergraduate business students at the magazine's New York offices to find out what is most important to them. Results of those focus groups will form the basis of a survey that the magazine will distribute later this year or early in 2006 to undergraduates enrolled in 100 "qualified" business programs. In addition to asking about instructors and academic programs, the survey will plumb students' opinions about the quality of dormitories, food, and classmates.
At our sympsoium on The Next Generation of Law School Rankings, Wendy Espeland & Michael Sauder (both of the Department of Sociology at Northwestern) presented a fascinating paper on what law schools can learn from business schools' experience with rankings: The Benefits of Multiple Evaluations: A Comparison of Law and Business School Rankings.
President Bush has called for an ownership society that leaves no one behind. One of his building blocks is the creation of private accounts under Social Security for younger workers. Yet the impact of private accounts on low-income whites and communities of color is cause for concern given how dependent they are upon social security payments.
That dependence is largely a function of the lack of wealth found in low-income white, black, and hispanic communities. While low-income whites are far more likely to invest in the stock market than low-income communities of color, low-income whites and communities of color are far less likely to participate in employer provided pension plans, or hold income producing assets. Further, data suggests that investment options vary by race because blacks have a very different tolerance for investment risk than whites. While whites are more likely to invest in the stock market, blacks are more likely to invest in real estate. As a result, without special efforts, one could anticipate that private accounts would increase the ownership society opportunities for white social security beneficiaries to a greater extent than black and hispanic beneficiaries.
This Article proposes three requirements which must be found in any private account proposal if the goal of creating an ownership society is to be attained. First, private accounts can only be used as an add-on to the existing social security benefits. Second, the option of private accounts must include investment education for retirees. Third, private account balances can be inherited by retirees’ heirs.
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Schedule A: Family Credit
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Bernstein, Worndl & Leung on Canadian Supreme Court's Pronouncement on GAAR: A Return to Uncertainty
Jack Bernstein, Barbara Worndl, & Kay Leung (all of Aird & Berlis, Toronto) have published Canadian Supreme Court's Pronouncement on GAAR: A Return to Uncertainty, also available on the Tax Analysts web site as Doc 2005-21313, 2005 WTD 204-10. Here is the abstract:
The Supreme Court of Canada on October 19 issued its long-awaited decisions in Mathew v. Canada and Canada Trustco Mortgage Co. v. Canada. The two decisions are the Supreme Court's first pronouncement on the application and interpretation of Canada's general antiavoidance rule. The GAAR was first introduced in Canada in the Income Tax Act (ITA) in 1988. The purpose of the provision was to distinguish between legitimate tax planning and abusive tax avoidance. In essence, the GAAR is meant to prevent abusive tax avoidance transactions while recognizing taxpayers' need for certainty in planning their affairs. The GAAR did not receive any judicial consideration until the late 1990s, and it was not until the new millennium that the Federal Court of Appeal issued its first decision on the interpretation of the GAAR in OSFC Holdings Ltd. v. The Queen, 2001 DTC 5471 (FCA).
Sunday, October 23, 2005
David Brunori (Executive Vice President of Editorial Operations, Tax Analysts) published an op-ed in Sunday's Washington Post, Bush's Tax Panel Has a Crazy Idea. Let's Go For It:
Pity the poor McMansion owner. If the President's Advisory Panel on Federal Tax Reform gets its way, those folks with the three-car garages, grand entryways, mega-kitchens and spacious bedrooms will lose the tax break they get for any portion of their mortgage over $312,000. In a place like Potomac, where the median sales price for a house is more than twice that amount, that could tear a hole in some fancy pocketbooks, depending on how much their owners have borrowed for their dream houses....
These are still just proposals cooked up by a bipartisan panel, and who can count how many similar proposals have gone nowhere? But it is a panel established by President Bush and charged with making the tax code simpler, fairer and more conducive to economic growth. For it to even consider going after the home mortgage deduction is a gutsy move -- even if the president recoils at the very idea....
- Tax Prof Profile, New Professor Edition: Christine Agnew
- Treasury Fills Three Office of Tax Policy Positions
- ABA RPP&T Section Publishes Issue 2005.2 of E-STATE
- CPA Sentenced In $120 Million AAA Tax Shelter Case
- Cato Institute on Presidential Spending
- Tax Analysts: Jones on IRA Disclaimer Dilemma Resolved in Rev. Rul. 2005-36
- Top 5 Tax Paper Downloads
- Panel on the Nonprofit Sector Holds Update Session Today
- Connie Mack on the Estate Tax, Fiscal Discipline
- Raskolnikov on Crime and Punishment in Taxation: Deceit, Deterrence, and the Self-Adjusting Penalty
- Carasso & Steuerle on The Hefty Penalty on Marriage Facing Many Households with Children
- ABA RPP&T Section Posts 2005 Symposia Materials
- Housing Finance Blog
- Tax Analysts: Daley on A Steeply Progressive Income Tax?
- Progressive Tax Cuts in China
1. [426 Downloads] Ranking Law Schools: Using SSRN to Measure Scholarly Performance, by Bernard S. Black (Texas) & Paul L. Caron (Cincinnati) [blogged here]
2. [201 Downloads] Brand New Deal: The Google IPO and the Branding Effect of Corporate Deal Structures, by Victor Fleischer (UCLA) [blogged here]
3. [170 Downloads] The Ethics of Tax Evasion: A Survey of International Business Academics, by Robert W. McGee (Barry University, Andreas School of Business) [blogged here]
4. [97 Downloads] U.S. Tax Treaty Policy and the European Court of Justice, by Ruth Mason (NYU) [blogged here]
5. [90 Downloads] Anatomy of a Disaster Under the Internal Revenue Code, by Francine J. Lipman (Chapman) [blogged here]
The Panel on the Nonprofit Sector will hold a 90-minute update session today in Washington, D.C. on a range of topics, including the reactions to June’s Final Report with 120 recommendations to strengthen the accountability, transparency and governance of nonprofit organizations (blogged here), as well as the upcoming Supplemental Report and prospects for Congressional legislation this fall. There will also be time for attendees to ask questions. The update sessions will take place immediately before the Independent Sector Annual Conference at the J. W. Marriott Hotel, 1331 Pennsylvania Ave., N.W., Washington, D.C. For more information or to register, see here.
NY Times: [President Bush] is still calling for tax cuts. He would like to eliminate the estate tax permanently.
Mack: I think there is a likelihood that Congress will deal with that issue before this term comes to an end. I would vote to eliminate, as we refer to it, the death tax. I think it's an unfair tax.
NY Times: Really? I think it's a perfect tax. The idea behind it was to allow people to postpone paying taxes until they die, at which point they presumably no longer care. Why do you call it unfair?
Mack: Well, let's say, if you are in the farming business and you have the desire to pass this farm on to your children. The problem is that when your parents die, you have to come up with cash to pay the estate tax. One thing you don't have is cash. You've got plenty of land. So I just don't believe it's a fair tax.
NY Times: That strikes me as a red herring. The issue is not really small farms, but zillion-dollar estates made up of stocks and bonds.
Mack: I don't know what the percentage breakdown is. I still go back to the same notion that these individuals who have accumulated these resources have paid taxes on them many times in their life, and then to say, when you die, now you pay more taxes on it? There is a limit.
And then this exchange on fiscal (ir)responsibility:
NY Times: Well, the U.S. government has to get money from somewhere. As a two-term former Republican senator from Florida, where do you suggest we get money from?
Mack: What money?
NY Times: The money to run this country.
Mack: We'll borrow it.
NY Times: I never understand where all this money comes from. When the president says we need another $200 billion for Katrina repairs, does he just go and borrow it from the Saudis?
Mack: In a sense, we do. Maybe the Chinese.
NY Times: Is that fair to our children? If we keep borrowing at this level, won't the Arabs or the Chinese eventually own this country?
Mack: I am not worried about that. We are a huge country producing enormous assets day in and day out. We have great strength, and we have always adjusted to difficulties that faced us, and we will continue to do so.
Makes one feel good that the tax reform agenda is in such capable hands!
Update: Stuart Levine offers a biting critique in Connie Mack Should Have Listened To Abraham Lincoln: "Better to remain silent and be thought a fool than to speak out and remove all doubt."
Alex Raskolnikov (Columbia) has posted Crime and Punishment in Taxation: Deceit, Deterrence, and the Self-Adjusting Penalty, 106 Colum. L. Rev. ___ (forthcoming 2006), on SSRN. Here is the abstract:
Avoidance and evasion continue to frustrate the government's efforts to collect much needed tax revenues. This article articulates one of the reasons for this lack of success and proposes a new type of penalty that would strengthen tax enforcement while improving efficiency. The economic analysis of deterrence suggests that rational taxpayers choose among various avoidance or evasion strategies that are subject to identical statutory sanctions those that are more difficult for the government to find. I argue that many taxpayers do just that. Because probability of detection varies dramatically among different items on a tax return while nominal penalties do not take likelihood of detection into account, expected penalties for inconspicuous noncompliance are particularly low. Adjusting existing penalties will not solve the problem because what is (and is not) inconspicuous depends on a given tax return and, therefore, is not susceptible to the type of generalization on which the current penalties rely. I propose to complement the existing sanctions with a new penalty equal to a fraction of the legitimate subtraction item (such as a deduction, credit, or loss) reported on the same line of a return that contains the illegitimate one. With this penalty in place, the harder it is for the government to find a given avoidance transaction, the higher is the statutory sanction if the transaction is detected. The proposed penalty adjusts itself. As a result, the differences in expected penalties for many forms of avoidance and, to a lesser extent, evasion are reduced, the inefficient incentive to hide noncompliance is diminished, and the overall deterrence is improved.
Adam Carasso & C. Eugene Steuerle of the Urban Institute have posted The Hefty Penalty on Marriage Facing Many Households with Children on the Tax Policy Center web site. Here is the abstract:
Over the past seventy years Congress has enacted dozens of tax and transfer programs, giving little if any attention to the marriage subsidies and penalties that they inadvertently impose. Although the programs affect both rich and poor Americans, the penalties fall most heavily on low- or moderate-income households with children. In this article, Adam Carasso and Eugene Steuerle review important penalties and subsidies, explain how they work, and help fill a big research gap by beginning to provide comprehensive data on the size of the penalties and subsidies arising from all public programs considered together.
Saturday, October 22, 2005
The ABA Section on Real Property, Probate & Trust Law has posted program materials from the Spring 2005 Symposia on its web site:
- An Introduction to Trusts and Estates (Bekerman, Featherston, Reddy, & TaBois)
- 2004 - 2005 Developments on Family Limited Partnerships, S Corporations Reform, and Closely Held Businesses (Akers, Dietrich, Paris, Spratt, Worthington, & Casteel)
- Exciting Wealth Planning Strategies with Life Insurance: What Your Client Expects You to Know (John Skar, Harrison & Oliver, Damien Rios)
- Developing Trends in Estate and Trust Litigation (Gerard G. Brew, Steven Mignogna)
- Charitable Planning and Exempt Organizations Group Roundtable Program (Jerry J. McCoy)
- The Uniform Management of Institutional Funds Act (UMIFA) a New Look (Susan Gary)
- Exploring the New Uniform Power of Attorney Act (Michelle Clayton, Linda S. Whitton, LaPiana & Lamb)
- Employee Benefit Plans and Other Compensation Arrangements Group Roundtable Program (Robert Eccles)
- Income and Transfer Tax Planning Group Roundtable Program (Edward Manigault, Jeffrey Pennell, Jonathan Lander)
- Surrogate Decision Making: Ethical Issues We Never Thought About in Law School (Katherine N. Barr, Shari A. Levitan, Karen E. Boxx, Kirtland & Seal)
- Recent Developments in Ethics and Malpractice (Matthew Matiasevich, L. William Schmidt)
- New Rules on Electronic Filing (Joseph G. Hodges (Presentation) (Handouts))
- Digital Files in the Law Office (Daniel B. Evans)
- Trust Powers and Tax Liabilities - Lecture Track (Steve R. Akers)
- Asset Protection Planning - Basic Track (Bove & Langa, Richard W. Nenno, Dennis Kleinfeld)
- Transfer Tax Controversy Procedure: Practical Issues - Lecture Track (John W. Porter)
- Estate Planning While you Wait: The Egtrra and What to do While Congress Ponders the Fate of the Estate and GST Taxes (Howard M. Zaritsky)
- Estate Planning for the Non-Traditional Family - Basic Track (Richard M. Horwood)
- Planning for Succession - How Spouses and Charities can Destroy a Perfectly Good Business - Lecture Track (Dennis I. Belcher)
- Gifts or Sales: Use of Grats Versus Sales to Intentionally Defective Grantor Trusts and Private Annuity Sales (Hesch, McCaffrey & Kwon)
- Hot Topics on Uniform Trust Code (David M. English)
- Roundtable on Post-Mortem Administration of Business Interests (Closely Held Businesses & Family Partnerships) (Worthington, Gorin, Drake & White)
Tom Daley (Bowers, Narasky & Daley, Moraga, CA) has published Progressive? Yes. But Steeply Progressive?, 109 Tax Notes 395 (Oct. 17, 2005), also available on the Tax Analysts web site as Doc 2005-20648, 2005 TNT 200-32:
No sooner do we resolve the confusion over claims of regressivity in the federal tax system (see Tax Notes, Sept. 26, 2005, p. 1585, and Oct. 3, 2005, p. 139), than along comes a new assault on clear thinking about taxes, this time from the opposite end of the political spectrum. I refer here to the October 4 press release by Rep. Jim Saxton, R-N.J., Chair of the Joint Economic Committee. Commenting on the IRS's newly released 2003 individual income tax return statistics, the press release announced:
The data confirm the highly progressive nature of the Federal income tax. The top 1% of tax filers paid more than one-third (34.27%) of Federal personal income taxes in 2003, while the top 10% accounted for nearly two-thirds (65.84%) of these taxes. The top half of taxpayers paid 96.54% of federal income taxes in 2003, up from 95.19% in 1993. The 3.46% share paid by the bottom half of taxpayers in 2003 compares to a 4.81% share in 1993. "These IRS data show the steeply progressive nature of the Federal income tax," Saxton said.
There you have it. Conclusive statistical proof that the U.S. income tax system is not only progressive, it is steeply progressive. Or not....
So, yes, the U.S. system is progressive. How progressive is open to debate, because measures like taxes paid as a percentage of AGI reported are blunt instruments, at best, for assessing the fairness of a tax system. However, I think it can safely be said that to characterize the tax figures in this table as "steeply" progressive is historically myopic, to put it mildly. One can only assume that this was an exercise in deliberate obfuscation on the part of Saxton, to gain political advantage, rather than genuine confusion over this elementary concept. Actually, it's a clever tactic -- straight out of Orwell on language: Reshape the way voters think about the concepts by simply redefining the words used to describe them.
Thinking about "progressive" taxation, as that term has traditionally been defined, brings to mind a closing point that has intrigued me as I have followed the tax reform debates in these pages. One of the most entertaining sections of the Tax Analysts Web site is the collection of tax returns of past U.S. presidents, vice presidents, and candidates for these offices. My personal favorite is Franklin D. Roosevelt's 1937 Form 1040, prepared longhand by the president himself. Or I should say partially prepared. When he reached the tax calculation line, FDR found himself stymied by the math. He submitted the return with the tax amount left blank, enclosing a check covering his best guess of the amount due and a personal note of apology to IRS Commissioner Guy Helvering, requesting that the Service bill him for the difference. (There's a lesson here for those who dream of ever simplifying the federal tax system to a point that everyone will be able to prepare his or her own tax return.)
Curious about Roosevelt's problem in calculating his tax, I pulled a 1937 federal tax table from our library....[T]he 1937 tax table adjusted for inflation would today look something like Figure 6:
1937 Inflation-Adjusted Tax Table
0 - $54,400
54,401 - 81,600
81,601 - 108,800
108,801 - 136,000
136,001 - 163,200
163,201 - 190,400
190,401 - 217,600
217,601 - 244,800
244,801 - 272,000
272,001 - 299,200
299,201 - 353,600
353,601 - 435,200
435,201 - 516,800
516,801 - 598,400
598,401 - 680,000
680,001 - 761,600
761,601 - 843,200
843,201 - 924,800
924,801 - 1,006,400
1,006,401 - 1,008,800
1,008,801 - 1,224,000
1,224,001 - 1,360,000
1,360,001 - 2,040,000
2,040,001 - 2,720,000
2,720,001 - 3,400,000
3,400,001 - 4,080,000
4,080,001 - 5,440,000
5,440,001 - 6,800,000
6,800,001 - 10,200,000
10,200,001 - 13,600,000
13,600,001 - 27,200,000
27,200,001 - 68,000,000
Now that's progressive taxation. Imagine today a special tax bracket for persons with incomes over $68 million. Since 2001 the top federal estate tax rate has kicked in for estates of $2.5 million. We stop counting today at $2.5 million for an entire estate, while the income tax tables used to go all the way up to $68 million for annual income.
From the Associated Press: China Cuts Income Tax for Low Wage Earners:
China's legislature agreed Saturday to cut income taxes on the country's poorest workers amid official concern that the country's growing gap between rich and poor could fuel unrest. Chinese who make less than 1,600 yuan a month ($198) will no longer need to pay income tax, up from the previous cutoff point of 800 yuan ($98), the official Xinhua News Agency reported.
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.]
Christine L. Agnew (Houston)
- B.A. 1994, SUNY
- J.D. 1997, Miami
I went to law school to practice law; teaching wasn’t on the radar screen. By my third year, things had changed. Like most, my interest in academia was spawned by an academic. After taking two of Elliott Manning’s advanced tax courses, teaching tax had become my life-long ambition. As University of Houston Law Center’s newest faculty member, I am taking the first of many steps toward fulfilling that ambition. Before I tell you where I’m going, I’d like to let you know where I’ve been.
The Treasury Department announced on Friday (JS-2986) three new appointments in the Office of Tax Policy:
Michael J. Desmond, Tax Legislative Counsel:
As Tax Legislative Counsel in the Treasury Department's Office of Tax Policy, Michael Desmond will be responsible for a broad range of issues relating to the domestic federal tax law. Desmond assumed this role in an acting capacity June 20. Prior to joining the Office of Tax Policy, Desmond was a partner at McKee Nelson LLP in Washington, D.C., where his practice focused on large case tax litigation and tax controversy matters. Before joining McKee Nelson, Desmond was a trial attorney with the Tax Division of the U.S. Department of Justice, and served as a law clerk to the Honorable Ronald S.W. Lew in the U.S. District Court in Los Angeles. Desmond is an Adjunct Professor of Law at Georgetown University Law Center. He received a B.A. degree in Political Science and History from the University of California at Santa Barbara and his J.D. from the Columbus School of Law at the Catholic University of America.
Harry J. "Hal" Hicks III, International Tax Counsel:
As International Tax Counsel, Hal Hicks will be responsible for all matters relating to international taxation issues and will coordinate Treasury's role in the negotiation of international tax treaties. Hicks currently serves as the Associate Chief Counsel (International) in the Office of Chief Counsel at the IRS. Prior to joining the IRS, Hicks was a partner in the international law firm of Mayer, Brown, Rowe & Maw. Prior to that he was a partner and Deputy National Director of International Tax Services at Ernst & Young. Hicks received an LL.M. in taxation from New York University, a J.D. from the University of Virginia School of Law, and a B.A. from the College of William & Mary. Hicks is a member of the Advisory Board at the GW/IRS institute on International Tax. He has been an Adjunct Professor at Georgetown University Law Center since 1992 (teaching corporate and international tax classes).
Robert H. Dilworth, Senior Advisor:
As Senior Advisor to the Assistant Secretary for Tax Policy, Robert Dilworth will advise on a broad range of tax policy issues. Previously, Dilworth served in the PricewaterhouseCoopers LLP Washington National Tax Services office. During his tenure at PricewaterhouseCoopers, Dilworth served as leader or co-leader of the firm's national Global Structuring group (International Tax Services, Mergers and Acquisitions and Transfer Pricing), the Finance and Treasury group, and the firm's International Tax Services group in the national office. Prior to joining PricewaterhouseCoopers in July 1999, Dilworth was a partner in Baker & McKenzie, in its Chicago, Taipei, San Francisco and, most recently, its Washington, D.C. offices. Dilworth received his A.B. degree from Harvard College and his J.D. from Harvard Law School.
- IRS Guidance Regarding Circular 230 – Effect on Estate Planning Practitioners, by Steve R. Akers
- Solutions for the Payment of Life Insurance Premiums, by Joseph Maier, Jason Handal & Brian Henning
- Effect of Bankruptcy Code Changes on Delaware Asset Protection Trust Opportunities, by Jeffrey T. Getty
- Family Limited Partnerships, by Steve R. Akers
- IRC § 2036, by Steve R. Akers
Friday, October 21, 2005
From U.S. Newswire: CPA Sentenced In $120 Million International Tax Shelter Case:
The last of 10 defendants in the Anderson's Ark & Associates (AAA) case have been sentenced, the Department of Justice and the IRS announced today. Gary Kuzel, a certified public accountant from Downers Grove, Illinois-who previously pleaded guilty to one count of aiding and assisting in the filing of a false tax return-was sentenced by Chief U.S. District Court Judge John C. Coughenour in Seattle, Washington to 24 months in prison, to be followed by one year of supervised release. Kuzel was part of AAA, an organization which promoted and sold fraudulent tax shelters and investment scams to taxpayers. From 1996 through 2001, AAA had approximately 1,500 clients, nearly 300 of whom reported over $120 million in fraudulent income tax deductions.
Revised data released during the summer by the Congressional Budget Office (CBO) provide analysts the ability to make side-by-side comparisons of the spending habits of each president during the last 40 years. All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending.
Top 5 Biggest Spending Presidents, 1964 - 2005
Annualized Real Growth in Discretionary Spending
George W. Bush
(Thanks to Kirk Stark (UCLA) for the tip.)
Michael J. Jones (Thompson Jones, Monterey, CA) has published IRA Disclaimer Dilemma Resolved in Rev. Rul. 2005-36, also available on the Tax Analysts web site as Doc 2005-21061, 2005 TNT 202-29. Here is the Introduction:
Disclaimers can be a valuable postmortem planning tool. By making a disclaimer, a gift, bequest, or inheritance can be diverted to accomplish family goals, including tax savings. For an IRA, a disclaimer qualifying under § 2518 can decrease required minimum distributions by eliminating an "undesirable" beneficiary. Disclaimer planning nearly always includes taking steps to assure that there will be a qualified disclaimer under § 2518, to avoid treatment as a taxable gift.
The IRS has made it clear in Rev. Rul. 2005-36 that the potential to make qualified disclaimers of IRAs is not negated merely because a required minimum distribution has been made after the date of the decedent's death but before the disclaimer is made. However, any disclaimer made after the required minimum distribution has been made must exclude income related to that distribution, and any income related to the portion of the IRA that is disclaimed must be disclaimed. The ruling provides the method for determining the income related to the required minimum distribution and the disclaimed property in three situations.
Interesting new paper by Amanda H. Goodall (Warwick Business School, University of Warwick), Should Top Universities be Led by Top Researchers and Are They? A Citations Analysis, 62 Journal of Documentation ___ (forthcoming 2006). Here is the abstract:
This study documents a positive correlation between the lifetime citations of a university's president and the position of that university in the global ranking. Better universities are run by better researchers. The results are not driven by outliers. That the top universities in the world -- who have the widest choice of candidates -- systematically appoint top researchers as their vice chancellors and presidents seems important to understand. This paper also shows that the pattern of presidents life-time citations follows a version of Lotka's power law.
Yesterday's Inside Higher Ed followed up on the Goodall article in Presidents Who Are Scholars, by Scott Jaschik:
Conventional wisdom holds that presidents these days are selected for their skill as fund raisers and lobbyists, not for anything so mundane as original scholarship. Sure, a Ph.D. is still a requirement at most institutions, but in an era of career administrators, a presidential bio is supposed to boast of capital campaigns not journal articles.
Actually those who long for the days of universities led by real scholars may be surprised by a new study that found a correlation between being a well respected (and published) researcher and obtaining a top presidency....
What Goodall found — in both American and non-American institutions — was a significant correlation between the quality of research done by presidents and how high up on the prestige ladder they were situated. The best universities have as presidents people with the most distinguished scholarly records. In terms of citations, those leading the top 50 universities (a group that is made up primarily of American institutions) are two and a half times more likely to be cited than presidents in the next group of 50. And a president in the top 20 (of which 17 are American universities) has almost five times the citations of a president in the fifth quintile.
Goodall's findings are directly contrary to my argument in What Law Schools Can Learn from Billy Beane and the Oakland Athletics, 82 Texas L. Rev. 1483, 1552-53 (2004), that law school deans need not be top scholars:
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 Athens Institute for Education and Research has issued a call for papers in a variety of areas (including tax) for its 3rd Annual International Conference on Industrial Organization, Law & Economics to be held June 12-14, 2006 in Athens, Greece. 300-word abstracts of proposed papers are due January 5, 2006. For more information, email the conference director, Gregory T. Papanikos, here. For the programs from the prior two conferences see:
Ordower Presents Horizontal and Vertical Equity in Taxation as Constitutional Principles: Germany and the United States Contrasted
Henry M. Ordower (St. Louis) presented Horizontal and Vertical Equity in Taxation as Constitutional Principles: Germany and the United States Contrasted in Australia:
Here is the asbtract:
When confronted with a constitutional challenge to a tax statute, the U.S. Supreme Court has applied its least intrusive standard of review. The Court has never held a federal tax law, and only occasionally state tax laws, to conflict with the individual’s basic rights and privileges under the Bill of Rights. The German Constitutional Court, applying more intensive scrutiny, frequently has held tax laws to conflict with similar basic individual rights and privileges under the German constitution.
Those decisions of the Germany Constitutional Court require parity – horizontal equity -- among taxpayers and suggest, but, do not require, progressivity in taxation – vertical equity. Decisions of the German Constitutional Court have determined the protections to be robust and have rendered such matters as mandatory joint assessment of married couples, retroactive application of rate increases, deductibility of political contributions, income taxation of the subsistence minimum, valuation disparities in the wealth and inheritance taxes, and, quite recently, a tax that the government in practice could not assess and collect, uniformly unconstitutional.
The article reviews similarities between the German and U.S. tax laws, describes constitutional tax decisions from both courts, and hypothesizes reasons for the disparities in protection between the courts.
Burgess J.W. Raby & William L. Raby have published Education Deductions for the Employed Professional, also available on the Tax Analysts web site as Doc 2005-21201, 2005 TNT 202-28. The article discusses several important cases, including:
- Costs of Part-Time MBA Deductible (Allemeier v. Commissioner, T.C. Memo. 2005-207) [blogged here and here]
- Costs of Full-Time MBA Not Deductible (Zhang v. Commissioner, T.C. Summ. Op. 2003-58) [blogged here and here]
- Law School Expenses [at William Mitchell] of Law Librarian Not Deductible (Galligan v. Commissioner, T.C. Memo. 2002-150)
- Law School Expenses of IRS Agent [at Southwestern] Not Deductible (Melnik v. United States, 32 AFTR2d 5230 (C.D. Calif. 1973), aff'd, 521 F.2d 1065 (9th Cir. 1975))
- Expenses at Unaccredited Calif Law School [Peninsula] Not Deductible (Wu v. Commissioner, T.C. Memo. 1991-100)