TaxProf Blog

Tax Prof Profile, Extended Father's Day Edition: Jeffrey H. Kahn

Last Father's Day weekend, we brought you the first of a two-part profile of the Kahn father-son tax prof tandem.  Doug shared his thoughts on the special joys and challenges of raising a tax prof son.  This week, Jeff offers us his perspective on what it was like to grow up as the son of one of the true tax legends of our time:

I was born and raised in Ann Arbor, Michigan and it was wonderful growing up in a university town with an academic family. As a child, I decided that I wanted to teach because I was always so proud when people stopped my father on the street and told him how much they enjoyed his class and how much he meant to them. I realized then what kind of positive effect a teacher can have on a student. 

Jeffrey H. Kahn (Santa Clara)

• B.A. 1994, Duke
• J.D. 1997, Michigan

       

After graduating from Duke where I double majored in Latin and Classics, I attended the University of Michigan Law School with the hope of becoming a law professor at some point in my career. At that time, I had no idea what area of law I wanted to specialize in. I did know, however, what area I did not want to enter: tax law. I decided when I entered law school that I would avoid tax as I did not want to be compared to my father. Fate (or my DNA) had other plans for me.

My corporate tax class, with Professor Terry Perris, was where everything clicked. I found that I enjoyed studying the complexity of the Code, regulations and business transactions, particularly the analytical nature of tax planning. After that class, I realized that I had no choice but to enter the family business of taxation.

After law school, I joined the tax department of the Chicago office of McDermott, Will & Emery. I very much enjoyed my two years there, particularly working with Lowell Yoder, a partner who specializes in international transactions. My entrance into teaching came when Kent Syverud, the dean of Vanderbilt and my former civil procedure professor at Michigan, asked me to teach two tax courses at Vanderbilt as a visiting professor. Jeff Schoenblum was a huge help to me in that first semester and made my visit an especially enjoyable one. That experience confirmed my desire to be a professor.

In the fall of 2000, I joined the faculty at Santa Clara. It is a wonderful place and I am surrounded by fantastic colleagues, including Brad Joondeph, the other tax specialist here. This past December, the faculty voted to grant me tenure and a promotion to associate professor. I have also been lucky to have had the opportunity to teach as a visitor at several schools including Stanford and Hastings. This fall, I will be visiting at the University of North Carolina.

I have particularly enjoyed the scholarship component of the academic profession. My scholarship, which has ranged from short Tax Notes pieces to general law review articles to co-authoring a student treatise, focuses on such divergent topics as the tax expenditure budget, the classification of deductions, the tax treatment of gifts and even the tax consequences to a reality television show winner (which, to my amusement, was noticed by the best friend of the contestant, who called to ask for advice). In addition, it has been a joy for me to have the opportunity to work with my father on both an article and a student treatise. While it is difficult at times being a tax professor and constantly comparing myself to him and his successes, I would not trade it for the world. I am always amazed at how lucky I am to have this job.

On a personal note, I am married to Jessica Kahn whom I met when we were both tennis instructors in Ann Arbor. Disregarding my warnings, Jessica attended the University of Chicago Law School and, when we first moved out here, joined Fenwick & West as a tax associate. She is now currently an assistant dean at Santa Clara and, despite doing more work than anyone else, finds time to teach legal profession and the school’s internship course. We live in San Jose with our three cats and our dog.

Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles. For prior Tax Prof Profiles, see here.

NY Times on Tax Protester Case

Interesting NY Times article about the Joe Banister case (blogged here yesterday) by David Cay Johnston, Protesters Win a Case Over I.R.S.:

The federal government's campaign against income tax protesters suffered a major setback yesterday when a federal jury in Sacramento acquitted a former Internal Revenue Service investigator on charges of helping to prepare false tax returns....

The jury verdict appeared to reflect the different way criminal tax laws apply to taxpayers and to professional advisers who promote tax cheating, said Jay Adkisson, a tax lawyer in Laguna Nigel, Calif., who tracks tax protesters at the Web site quatloos.com. "It is hard to convict promoters," Mr. Adkisson said. "Promoters make a lot of money off their marks, watch their marks go to jail for not paying taxes and then take advantage of a loophole that lets them prepare bogus returns that they characterize as protest returns" prepared at the direction of the client...

The verdict stirred concerns that it would encourage more Americans to refuse to pay taxes, which the Treasury, I.R.S. and the Justice Department have all acknowledged is a growing problem. The problem has prompted a renewed effort to seek civil injunctions against promoters like Mr. Banister and in some cases prosecutions of both tax protesters and their professional advisers.

"This is going to encourage thousands more people who were on the fence, who were paying taxes only because they were afraid they would be criminally prosecuted," said J. J. MacNab, a Maryland insurance analyst. She is writing a book about people who deny the legitimacy of the tax laws and attended the trial, which began June 14. "If too many people do this, the tax system will collapse because it is based on people voluntarily complying" with the law, Ms. MacNab said.

Sheppard on Tax Domicile and Residence

Lee A. Sheppard (Contributing Editor, Tax Analysts) has published Thinking About Domicile and Football, 107 Tax Notes 1494 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-13052, 2005 TNT 120-8, which explores how European nations deal with the question of domicile and residence for tax purposes. 

 

Cloyd, Robinson & Weaver on Does Ownership Structure Affect Corporations’ Responses to Lower Dividend Tax Rates?

C. Bryan Cloyd (Virginia Tech, Department of Accounting and Information Systems), John R. Robinson (University of Texas at Austin, McCombs School of Business) & Connie D. Weaver (University of Texas at Austin, McCombs School of Business) have posted Does Ownership Structure Affect Corporations’ Responses to Lower Dividend Tax Rates? An Analysis of Public and Private Banks on SSRN.  Here is the abstract:

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) significantly reduces the maximum tax rate imposed on dividend income received in 2003 through 2008 by individual shareholders. Using data from call reports filed with the Federal Reserve Board, we investigate whether federally regulated bank holding companies (BHCs) increased dividend distributions after JGTRRA. By focusing on BHCs, we are able to compare the responses to this important but temporary change in tax policy across publicly-traded and privately-held corporations, while controlling for industry-related factors. Examining private firms’ dividend payouts and reactions to JGTRRA allows us to estimate the effect of differential taxation on dividend policy in a setting that is relatively free of the information asymmetry and agency problems that may dominate the payout decisions of public firms. We find that dividend yield (i.e. dividend distributions deflated by assets) increased after the reduction of the dividend tax rate for both private and public BHCs. However, private BHCs increased dividend payouts to a greater extent than most public BHCs. Our findings have implications for tax policy and for understanding differences between public and private firms.

International Tax Writing Competition

The International Fiscal Association is sponsoring an international tax student writing competition:

• Subject: Any topic relating to U.S. taxation of income from international activities, including taxation under U.S. tax treaties
• Open to: All students during the 2004-05 academic year pursuing a graduate degree with a tax specialty.
• Submission Deadline: September 30, 2005
• Prize: $2,000 cash, plus expenses-paid invitation to IFA USA Branch Annual Meeting in San Antonio in February, 2006, where the winner will be presented with an award

Entires may be emailed to Allison Christians (Wisconsin).  For competition rules, see here.

ATPI To Host Conference on Making Work Really Pay

The American Tax Policy Institute is sponsoring a roundtable conference on July 7 to discuss a draft paper by Stephen Holt, Making Work Really Pay: Income Support & Marginal Effective Tax Rates Among Low-Income Working Households.

Discussants:

• Janet Holtzblatt (Treasury Department)
• Dan Shaviro (NYU)
• Eugene Steuerle (Urban Institute)

The roundtable will be held from 2:30 to 5:30 p.m. on Thursday, July 7, 2005, in the Ernst & Young Conference Center, 1225 Connecticut Ave. NW, Washington D.C.  To attend, please RSVP to Janine Hoke here at by Monday, June 27, to obtain a copy of the paper prior to the conference.

Lederman, Roin Quoted in Tribune on Kanter Case

Interesting article in today's Chicago Tribune on the Kanter case, Tax Court Reversal "Incredible"; Judge Alters Secret Finding in Fraud Trial:

Lawyers and law professors familiar with the case are stunned by the disclosure. "How could the tax court judges essentially lie about what was in the report?" said Julie Roin, a law professor at the University of Chicago who has followed the case. "I find it incredible. ... It makes you wonder what's going on," Roin said. The dispute provides a rare look inside the court, located in Washington, D.C., and, according to tax experts, raises questions about the credibility of the court's decision-making process in what often are multimillion-dollar cases....

"The court order--that's a total lie," Roin said. "It strikes me as institutionally destructive to lie. ... I find this all mysterious. I don't understand what they have to gain by lying. It just seems bizarre."...

Leandra Lederman, the William W. Oliver professor of tax law at Indiana University School of Law in Bloomington, said the disclosure of Couvillion's report "does raise questions. Has it happened before? How many times has it happened before?" "I think it leads to questions about what was going on behind closed doors," she said. Lederman, who filed an amicus brief in the case urging release of Couvillion's findings, said the practice of keeping such findings secret is a "lack of transparency. And that leads to a lack of accountability. Transparency not only protects actual fairness, but the appearance of fairness, which is needed for people to have confidence in the system."

Raby & Raby on Golden Parachutes, Change of Control, and § 83(b)

Burgess J.W. Raby & William L. Raby have published Golden Parachutes, Change of Control, and Section 83(b), also available on the Tax Analysts web site as Doc 2005-13511, 2005 TNT 120-77.  Here is part of the Conclusion:

The golden parachute rules have been in the tax law since 1984. They are complex, and most tax practitioners either have encountered few golden parachute situations or haven't recognized them when they did. It took 20 years for the IRS to put in place the regulations dealing with this complex area. Earlier this year, the Service released an MSSP audit guide covering golden parachute payments. Tax practitioners cannot afford to ignore the potential application of the regulations by revenue agents guided by the MSSP, and practitioners now have tools to work with, complex though the subject may be.

Big Eight Seven Six Five Four Three?

With KPMG's continued existence very much up in the air as the Feds contemplate indicting the entire firm for their tax shelter work in the late 1990s, Taxable Talk asks if folks remember the names of the original Big Eight accounting firms?  [Answer below the fold.]

Arthur Andersen: Dead, 2002
Arthur Young: Merged with Ernst & Whinney in 1989 to form Ernst & Young
Coopers & Lybrand: Merged With Price Waterhouse in 1998 to form PriceWaterhouseCoopers
Deloitte Haskins: Merged with Touche Ross in 1989 to form Deloitte Touche
Ernst & Whinney: Merged with Arthur Young in 1989 to form Ernst & Young
Peat, Marwick & Mitchell: Merged with KMG (Klynveld Main Goerdeler) Main Hurdman in 1986 to form KPMG Peat Marwick (since shortened to KPMG)
Price Waterhouse: Merged with Coopers & Lybrand in 1989 to form PriceWaterhouseCoopers
Touche Ross: Merged with Deloitte Haskins in 1989 to form Deloitte Touche

Summer of the Tax Protesters?

Tax Protester and former IRS agent Joe Bannister was acquitted yesterday of all charges by a federal district court jury in Sacramento.  Tax Analysts reports:

A former Criminal Investigation (CI) Division special agent who left the IRS in 1999 over disagreements about the validity of the federal income tax, Banister was exonerated of conspiring to defraud the IRS and of helping Cencal Aviation Products proprietor Walter A. "Al" Thompson file false returns for tax years 1996-1998. Thompson was found guilty of tax evasion and failure to withhold in January 2005 and was sentenced to six years in prison.

Other big tax protestor cases scheduled for trial this summer include:

• Larken Rose (section 861 shtick) in Philadelphia in July
• Irwin Schiff (pay no income tax shtick) in Las Vegas in August

For more details, see here.  See Quatloos for critical views of Messrs. Bannister, Rose, and Schiff.

Circular 230 Fashion

For the fashion conscious tax geek:  Circular 230 tee shirts and spaghetti tank tops here.  (Thanks to Stuart Levine and Terence Cuff for the tip.) 

 

   

New Issue of Atax's eJournal of Tax Research

Volume 3, Issue 1 of the eJournal of Tax Research, published by Atax (Australian Taxation Studies Program), University of New South Wales, Sydney, Australia, is available (with a free subscription) on its web site with these articles:

• Sandra Eden, Judicial Control of Tax Negotiation (pp 5-27)
• Lin Mei Tan & John Veal, Tax Knowledge for Undergraduate Accounting Majors: Conceptual v. Technical (pp 28-46)
• Ern Chen Loo & Juan Keng Ho, Competency of Malaysian Salaried Individuals in Relation to Tax Compliance under Self Assessment (pp 47-64)
• Jim O'Donnell, Quarantining Interest Deductions for Negatively Geared Rental Property Investments (pp 65-116)
• Neil Warren, Ann Harding and Rachel Lloyd GST and the Changing Incidence of Australian Taxes: 1994-95 to 2001-02 (pp 117-149)

AALU Provides Revenue Estimates and Number of Taxable Estates Under Current Law, Estate Tax Repeal, and Reform Alternatives

The Association for Advanced Life Underwriting (AALU) has prepared Revenue Estimates of Estate Tax Repeal and Revenue Estimates and Number of Taxable Estates Under Current Law, Estate Tax Repeal, and Reform Alternatives ($1m - $3.5m Exemption and 15% - 45% Top Rates). There is a separate page for each state with three tables:

• Table 1 (revenue estimates) and Table 2 (number of taxable estates) on each page contain national data.
• Table 3 contains data on the number of taxable returns for each state under both current law and various reform alternatives

State	Estimated Number of Estate Tax Returns Under Current Law, 2006-2020
North Dakota	969
South Dakota	1,114
Idaho	1,251
Wyoming	1,877
Utah	2,021
Texas	32,185
Illinois	34,388
New York	54,248
Florida	63,544
California	128,770

      

Blattmachr, Gans, Zeydel & Bentley on Circular 230: Validity and Compliance Strategies

Jonathan G. Blattmachr (Milbank, Tweed, Hadley & McCloy, New York), Mitchell M. Gans (Hofstra), Diana S.C. Zeydel (Greenberg Traurig, Miami) & Tracy L. Bentley (Milbank, Tweed, Hadley & McCloy, New York) have published Circular 230 Redux:  The Questions of Validity and Compliance Strategies, 107 Tax Notes 1533 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-12260, 2005 TNT 119-42. Here is the abstract:

In this article, the authors revisit their prior article on Circular 230 (see Tax Notes, Apr. 4, 2005, p. 61), focusing in particular on the amendments Treasury adopted on May 18. They consider the meaning of an important, new safe harbor under which transactions that are consistent with the Code and its purpose are subject to less rigorous standards. They go on to discuss strategies for making certain that the advice practitioners provide after June 20 will be in compliance with the circular. They also provide a decision tree that will enable practitioners to classify their written advice and thereby determine whether and how the circular applies. Finally, they suggest that because the circular adopts a system of rules that is not parallel to the penalty provisions in the code, it may be invalid as applied in estate planning and other contexts on First Amendment and statutory authority grounds.

More KPMG Tax Shelter Coverage

• Howard E. Abrams (Emory) and Tanina Rostain (New York Law School) were quoted in Tuesday's New York Times story, KPMG May Dodge One Bullet, Only to Face Another
• Vic Fleischer's post, Criminalizing Tax Shelters
• Joe Kristan's post, Vic Fleischer to KPMG:  Die
• Larry's Ribstein's post, KPMG and Limited Liability of Professional Firms

Schnabel on The Exempt Status of Vigilante Nonprofits

Timothy Schnabel (Yale, Class of 2005) has published Vigilante Nonprofits:  The Bob Jones Rule as Applied to the International Promotion of the Rule of Law, 24 Va. Tax Rev. 921 (2005).  Here is part of the Introduction:

[M]any ... [nonprofit] organizations based in this country have motives and missions such as distributing Bibles or freeing slaves that Americans would consider laudable and charitable if carried out within the United States but that run afoul of the laws of the governments in whose territories they operate.  What are the legal consequences when an American nonprofit operating abroad begins to act like a vigilante, promoting its own allegedly charitable agenda despite the prohibitions of foreign laws?  The Supreme Court has held that an organization that violates a fundamental federal public policy is not charitable and is thus not eligible for tax exemption.  The fundamental policy addressed by the Court was a domestic one:  the elimination of racial discrimination in education.  Should the loss of exemption rule also apply to a different fundamental policy -- the goal of promoting the growth of the rule of law -- that operates in the international sphere?  An organization that violates another country's laws undermines the rule of law ideal that the law ought to bind everyone equally and effectively; should such an organization still be granted tax-exempt status?

Thuronyi Reports on European Association of Tax Professors Meeting

Victor Thuronyi (Senior Tax Counsel, International Monetary Fund; Adjunct Professor at Georgetown) reports on last month's meeting of the European Association of Tax Law Professors near Naples:

The European Association of Tax Law Professors met in Caserta, Italy (near Naples) for a two-day conference which has become an annual event (next year: Budapest, and the year thereafter Helsinki). This group, which is only a few years old, seems to be quite a successful way for tax law teachers all over Europe (a few members with an interest in comparative tax law, such as yours truly, are from outside Europe) to get together to network and discuss issues of common concern.

The main topic considered was the concept of tax. This is relevant for many European countries as a constitutional matter (for example, provisions in the constitution that require taxes to be imposed by law) or a matter of European law (various provisions in the EU treaty) or as a matter of treaty law (what does "tax" in the OECD Model mean?). Not surprisingly, the answer seemed to be "it depends" and that the meaning of "tax" might differ depending on the context and the country concerned.

A separate topic was the status of tax professor. The European situation differs substantially from that of the U.S. To become a tax law professor one must often write as many as two dissertations or pass comprehensive exams covering a number of areas of law besides tax. There are many fewer professors in Europe than in the U.S. Correspondingly, tax as a subject in law school enjoys a lower importance than in the U.S. There are also substantial differences within Europe on how one becomes a professor. Making it easier for those trained in one country to become a professor in another -- part of freedom of movement in Europe -- was also discussed. Such cross border movement has been achieved by very few so far.

I was asked whether there is a comparable association in the U.S. While tax law academics might get together for various smaller conferences, or for larger meetings like AALS or ABA, there is not a universal venue for tax law professors. Maybe an enterprising group could think about starting an association of U.S. (or North American) tax law professors.

Panel on the Nonprofit Sector Releases Final Report

The Panel on the Nonprofit Sector has released its final report with 120 recommendations for charitable organizations, Congress, and the IRS to strengthen the nonprofit sector’s transparency, governance, and accountability.

• Sign the report
• Participate in national conference call (Friday, 3:00 pm  - 4:00 pm)

Here is the panel's summary of its recommendations:

To strengthen governance, the Panel recommends that charitable organizations adopt, implement, and publicize audit procedures and policies on travel expenses, conflicts of interest, and whistleblower protection.

To make financial information more reliable, the Panel recommends that Congress require audits by charitable organizations with annual revenues of $1 million or greater and an independent accountant’s review for organizations with annual revenues between $250,000 and $1 million.  The Panel also calls for Congress to require mandatory electronic filing of charitable organizations’ annual information returns, the Forms 990;  the IRS to improve the design of and instructions for Forms 990;  and charitable organizations to have their CEOs or CFOs certify the accuracy of their information returns.

To prevent abuse of charitable entities, the Panel recommends that Congress establish clearer legal guidelines for donor-advised funds, Type III supporting organizations, and participation by tax-exempt entities in potentially abusive tax shelters.  It also urges Congress to tighten up rules and strengthen penalties to help prevent transactions that benefit donors, rather than the public.

To ensure that non-cash contributions support charitable causes, rather than provide improper tax deductions for donors, the Panel recommends that Congress establish clearer rules for valuing donated property and mandate stricter guidelines for appraisals of land and other appreciated property.

To address instances of excessive executive compensation, the Panel recommends that Congress strengthen the penalties on board members who approve and executives who receive excessive compensation, that the IRS revise the Forms 990 to make the total compensation of executives clearer to the public and regulators, and that charitable organization boards approve executive compensation each year. 

The Panel will offer supplemental comments in the fall on issues of financial reporting and transparency, accreditation and standard setting, and possible changes in the legal framework, including federal and state regulations of fundraising activities.

IRS Rules that Qualified Plan Cannot Provide Benefits to Same-Sex Domestic Partners

In companion rulings issued last week (Priv. Ltr. Rul. 200524016 & Priv. Ltr. Rul. 200524017), the IRS ruled that a county's collectively bargained deferred compensation plan must be interpreted to deny benefits to same-sex donestic partners in order to constitute a qualified plan for § 457 purposes.  The Service ruled that the plan could not circumvent the federal Defense of Marriage:

Rev. Rul. 58-66, 1958-1 C.B. 60, provides that the marital status of individuals as determined under state law is recognized in the administration of tax laws. However, Section 3 of the "Defense of Marriage Act", P.L. 104-199 (September 21, 1996), provides that, "in determining the meaning of any Act of Congress, or of any ruling, regulation or interpretation of the various administrative bureaus or agencies of the United States, the word 'marriage' means only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife."...

A registered domestic partner, a former registered domestic partner, or a surviving registered domestic partner as defined in state X Act is not a spouse, a former spouse or a surviving spouse for purposes of § 457. Accordingly, in the event that the Spouse Provisions are not interpreted and applied in a manner consistent with the Defense of Marriage Act, the operation of the Plan will not be in compliance with § 457(b).

The IRS described the state law as follows:

State X Act provides that registered domestic partners have the same rights, protections and benefits and are subject to the obligations and duties “under law” as granted to and imposed on spouses. Likewise, former registered domestic partners and registered surviving domestic partners have the same rights, protections and benefits and are subject to the obligations and duties under law as granted to and imposed on former spouses and surviving spouses. To the extent that provisions of State X law adopt, refer to, or rely upon, provisions of federal law in a way that otherwise would cause registered domestic partners to be treated differently than spouses, registered domestic partners are to be treated under State X law as if federal law recognized a domestic partnership in the same manner as State X law. Accordingly, if applicable with respect to the Spouse Provisions, State X Act requires that a domestic partner be treated in the same manner as a spouse under Plan A. However, State X Act expressly provides that it does not amend, or modify federal law or the benefits, protections and responsibilities provided by federal law.

Manno on The Tax Treatment of Military Personnel

Theodore Paul Manno has published Federal Income Taxation of Soldiers, Sailors, Airmen and Marines, 50 S.D. L. Rev. 293 (2005).  Here is the Conclusion:

[T]he aim of this article [is] to combine in one place . . . the most salient changes made by MFTRA, SCRA, and WFTRA in the context of discussing the overall federal income taxation of military personnel.  These changes have increased payments to those who make the ultimate sacrifice for our nation, have created or enhanced income tax exclusions with respect to that death benefit, homeowners assistance payments, dependent care assistance programs, and sales of homes, and have alleviated the financial burden of overnight travel expenses for National Guard and Reserve members. Together, this trilogy of statutes has also expanded relief from filing, and in some cases, even from payment requirements for fighting men and women; has ameliorated technical drawbacks with respect to federal tax credits, and the imposition of state income taxes on spouses; and has aided veterans groups and service academy appointees. These developments, the other changes wrought by these statutes, and other tax topics of key importance to those who answer the call to arms, have been the focus of this article. It is hoped that the specialist and the general practitioner alike will find it both a depository of information and analysis, and a source of references for further research and reading.

Caron Presents Using SSRN to Measure Scholarly Performance Today at Cincinnati

I am presenting Ranking Law Schools: Using SSRN to Measure Scholarly Performance today at noon at Cincinnati as part of our weekly summer faculty scholarship series.  The paper is an early version of the article I am writing with Bernard S. Black (Texas) for the Indiana Law Journal as part of our symposium on The Next Generation of Law School Rankings.  Here is the abstract:

There are several methods for ranking the scholarly performance of law faculties, including reputation surveys (U.S. News, Leiter); publication counts (Lindgren & Seltzer, Leiter); and citation counts (Eisenberg & Wells, Leiter). Each offers a useful but partial picture of faculty performance. We explore here whether the new “beta” SSRN-based measures (number of downloads and number of posted papers) can offer a different and useful, albeit also partial, picture. Our modest conclusion is that SSRN-based measures can address some of the deficiencies in these other measures and thus play a valuable role in the rankings tapestry. For example, SSRN offers real-time data covering most American law schools and many foreign law schools, while citation and publication counts appear sporadically and cover a limited number of U.S. schools. The SSRN measures favor work with audiences across disciplines and across countries, while other measures are more law-centric and U.S.-centric. SSRN is relatively new and thus favors younger scholars and improving schools, while other measures favor more established scholars and schools. At the same time, the SSRN measures have important field and other biases, as well as gaming risks.

We assess the correlations among the different measures, both on an aggregate and on a per faculty member basis. We find that all measures are strongly correlated; that total and per faculty measures are highly correlated; and that SSRN measures based on papers are highly correlated with download measures. Among major schools, all measures also correlate with school size. We also suggest ways to enhance the usefulness of SSRN-based and other measures, and discuss current and potential strategies for addressing gaming risk.

Sheppard on Massive Giveaway in Partnership Compensatory Options Regs

Lee A. Sheppard (Contributing Editor, Tax Analysts) has published Massive Giveaway in Partnership Compensatory Options Regs, 107 Tax Notes 1487 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-12910, 2005 TNT 118-9.  Here is part of the Introduction:

The usual formula for compensation for hedge fund managers is "2 and 20"; that is, 2% of assets under management and 20% of the profits....  By way of contrast, mutual funds commonly charge fees of 1% of assets under management, without taking a share of the profits.

So what's that got to do with tax?  Hedge funds are partnerships.  Partnership practitioners can't stand the idea that the code says what it says, that § 83 applies to compensatory grants of interests and options in partnerships. Partnership practitioners are whining even though the government, in the proposed compensatory partnership interests regulations, allows the parties to elect to value partnership profits interests or options at zero.  You read that right.  If a newly created profits partner makes a § 83(b) election with his partnership, he can value his compensatory interest at zero.  Substitute the words "hedge fund" for partnership and "a share in the hedge fund profits" for partnership profits interest, and you have an incredible giveaway.  In plain English, that means hedge fund managers are excused from tax on some forms of their excessive compensation.  Yes, the government is once again giving away the store to partnership practitioners, but in a sense, the government is pulling back.  The previous guidance on compensatory partnership interests was so sloppily reasoned and sloppily drafted that it amounted to "do whatever you want."  At least the proposed regulations were thought through, even if some of the answers are questionable.

SDNY Allows Tax Shelter Suit v. Sidley Austin To Proceed

Interesting article in today's National Law Journal, Judge: Tax Shelter Suit Against Sidley Austin, Deutsche Bank May Proceed:

A federal judge has declined to dismiss a civil suit brought by a husband and wife who claim that Sidley Austin Brown & Wood and Deutsche Bank Securities Inc., offered a tax shelter the firms knew would be challenged by the IRS. Southern District Judge Shira Scheindlin said William and Sharon Seippel's complaint sufficiently alleged fraud and that the couple's allegations against the defendants could stand because they went further than alleging aiding and abetting liability.

Panel on the Nonprofit Sector to Release Final Report at Press Conference Today

The Panel on the Nonprofit Sector will release its final report with comprehensive recommendations for strengthening the governance, transparency, and ethical conduct of charitable organizations at a 1:00 pm press conference today with Senator Charles Grassley.  The press conference will be held in Room 608 of the Dirksen Senate Office Building.  To attend, email here.

The Panel comprises 24 leaders convened by Independent Sector at the encouragement of the Senate Finance Committee.  For prior TaxProf Blog coverage, see here.

Zelenak & Chirelstein on A Note on Tax Shelters

Lawrence A. Zelenak (Duke) & Marvin A. Chirelstein (Columbia) have posted A Note on Tax Shelters (forthcoming in the Columbia Law Review). Here is the abstract:

This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases. It also concludes that the recent proposal of the Joint Committee on Taxation, to codify the economic substance doctrine, is unlikely to solve the problem. Although the proposal would have the salutary effect of preventing courts from deciding that the economic substance doctrine does not exist, courts would remain free to conclude that the doctrine is not applicable in particular situations, or to find that the doctrine is satisfied in highly dubious circumstances. Narrowly tailored legislative responses to particular types of shelters are also not adequate as a solution to the overall shelter problem; since the legislative fixes are prospective only, taxpayers merely move on to new types of shelters not yet legislated against. Accordingly, the article suggests a new approach to the shelter problem, based on the general disallowance of noneconomic losses. This could be accomplished by either (1) the enactment of a Code provision flatly disallowing noneconomic losses, subject to an exception for noneconomic losses the deduction of which is clearly contemplated by Congress, or (2) a legislative grant of authority to the Treasury to promulgate regulations retroactively disallowing noneconomic losses, as necessary to prevent abuse.

Senate Finance Committee Staff Releases Overview Memo of Energy Policy Tax Incentives Act

The Senate Finance Committee Staff has released a nine-page Overview Memorandum of the Energy Policy Tax Incentives title of H.R. 6.  For prior TaxProf Blog coverage, see:

• Statutory Language of Energy Policy Tax Incentives Act (6/21)
• Joint Tax Committee Issues Reports on Energy Policy Tax Incentives Act (6/18)
• Senate Finance Committee Staff Releases Overview of Energy Tax Policy Incentives Act (6/16)

WSJ on Criticism of Impending Spousal Waiver Requirement in Charitable Remainder Trusts

Interesting article in today's Wall Street Journal, New IRS Trust Rules Complicate Charitable Giving:

People planning to give to charity through a trust soon may need written permission from their spouses, according to IRS rules slated to take effect June 28. The spousal-waiver requirements may seem reasonable enough, but they are being criticized as a heavy-handed response to a legitimate though rare problem -- namely that surviving spouses in certain states can stop a donation from going to the charity, even though the deceased donor benefited in life from a tax deduction for the gift. The main concern of the waiver's opponents is that donors who fail to get a legitimate waiver can lose the tax benefits of the trust, according to tax specialists -- even if the surviving spouse doesn't interfere with the charitable donation.

Stadler Says Tax Law Is a "Strong Buy" in Market for Law School Professors

My friend and former colleague Sara K. Stadler (Emory) has posted a wonderful essay, The Bulls and Bears of Law Teaching (forthcoming in Washington & Lee Law Review), on SSRN.  Here is the abstract:

This Essay provides readers with a unique perspective on the world of law teaching:  Employing a quirky methodology, Professor Stadler predicts which subjects are likely to be most (and least) in demand among faculties looking to hire new professors in future - rating those subjects, like so many stocks, from "strong buy" to "weak buy" to "weak sell" to "strong sell." To generate the data on which her methodology is based, Professor Stadler catalogued, by subject, almost every Article, Book Review, Booknote, Comment, Essay, Note, Recent Case, Recent Publication, and Recent Statute published in the Harvard Law Review between and including the years 1946 and 2003. In the end, she found an interesting (and, she thinks, predictive) relationship between the subjects on which faculty choose to write and the subjects on which students choose to write.

Larry Solum says "I love this essay!" -- and I agree.  After all, Sara rates tax as one of her "strong buys":

Strong Buys	Weak Buys	Weak Sells	Strong Sells
Bankruptcy	ADR	Civ Pro/Evid	Administrative
Education Law	1st Amendment	Contracts	Antitrust
Energy	IP	Corporations	Commercial
Family/Gender	Int’l/Comparative	Crim Law & Pro	Con Law
Health Law	Int’l Trade	Election Law	Envt’l Law
Labor & Emp.	Law and	Legal History	Jurisprudence
Tax	Media Law	Property	Admiralty/T&E
		Torts	Cyberlaw

Sara explains her "strong buy" tax recommendation:

This is the kind of chart about which technical analysts dream.  After tracing an undulating “price channel” to the downside, Excess Interest in tax law broke out of its bearish trend in 1988, then traced the beginnings of a new price channel — a bullish one.  Since then, of course, Excess Interest has turned negative, but even a sine curve has its ups and downs. I admit to being influenced by the fundamentals here, which suggest that if President Bush delivers on hispromise (threat?) to reform the tax code, then we might have the opportunity to engage in a national debate about tax policy for the first time in twenty years.  This might be an opportune time:  the tax burden on Americans (which includes income taxes, real property taxes, personal property taxes, sales taxes, and use taxes) is at its highest ever.  Yes, my handful of law schools has hired significantly in the area, adding ten new professors to teach courses in tax law since 1999 (2.30% of the total), but who says economics is a science?  Strong buy.

Infanti on A Deconstructionist View of Circular 230

Anthony C. Infanti (Pittsburgh) has published A Deconstructionist View of Circular 230 From the Sidelines, 107 Tax Notes 1575 (June 20, 2005), also available on the Tax Analysts web site as Doc 2005-12795, 2005 TNT 118-39.  Here is the Conclusion:

When texts leave their authors' hands, they have a tendency to take on lives of their own. Once liberated from its government authors, even Circular 230 took on a life of its own -- it has acquired different meanings in different contexts for different people. For me, there is a spellbinding quality to that dance of deconstruction, as you watch the meaning of the new written advice rules morph from one form to another right before your eyes.

Unfortunately, when the text is one that regulates your own conduct, that tendency of texts to take on their own lives can be the source of a frightening consternation. That this process is natural and normal provides little solace to those who must live with the uncertainty engendered by the free play of a text such as Circular 230. But live with it they must. Because the threshold for punishment under the revised Circular 230 rules has been set so high -- to be punished, a violation must be the result of willful, reckless, or grossly incompetent conduct -- enforcement of the rules will be left largely to the self-policing of practitioners, who must "recognize the unavoidable limitations and inherent contradictions in the ideas and norms that guide our actions, and do so in a way that keeps them open to constant questioning and continual revision. There can be no ethical action without critical reflection."

Statutory Language of Energy Policy Tax Incentives Act

Here is the legislative text of the Energy Policy Tax Incentives portion of H.R. 6, as proposed by Chairman Chuck Grassley and Ranking Minority Member Max Baucus and approved by the Senate Finance Committee and by the full Senate, in all of its 257-page glory.  For prior TaxProf Blog coverage, see:

• Joint Tax Committee Issues Reports on Energy Policy Tax Incentives Act (6/18)
• Senate Finance Committee Staff Releases Overview of Energy Tax Policy Incentives Act (6/16)

Polsky & Charles on Regulating 527 Organizations

Gregg D. Polsky (Minnesota) & Guy-Uriel E. Charles (Minnesota) have posted Regulating 527 Organizations (forthcoming, George Washington Law Review) on SSRN.  Here is the abstract:

In this Essay, we consider whether the Federal Election Commission ("FEC") has the authority to regulate independent 527 organizations (e.g., Swiftboat Veterans for Truth, Moveon.org, etc.) as political committees under the Federal Election Campaign Act. This issue, which was hotly debated during the last election cycle when it was considered and ultimately tabled by the FEC, is an extremely complex one that requires a deep understanding of election, tax, administrative, and constitutional law. After considering how these areas of law intersect, we conclude that the FEC lacks the authority to regulate independent 527 organizations as political committees.

KPMG Tax Shelter Coverage

New York Times

• KPMG Says Tax Shelters Involved Wrongdoing (6/17)

Wall Street Journal

• Gunning for KPMG (editorial) (6/20)
• KPMG's Flynn Takes the Helm At a Stormy Time (6/17)
• KPMG Apologizes for Tax Shelters (6/17)
• KPMG Statement (6/16)
• Justice Department, KPMG In Talks on Criminal Charges (6/16)
• KPMG Faces Indictment Risk On Tax Shelters (6/16)

Washington Post

• Regretful KPMG Asks for a Break (6/17)
• KPMG Addresses Ex-Partners Unlawful Conduct (6/16)

Forman on Designing a Work-Friendly Tax System

Jonathan Barry Forman has posted Designing a Work-Friendly Tax System: Options and Trade-Offs (with Adam Carasso (Urban Institute) & Mohammed Adeel Saleem (Urban Institute)) on the Urban Institute web site.  Here is the abstract:

The federal tax system often imposes its highest effective marginal tax rates on low- and moderate-income individuals.  This paper suggests several ways to reduce those high effective marginal rates but illuminates the large trade-offs involved. One approach would replace the current earned income credit (EIC) with a $2,000 EIC for working parents and a refundable $1,000 per child tax credit. A more comprehensive approach would integrate the individual income and Social Security tax systems into a single tax system with just two tax rates and a refundable $2,000 EIC for working parents and a $1,000 universal grant for every person.

CRS Releases Small Business Tax Benefits: Overview and Economic Rationales

The Congressional Research Service has released Small Business Tax Benefits:  Overview and Economic Rationales (RS32254) (30 pages), also available on the Tax Analysts web site as Doc 2005-13221, 2005 TNT 117-45.  Here is the Summary:

Congress has long taken an interest in the federal tax burden on small firms and its effect on their performance and rates of formation and growth. This interest has led to the enactment of numerous legislative initiatives over the years to reduce this burden. The 109th Congress is considering a variety of proposals to expand current small business tax preferences or create new ones.

This report describes the principal federal tax benefits for small firms and examines possible economic rationales for them. It will be updated when any new benefits are added to the tax code, or current ones are modified or repealed.

While the federal revenue cost of existing small business tax preferences is not known, estimates by the Treasury Department and Joint Committee on Taxation indicate that they may exceed $8 billion in FY2005. The small business tax benefits outside farming with the broadest impact are the taxation of small firms as passthrough entities, the graduated rate structure for the corporate income tax, the expensing allowance for equipment under section 179 of the Internal Revenue Code, the exemption of some small corporations from the corporate alternative minimum tax, cash basis accounting, and the exclusion from taxation of capital gains on the sale or disposition of certain small business stock.

These benefits raise several interesting and important policy issues. For many public finance economists, a key issue is whether or not they can be justified on economic grounds. It can be argued that in the absence of such a foundation, proposals to enhance small business tax preferences could have adverse efficiency and equity effects.

In general, proponents of targeting tax relief at small firms claim that the special economic role played by small firms, the barriers in financial markets to their formation and growth, the special opportunities for social and economic advancement offered by small firms, and the sensitivity of small business owners to tax rates justify the use of such relief. More specifically, they assert that there are compelling economic reasons to favor or subsidize small firms through the tax code: namely, the income, jobs, technological innovations, and opportunities for economic renewal and structural change generated by small firms; the constraints on their ability to raise capital in debt and equity markets; and the formidable competitive advantages held by large, established firms.

While acknowledging the significant contributions made by small firms to domestic income and employment, critics of small business tax preferences argue that there appears to be no sound economic rationale for them. More specifically, they say that these subsidies mainly have the effect of undercutting the progressivity of the federal tax code and generating efficiency losses. In addition, critics assert that some such preferences are either inappropriate or poorly designed, leading to perverse or counterproductive outcomes.

Percentage of Americans Reporting Zero Tax Liability Is At All-Time High

The Tax Foundation reports that the percentage of Americans filing tax returns who report no tax liability has exploded in recent years and is at an all-time high:

One of the biggest obstacles facing President Bush’s Advisory Panel on Federal Tax Reform is the fact that America has become divided between a growing class of people who pay no income taxes and a shrinking class of people who are bearing the lion’s share of the burden.

Percentage of Filers Who Owe Zero Tax
Year	Owe Zero Tax
1950	28.0%
1955	23.3%
1960	21.2%
1965	20.6%
1970	20.1%
1975	25.6%
1980	21.3%
1985	18.5%
1990	21.0%
1995	24.5%
2000	25.2%
2001	27.2%
2002	30.1%
2003	31.8%
2004	32.4%

Eden on An Economic Approach to the Transfer Pricing of Offshored Business Services

Lorraine Eden (Texas A&M, School of Management) has posted Went for Cost, Priced at Cost? An Economic Approach to the Transfer Pricing of Offshored Business Services on SSRN.  Here is the abstract:

What are the transfer pricing implications of the rapid growth in Offshored business services? In this paper, I explore the recent trend to offshoring business services, using a case study of the teleservices industry. Teleservices firms own foreign subsidiaries that provide inbound and outbound call services to third party clients. I explore the "facts and circumstances" of the industry and use economic analysis to develop transfer pricing rules for their offshored call centers. Even though the mantra, "Went for cost, Stayed for quality", applies in teleservices as in other offshored business services, I conclude "Went for cost, Priced at cost" remains the appropriate transfer pricing mantra for tax authorities and transnational corporations to follow.

Saturday:

• Tax Prof Spotlight (Father's Day Edition): Doug Kahn
• Tax Analysts: Wood on Ulcers and the Physical Injury/Physical Sickness Exclusion
• Joint Tax Committee Issues Reports on Energy Policy Tax Incentives Act
• Brewer on Tax Shelter Information and Client Confidentiality

Sunday:

• Top 5 Tax Paper Downloads
• Tax Job on Capitol Hill
• TABOR in the News
• Tax Analysts:  Klomparens & Little on Proposal to Reinstitute Death Tax Credit

Top 5 Tax Paper Downloads

There is a lot of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with new papers ranked #3 - #5:

1.  Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes, by Robert H. Sitkoff (Northwestern) & Max M. Schanzenbach (Northwestern)

2.  Travails in Tax: KPMG and the Tax-Shelter Controversy, by Tanina Rostain (New York Law School)

3.  A New Understanding of Tax, by Edward J. McCaffery (USC)

4.   The Political Psychology of Redistribution, by Jonathan Baron (Penn, Department of Psychology) & Edward J. McCaffery (USC)

5.  Corruption, Inequality and Fairness, by Alberto F. Alesina (Harvard, Department of Economics; NBER) & George-Marios Angeletos (MIT, Department of Economics; NBER)

Tax Job on Capitol Hill

Senator Barbara A. Mikulski (D-MD) is seeking a Legislative Assistant to handle economic issues, including budget, finance, trade, tax and pensions. This position has a great deal of autonomy. A successful candidate would need to be entrepreneurial and creative, in addition to having strong writing, organizational and communication skills. Hill or related experience necessary. Knowledge of, and experience with, pensions a big plus.  To apply, email a CV here.  (NO PHONE CALLS.) 

   

TABOR in the News

Wall Street Journal, America's Next Tax Revolt (6/17):

A Taxpayer Bill of Rights is a long overdue addition to the architecture of state constitutions. Proposition 13 halted the aggressive encroachment of state government more than 25 years ago, but only temporarily: Even after adjusting for inflation, most state tax collections are two to three times fatter than they were then. The painful experience since is that only hard and fast constitutional limits can rein in the powerful spending interests that live off the government.

Tax Foundation, Taxpayer Bill of Rights (TABOR): The Cure for "Ratchet Up" (6/14):

Another important tool in alleviating tax and spend "ratchet-up" is the Taxpayer Bill of Rights (TABOR). This budget tool requires that excess revenue growth (in excess of population plus inflation) be rebated to the taxpayers. TABOR also requires voter approval for tax increases.

Klomparens & Little on Proposal to Reinstitute Death Tax Credit

Robin L. Klomparens (Wagner, Kirkman, Blaine & Youmans, Sacramento) & Betty J. Little (Weintraub Genshlea Chediak Sproul, Sacramento) have published Proposal to Reinstitute Death Tax Credit, also available on the Tax Analysts web site as Doc 2005-12667, 2005 TNT 115-35.  Here is the abstract:

Consideration should be given to reinstituting the state death tax credit if the estate tax system is revised. This would minimize and/or eliminate many of the cumbersome and complex provisions that exist, which a practitioner must plan appropriately for, when a client holds out of state property.

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