May 31, 2006
GE Electronically Files the Mother of All Tax Returns -- 24,000 Pages!
The IRS announced today (IR-2006-84) that General Electric (GE), which has the dubious honor of having "the nation’s largest tax return," filed it electronically this year on May 18:
On paper, GE’s e-filed return would have been approximately 24,000 pages long. After filing, GE received IRS’ acknowledgement of its filing in about an hour. The file was 237 MB....
This is the first year that certain large corporations with assets in excess of $50 million were required to file electronically. The IRS expects more than 10,000 of these large corporations to e-file by the extended filing date of Sept. 15, 2006. More than 4,750 large corporations have already e-filed this year, including 3,042 with assets of $50 million or more....
E-file has been available to corporations on a voluntary basis since 2004. In 2005, more than 200,000 corporations filed their corporate income tax returns electronically. Corporations that have assets of $50 million or more and file at least 250 returns annually are mandated to electronically file their 1120/1120S income tax returns for tax years ending on or after Dec. 31, 2005. After the first effective year, the requirement will affect corporations that have assets of $10 million or more.
GE must have a heckuva broadband connection! For more on e-filing by large corporations, see here.
Joondeph on State Court Decisions Interpreting Public Law 86-272
Bradley Joondeph (Santa Clara) has posted Exploring the "Myth of Parity" in State Taxation: State Court Decisions Interpreting Public Law 86-272, 13 Wash. U. J. L. & Pol'y 205 (2003), on SSRN. Here is the abstract:
The general rule of federal question jurisdiction does not extend to cases in which plaintiffs challenge the lawfulness of a state or local tax. In recent years, the Supreme Court has expressed its belief that this lack of a federal forum should not concern taxpayers, as the federal and state judiciaries are equally competent in deciding questions of federal law. Many observers have disputed this parity thesis, labeling it a convenient but dangerous myth. In the field of state and local taxation specifically, lawyers have expressed their distrust of state courts' willingness to protect the federal rights of taxpayers, especially when those taxpayers are domiciled outside the taxing state. While several scholars have explored the question of parity in other contexts, the empirical question whether state courts are systematically biased against taxpayers seeking the protection of federal law has gone largely unexamined.
This article offers a preliminary exploration. It presents a study of all reported state court decisions interpreting Public Law 86–272, a federal statute that provides businesses with immunity from state income taxes when they keep the extent of their contacts in the taxing state beneath a specific threshold. The study suggests that, at least as a prima facie matter, these decisions provide little support for the belief that state courts systematically disfavor taxpayers making federal claims. Instead, state courts appear to have interpreted Public Law 86–272 with a fair degree of consistency.
WSJ: NY Alters Telecommuter Tax Rule
Interesting article on today's Wall Street Journal: New York State Alters Its Stance On Rule Affecting Telecommuters, by Tom Herman:
New York may be ceding some ground in its long-running tussle with telecommuters -- a struggle that could affect how other states treat workers who live outside their boundaries. The issue affects employees who live in another state, work at home for a New York employer, are assigned to the employer's New York office and come to New York to work some of the time. The question: Do these employees owe New York taxes on all their income from the New York job, or only on their income from work actually done in New York?
New York's tax department has long said that all of a nonresident employee's income from work done at home in another state is taxable by New York -- unless it's done for the employer's "necessity," not the employee's convenience. Only a few other states, including Nebraska and Pennsylvania, have similar rules, but New York is believed to be the only state that has vigorously enforced this "convenience" test.
According to a new memorandum, when an employee lives in another state and is assigned to the employer's New York office, the days the person works at home won't be counted as New York days if the home office is a "bona fide employer office," a spokesman says....
Or consider the case of Prof. Edward Zelinsky, who lives in Connecticut and teaches at Cardozo Law School in New York City. New York taxed him on all his law-school salary even though he spent about 60% of his working time at home doing research, writing and grading exams and papers. Prof. Zelinsky said he was getting hit with double taxation and argued that the New York rule was unconstitutional. He lost in New York's highest court, and the U.S. Supreme Court declined to review that decision in 2004. Prof. Zelinsky says federal legislation is needed to prevent other states from copying the New York rule.
For the New York State memorandum, see TSB-M-06(5)I (May 15, 2006), New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others, New York State Department of Taxation and Finance, Office of Tax Policy Analysis, Technical Services Division
Dean on Attractive Complexity: Tax Deregulation, the Check-the-Box Election and the Future of Tax Simplification
Steven A. Dean (Brooklyn) has published Attractive Complexity: Tax Deregulation, the Check-the-Box Election and the Future of Tax Simplification, 34 Hofstra L. Rev. 405 (2005). Here is the abstract:
Political failure has long been the scapegoat for the increasing complexity of the income tax. Over the last few decades, confusion over the meaning of the term simplification appears to have become a second important obstacle to creating simpler tax laws. Because some tax complexity is attractive to taxpayers, relying on taxpayer preferences to identify complexity and to guide simplification efforts has produced reforms and proposals that promise simplification but instead deliver pro-taxpayer deregulation that may cause more of society’s resources to be devoted to paying, minimizing and collecting taxes rather than less. The check-the-box election, which provided taxpayers with greater flexibility to choose and change the classification of business entities while having only an ambiguous impact on the tax law's complexity, offers a clear example of the misidentification of a deregulatory reform as a simplification reform. The simplification proposals offered by the bipartisan tax reform panel in 2005 would have done an equally poor job of simplifying the tax law.
A rational taxpayer will always embrace a complex tax rule when its economic costs (e.g. $100 in time and legal fees) are more than offset by tax benefits the rule facilitates (e.g. $101 in tax savings). Although that rule's complexity is attractive to taxpayers, it still consumes $100 of society's resources. To prevent attractive complexity from transforming tax simplification into tax deregulation, it is important to adopt an objective approach to identifying and measuring complexity. Recognizing that rational taxpayers will sometimes prefer complexity over simplicity will help prevent attractive complexity from undermining the success of efforts to simplify the tax law.
Financing Law School
The National Center for Education Statistics yesterday released Student Financing of Graduate and First-Professional Education: 2003-04, by Susan P. Choy & Emily Forrest-Cataldi. Here is the abstract:
This report uses the 2003-04 NPSAS data to describe the characteristics of graduate and first-professional students and how they finance their education, with a section focusing on students who attend exclusively part time. The report also includes a compendium of tables providing detailed data on student and enrollment characteristics, types of financial aid, sources of financial aid, and employment while enrolled. The report shows that the majority of students (60%) were enrolled at the master's level. Seventy-three percent of all graduate and first-professional students received some type of aid (grants, loans, assistantships, or work-study), and the average amount received by aided students was $15,100. Aid patterns varied across programs, however. For example, doctoral students were more likely than others to receive grant aid (55% vs. 38% of master’s students and 41% of first-professional students), while first-professional students were the most likely to borrow (78% vs. 40% of master’s students and 30% of doctoral students). About half (51%) of all graduate and first-professional students attended exclusively part time in 2003-04, and 70% of these students worked full time while enrolled.
The report contains a wealth of data about law students, including:
- Marital & Dependent Status (p. 63):
- 73.8% single, no children
- 12.4% married, no children
- 9.1% married with children
- 4.6% single with children
- Race/Ethnicity of Law Students (p. 64):
- 71.5% White
- 9.8% Hispanic
- 7.1% Asian/Pacific Islander
- 5.8% Black
- 5.8% Other
- Financial Aid:
- 89.3% of law students receive financial aid (p. 66)
- $27,700: average amount of financial aid received by law students (p. 77)
UCLA Institute on Tax Aspects of Mergers & Acquisitions Opens Today
The three-day UCLA Law Third Annual Institute on Tax Aspects of Mergers and Acquisitions begins today in New York. Conference co-chairs Michael L. Schler (Cravath, Swaine & Moore, New York) and Samuel C. Thompson, Jr. (Professor of Law at UCLA and Director of the UCLA Center for the Study of Mergers & Acquisitions) kick off the conference at 5:00 pm EST with a two-hour session on Basic M&A Tax Rules.
Topics to be addressed on Thursday and Friday include:
- Taxable Acquisitions
- Private Equity, Venture Capital and LBOs
- Tax-Free Acquisitions
- Consolidated Returns
- State Tax Planning
- Negotiating a Corporate Acquisition
- Tax Accounting Issues
- International Transactions
- Joint Ventures and Pass-Through Entities
- Ethical Issues in Daily Tax Practice
- General Information
- Registration for New York Location
- Registration for L.A. Replay
Christians on Taxing the Global Worker: Three Spheres of International Social Security Coordination
Allison Christians (Wisconsin) has posted Taxing the Global Worker: Three Spheres of International Social Security Coordination, 26 Va. Tax Rev. ___ (2006), on SSRN. Here is the abstract:
Social security is a fundamental part of every U.S. worker's life in three spheres: contributions are required, benefits are hoped for, and taxes on benefits may have to be paid. If a worker splits a career between several countries, each of these three spheres is affected. International coordination has been achieved sporadically and inconsistently through a combination of treaties and executive agreements that address the three spheres in various ways. The result is a group of overlapping and potentially dueling agreements that raise myriad interpretational issues and create uncertainty for workers and administrators. This article argues that rationalization of international social security coordination requires adoption of different institutional choices at the national and international level.
ABA Tax Section Offers Teleconference & Webcast Today on Bankruptcy Act: Tax and Non-Tax Issues for Closely-Held Businesses
The ABA Tax Section is offering a teleconference and webcast today on New Bankruptcy Act: Tax and Non-Tax Issues Relating to the Closely Held Business and Its Owners from 1:00 - 2:30 p.m. EST:
This program will address the tax provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that impact closely held businesses and their owners.
- Mark S. Wallace (Stutman, Treister & Glatt (Los Angeles))
- Bob Pope (Gullett, Sanford, Robinson & Martin (Nashville))
May 30, 2006
National Review on Dynamic Scoring
Interesting article in the National Review: A Dynamic Idea Gains Momentum; Tracking a Modest Budget-Scoring Breakthrough, by Greg Kaza:
President Bush’s 2007 budget, released in February, proposed spending $513,000 for a dynamic-analysis unit within the Treasury Department. The unit would not initially conduct dynamic analysis or scoring — which represents an attempt to summarize, as a cost estimate, the impact of policy changes on revenue estimates — but it would advise federal policymakers on how tax-rate revisions might affect economic aggregates. That’s an improvement over the current state of affairs, and a modest breakthrough for economists who argue that static models fail to capture the dynamic effects of tax cuts.
The congressional Joint Committee on Taxation and the Treasury Department’s Office of Tax Analysis develop revenue estimates, and in the process they use static models that assume some aggregates will not be altered by rate revisions. Dynamic scoring, however, attempts to measure the feedback-effects ignored in these models — those feedback-effects potentially becoming excellent ammunition for supply-side policymakers and tax-cut advocates.
WSJ: Adios to a Phone Tax
Last week, we blogged the IRS's decision, after losing in five circuit courts of appeals, to throw in the towel and no longer seek to enforce the 3% excise tax on long-distance telephone calls enacted during the Spanish-American War of 1898. Today's Wall Street Journal has an follow-up editorial: Adios to a Phone Tax:
The IRS will continue to collect the tax on local calls, but Mr. Snow to his credit did express support for the idea of Congress passing legislation to repeal the tax entirely. That would be the best outcome, and not just because a future administration might opt to begin collecting the tax again and restart the court battles. Another argument for full repeal is that so long as the tax exists, so will the political temptation to expand its scope and turn it into yet another revenue stream for the federal till. A Joint Tax Committee report issued last year suggested extending the excise tax to "all data communication services," including cable modems, cellular and DSL Internet connections.
Like the alternative minimum tax, the federal excise tax was intended to target "the rich," who at the time were the only ones who could afford a telephone. Yet our tax code still considers phones "luxury" items today. The last time Congress came close to ending this charade was 2000, when majorities in both the House and the Senate voted for repeal, which President Clinton vetoed. The Republican Congress, which may not be Republican much longer, might consider giving it another shot before November.
Texas A&M Adds "Commercialization of Research" as Tenure Standard
Interesting article in today's Inside Higher Ed: Teaching, Research, Service ... & Patents, by Scott Jaschik:
With slight variations and emphases, the three criteria that dominate tenure reviews at four-year colleges and universities are teaching, research and service.
On Friday, the board of Texas A&M University elevated “patents or commercialization of research, where applicable” to the same status as teaching, research and service in tenure reviews. Faculty leaders had recommended against the change, saying that it could distort the priorities of young professors. But at least some young professors in fields where research leads to patents say that the change is needed.
While not claiming with certainty that their policy is unique, Texas A&M officials say that they are the first in Texas to make such a shift and that they have not identified another university anywhere to place such an emphasis on rewarding professors who can patent their work. “We want to send a message that Texas A&M is open for business,” said Robert D. McTeer, chancellor of the system, in an interview Friday....
[T]he commercialization factor would probably have the most weight at the system’s flagship campus at College Station, and there only in certain fields, although it could help professors throughout the system
Death of Sherwin P. Simmons
I am sorry to bring you the news of the death of Sherwin P. SImmons. Sherwin was a shareholder in the Miami office of Buchanan Ingersoll PC, vice chair of the firm's Tax Section, and chair of the firm's Florida Tax Practice. He also was a long-time adjunct faculty member at the University of Miami School of Law. He was past Chair of the ABA Tax Section (1975-76) and a recipient of the Section’s Distinguished Service Award (2001). From the Buchanan Ingersoll web site:
Before joining Buchanan Ingersoll, Sherwin was a partner in a large international law firm based in Miami [Steel Hector & Davis], where he served as chair of its tax group. Under his leadership, the group's practice grew from six attorneys to as many as 22. Prior to that, he served with the U.S. Department of Justice Advisory Committee on Tax Litigation, and was a member of the Advisory Group for the Commissioner of Internal Revenue. He began his career as an attorney-advisor for the U.S. Tax Court, where he also served as a member of the U.S. Tax Court nominating commission.
A frequent lecturer at national, regional and local tax, estate planning and compensation seminars, Sherwin has also authored more than 800 books and articles on tax law in a variety of tax, business and estate planning publications. He is the only Florida attorney to have chaired both national associations of Tax Lawyers -- the American Bar Association Section of Taxation and the American College of Tax Counsel.
For details on the funeral arrangements, see here. (Hat Tip: Deborah Schenk.)
Treasury's Office of Tax Analysis Provides Dynamic Analysis of Tax Reform Options
The Office of Tax Analysis of the Treasury Department has released Summary of the Dynamic Analysis of the Tax Reform Options Prepared for the President’s Advisory Panel on Federal Tax Reform. The co-authors are:
- Robert Carroll Deputy Assistant Secretary for Tax Analysis, U.S. Treasury Department)
- John Diamond (Kelly Fellow in Tax Policy, The James A. Baker III Institute for Public Policy, Rice University)
- Craig Johnson (Office of Tax Analysis, U.S. Treasury Department)
- James Mackie III (Office of Tax Analysis, U.S. Treasury Department)
Here is the Executive Summary of the 26-page report:
The President’s Advisory Panel on Federal Tax Reform (the Tax Panel) released its report on reform of the federal income tax on November 1, 2005. The Tax Panel unanimously recommended two reform options: the Simplified Income Tax (SIT) and the Growth and Investment Tax (GIT). Both reform options are a hybrid of an income and consumption based tax. The Tax Panel also extensively examined a Progressive Consumption Tax (PCT). The Treasury Department’s Office of Tax Analysis (OTA) provided estimates to the Tax Panel on the likely growth effects for each of these plans.
The Office of Tax Analysis (OTA) provided a dynamic analysis of the Tax Panel’s tax reform options. This paper illustrates the value that dynamic analysis can provide to policy makers on the economic benefits of changes in tax policy. The dynamic analysis of the Tax Panel’s tax reform options focused on the broad economic effects in both the long-run and over the transition path. The analysis also illustrated that the various tax reform options considered by the panel can be expected to have very different effects on economic growth depending primarily to what extent they reduce the tax on capital income.
Dynamic Analysis Models:
Three different models were used in the dynamic analysis to reflect the uncertainty inherent in modeling individual and firm behavior and the associated tax-induced behavioral responses. The use of several modeling frameworks allowed for a range of estimates to reflect the sensitivity of the results to underlying assumptions and modeling approaches. The models were structured to account for the effects of changes in the effective tax rate on capital and labor income and the consequent effects on economic growth. The three models used by the Treasury Department for this dynamic analysis include:
- Solow growth model;
- Ramsey infinite horizon growth model; and
- Overlapping generations (OLG) life-cycle model.
Summary of Results:
All of these models predict that fundamental tax reform could lead to substantial increases in the national capital stock and national income. For example, the models suggest that the GIT recommended by the Tax Panel could lead to long-run increases in the capital stock ranging from 5.6 to 20.4 percent and long-run increases of national income ranging from 1.4 to 4.8 percent. The simulated growth effects of the SIT plan were considerably smaller, with long-run increases in the capital stock ranging from 0.9 to 2.3 percent and national income increases ranging from 0.2 to 0.9 percent. The growth effects of the PCT were the largest of the three plans, with long-run increases in the capital stock ranging from 8.0 to 27.9 percent, and long-run increases in national income ranging from 1.9 to 6.0 percent.
2006 Tax Misery & Reform Index
Forbes has released its new 2006 Tax Misery & Reform Index:
Our 2006 Tax Misery & Reform Index offers a global view of the top marginal rates of taxation--the ones that typically most affect a successful entrepreneur. The news is good as the rates generally continue to decrease around the world.
The Misery scores--a sum of six tax rates--are lower in 16 of the locations this year, with France decreasing the most (although still in the top position). There was no change in 28 locations, and only 8 increased Tax Misery (7 of them just slightly). Overall, the original European Union-15 and China have the highest levels of Tax Misery--China because of its extraordinary social security and pension rates. The lowest levels generally continue to be in the rest of Asia, the Middle East, Russia and the U.S. (Keep in mind that countries at the bottom of our chart are the most tax-friendly to entrepreneurs and wage earners, while those at the top are the harshest.)
Bell on the U.S. News Law School Rankings: Winners & Losers in Use of Reported Median LSATs & GPAs
Tom Bell continues his series on the U.S. News & World Report Law School Rankings with a post on Winners & Losers in the Use of Reported Median LSATs and GPAs:
[Which] schools had the largest differences between the median LSATs that they reported to the ABA and USN&WR—the numbers actually used in the 2007 rankings—and the median LSATs that USN&WR would have used in the rankings had it stuck to the methodology used the prior year? Southern Methodist University Law School gained the most by dint of that methodological change. CUNY–Queens College Law School lost the most due to it. A similar analysis of the impact wrought by the change to the methodology USN&WR applies to GPAs shows that it most benefited the University of Toledo School of Law and most harmed the University of Louisville (Brandeis) Law School.
Prior posts in Tom's series:
Perry on Charitable Contributions in an Ideal Estate Tax
Charitable bequests have been fully deductible for federal estate tax purposes since 1918. The unlimited nature of the estate tax charitable deduction contrasts starkly with the income tax charitable deduction, which contains a complex maze of limits based on the donor’s income, the nature of the donee organization, and the asset donated. Although many scholars have explored the income tax charitable deduction, few have considered the normative question of whether the estate tax should have a charitable deduction, and if so, whether any limits should apply.
This Article fills that void by exploring whether various conceptions of an “ideal” estate tax base should include a charitable deduction, and if so, what that deduction should look like. Most scholars agree that the primary goal of the estate tax is not solely to raise revenue but also to further one or more of the following social policies: (1) minimizing the accumulation of dynastic wealth, (2) enhancing equality of opportunity, (3) adding progressivity to the overall tax system, or (4) backstopping the income tax system. The ideal estate tax base differs depending on which of these goals the tax is intended to further. This Article examines each rationale in turn to determine whether charitable bequests should be included or excluded from a tax base designed to further that rationale. It concludes that although all four rationales justify some type of charitable deduction as a normative matter, only one (furthering progressivity) potentially justifies an unlimited deduction similar to the existing deduction. All other rationales for the tax suggest a more limited deduction.
Leiter on The Best Law Schools for the "Best" Teaching Jobs
Brian Leiter of our Leiter's Law School Rankings site has posted new data on The Best Law Schools for the "Best" Jobs in Teaching, 2006
This study examined which schools are most successful at placing their graduates in "top" law school teaching positions. "Top" law schools for this purpose meant schools that either (1) are ranked in the top 50 by U.S. News with some frequency, or (2) are ranked in the top 40 for faculty quality by various academic measures in my rankings....
Group 1 (1)
Group 2 (2-4)
Group 3 (5-8)
Group 4 (9)
Group 5 (10-17)
For further details, see here.
- Tax Prof Profile: Reginald Nombrun
- Foundation Rescinds Book Award to Death by a Thousand Cuts Because of Co-Author's Opposition to Unionization of Yale Graduate Students
- Slemrod on The Economics of Corporate Tax Selfishness
- Marquette to Host Colloquium on Current Scholarship in Labor and Employment Law
- 50-State Business Filing Data: LLCs Skyrocket, Corporations Stagnate
- Top 5 Tax Paper Downloads
- L.L. Bean Wins Class Action Lawsuit Over Alleged 27-Cent Sales Tax Overcharge
- Bell on the U.S. News Law School Rankings: Student/Faculty Ratio
- More on Proposed Cash-Rich Split-Off of Atlanta Braves
- Memorial Day Tax Resources for U.S. Armed Forces and Their Families & Employers
- OECD Releases Report on Global Tax Cooperation
- Margalioth Presents The Case Against Tipping Today at Tel Aviv University
- NY Times: Donating Work for Charity Has a Downside for Artists
- Bell on the U.S. News Law School Rankings: Student Quality
- WSJ: Inheritance Planning Without Grief
May 29, 2006
Memorial Day Tax Resources for U.S. Armed Forces and Their Families & Employers
On this Memorial Day, I want to pass along links to the Tax Information for Members of the U.S. Armed Forces material maintained on the IRS web site:
The tax laws provide some special benefits for active members of the U.S. Armed Forces, including those serving in combat zones. For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel may qualify for certain tax deadline extensions because of their service in a combat zone.
- Questions & Answers on Combat Zone Tax Provisions
- A Combat Zone E-mail Address for members of the Armed Forces or their families worldwide to alert the IRS that they are serving in a combat zone
- Tax Tip 2006-39: Reservists, Enlistees May Get Deferral for Back Taxes
- Military Family Tax Relief Act of 2003: Tax breaks related to military service, including two provisions that may require amended returns
- IR-2003-132: IRS Helps Military Personnel Get New Law's Tax Breaks
- IR-2003-63: New Tax Scam Targets Families of Armed Forces Members
- Notice 2003-21: Tax Relief for Those Involved in Operation Iraqi Freedom
- IR-2003-43: Tax Assistance for Military Families; New Web Site for Armed Forces
- Fact Sheet 2003-11: Information for Taxpayers Serving in the Armed Forces
- News Release IR-2002-18: Tax Relief for Troops in the Afghanistan Combat Zone
- Notice 2002-17: Tax Relief for Those Involved in Operation Enduring Freedom
OECD Releases Report on Global Tax Cooperation
In today’s increasingly borderless world, countries are working more closely together to prevent abuses of the global financial system in a wide range of areas, including taxation. The Global Forum on Taxation, which consists of OECD and non-OECD economies, seeks to improve transparency and to establish effective exchange of information so that countries can ensure compliance with their national tax laws. The Global Forum is working towards a level playing field in these areas so that activities do not simply migrate from countries that engage in effective exchange of information to those that do not. In working towards a level playing field, the Global Forum seeks to ensure the implementation of high standards of transparency and information exchange in a way that is fair, equitable and permits fair competition between all countries, large and small, OECD and non-OECD.
The prior OECD report on this issue was released in 2000: Towards Global Tax Co-operation: Progress in Identifying and Eliminating Harmful Tax Practices.
Margalioth Presents The Case Against Tipping Today at Tel Aviv University
The paper questions the current treatment of tips for tax and employment law purposes, and suggests to either replace tipping by a mandatory service charge, or treat tips like any other form of payment for services rendered. One reason to support this change was recently suggested by Ayres et al. and Michael Lynn, who showed that tipping may facilitate prejudice. This paper suggests two additional reasons to prefer a service charge to tipping. First, tipping may have a negative externality effect. Second, tipping facilitates significant tax evasion. A mandated switch to a service charge will not only reduce opportunities for discrimination but may also significantly improve tax compliance. If such regulation does not take place, welfare could still be enhanced if courts were to adopt the analysis suggested in this paper and view the tip as income of the restaurant, thereby treating it according to its true nature: payment for the service component of the meal. This will significantly simplify tax enforcement, and reestablish the link between taxes paid and benefits received, thus improving employees' financial security in the long run. The cost in terms of relinquishing tipping as a service-quality monitoring device is likely to be miniscule.
NY Times: Donating Work for Charity Has a Downside for Artists
Interesting article in the Sunday New York Times: Donating Work for Charity Has a Downside for Artists, by Carol Kino:
For the last three months New York has been awash in raffles, auctions and other fund-raisers where donated artworks go on the block to benefit all manner of causes. For the institution, the money can be a significant source of funds. For attendees, it can be a chance to acquire a work under market price, or, in the case of higher-ticket baubles like Ms. Minter's purse, a chance to demonstrate your generosity before hundreds of your closest friends.
But for artists, many of whom spend the season fielding requests, it is not exactly a win-win proposition. "We're the last of the real soft touches," said Chuck Close, whose name has appeared on countless benefit programs. "Everybody who wants to raise money for anything comes to us, and of course we get no income-tax deduction." (Artists who donate their own work, for either sale or exhibition, may deduct only the cost of materials.) [Editor's note: The Senate version of the Tax Increase Prevention and Reconciliation Act of 2005 included a provision allowing artists to deduct the fair market value of works donated to charity in certain situations, but the provision was not included in the final bill signed by the President on May 17.]
(Hat Tip: Ann Murphy.)
Bell on the U.S. News Law School Rankings: Student Quality
Tom Bell continues his series on the U.S. News & World Report Law School Rankings with a post on the student quality (LSAT & GPA) component of the rankings:
I here take up the last of the four changes that U.S. News and World Report made to its law school rankings this past year: moving from calculated median LSATs and GPAs to reported ones. This post offers some instructive background about the wending path that led to the present methodology. Why "instructive"? Because this wee bit of infometric history may teach us a great deal about how to reform the USN&WR rankings. I'll put off until the next post the one thing most readers probably care about: Who won and who lost by dint of the methodological change?
Prior posts in Tom's series:
WSJ: Inheritance Planning Without Grief
Interesting article in the Weekend Wall Street Journal: Inheritance Planning Without Grief; Financial Firms Launch Services To Navigate the Obstacles; "Disclaiming" Makes Sense?, by Rachel Emma Silverman:
Getting an inheritance isn't as easy as it looks. Inheriting money is already an emotional and financial minefield. But in the past decade or so, amid the popularity of complex retirement investments and other assets -- and the increasing complexity of tax laws -- it's gotten trickier to avoid the pitfalls. Transfer a parent's individual retirement account the wrong way and you can cause a massive tax hit. Take a treasured painting off their wall before it's accounted for in the estate, and you could be illegally avoiding estate taxes. In some cases, it may even be smart to decline an inheritance altogether.
The size of the wealth transfer expected in coming years is staggering. Over the next half-century, some $45 trillion is expected to be disbursed from estates, according to researchers at Boston College's Center on Wealth and Philanthropy. It's the biggest generational transfer of wealth ever, says Paul Schervish, the center's director, because of the late 20th-century economic boom in the U.S. combined with the baby-boom demographic bubble.
May 28, 2006
50-State Business Filing Data: LLCs Skyrocket, Corporations Stagnate
Larry Ribstein has posted some fascinating state-by-state business filing data from the International Association of Commercial Administrators. Of the 35 states with filing data for the past four years, 32 reported increases in LLC filings and 21 reported decreases in corporation filings. In the six largest states. the growth in LLC filings from 2002 to 2005 ranged from 60.3% to 237.9%, while three of the states experienced declines in the number of corporate filings ranging from (11.4%) to (27.3%) and the three states with growth in the number of corporate filings ranged from 4.6% to 23.7%:
As Larry concludes: "The corporate form is hanging on -- it's what most practitioners know. But it's looking less and less like the future of business associations."
Top 5 Tax Paper Downloads
5. [111 Downloads] War and Taxes: The World War I Veterans’ Bonus and the Defeat of the Mellon Plan, by Anne L. Alstott (Yale) & Benjamin Novick (Yale) [blogged here]
L.L. Bean Wins Class Action Lawsuit Over Alleged 27-Cent Sales Tax Overcharge
On Friday, the Maine Supreme Court held that L.L. Bean properly charged Maine sales tax on the gross retail price and rejected the class action plaintiffs' contention that the tax should have been applied to the net price after subtracting the value of coupons. Flippo v. L.L. Bean, 2006 ME 62 (5/26/06).
The lead plaintiff had used a $5 coupon obtained when she signed up for an L.L. Bean MBNA credit card and claimed that the store overcharged her by 27 cents by applying Maine's 5.5% sales tax to the gross purchase price. Had she prevailed, L.L. Bean would have been required to refund over $1 million in sales tax paid on the value of coupons, with the plaintiffs' attorneys receiving over 1/3 of the recovered amount.
- Portland Press Herald, Retailer Wins in Sales Tax Lawsuit
- Boston Globe, Supreme Court Ruling Favors L.L. Bean in Sales Tax Dispute
Bell on the U.S. News Law School Rankings: Student/Faculty Ratio
Tom Bell continues his series on the U.S. News & World Report Law School Rankings with a post on the revised student/faculty ratio component in the rankings:
Here, I touch on yet another recent change in USN&WR's methodology—a change in how it counts law school faculty. In brief, the rankings' Student/Faculty Ratio (Stu/Fac) indicator now covers not just the fall semester, but the whole of the academic year. I close by describing who won and who lost by dint of that change.
With the Stu/Fac indicator ..., USN&WR follows the lead of the American Bar Association. Prior to the fall of 2005, the ABA's annual statistical probe (ouch!) asked each law school to report the number of faculty teaching only that fall. The ABA then used that figure to calculate each school's student/faculty ratio. Ditto the USN&WR's inquiry and its calculation of the Stu/Fac ratio, which counts for 3% of each law school's score in the rankings.
That all changed last fall. The ABA started asking law schools to report both the number of faculty teaching during the prior spring semester and the number teaching that fall. It then combined those figures to generate a student/faculty ratio reflecting an entire year's worth of instruction. Ditto, again, the USN&WR questionnaire and Stu/Fac indicator.
Tom concludes with the six biggest winners and the six biggest losers as a result of the change.
Prior posts in Tom's series:
More on Proposed Cash-Rich Split-Off of Atlanta Braves
Interesting article in the Weekend Wall Street Journal: Tax Advantage Is Driving Deal To Buy Braves; Swapping Slice of Liberty Stake For Time Warner Team Creates Favorable Accounting Scenario, by Jesse Drucker & Matthew Karnitsching:
Liberty Media Corp. may be on the verge of buying the Atlanta Braves baseball team -- but it's not because Liberty Chairman John Malone loves baseball. It's because he loves not paying taxes.
As reported by The Wall Street Journal in March, Liberty is in talks to buy the Braves from Time Warner Inc., in exchange for about 63% of Liberty's 4% stake in Time Warner (see article). In addition to the ball club, valued at about $460 million, Time Warner would transfer about $1.38 billion in cash to Liberty. The deal is in the final stages of negotiation, and could be announced in the next few weeks, according to people familiar with the situation.
How can this happen? The deal is being structured as a "cash-rich split-off," a relatively new type of transaction that allows corporate shareowners in other companies to avoid taxes on cash deals.
Thanks to an obscure provision in the new tax law signed May 17 by President Bush, there could be a lot more such deals to come -- potentially helping companies avoid paying billions of dollars in taxes. The new law contains a provision, lobbied on by Time Warner and others, that essentially codifies the controversial structure, and is likely to make such deals more common, particularly over the next 12 months, according to corporate-tax attorneys. Both companies confirmed they are in discussions.
"Of all the different techniques we've had through the years for corporate-tax management, this is probably as good as I've seen," said Robert Willens, a corporate-tax accounting expert at Lehman Brothers Holdings Inc. "When else can you sell a highly appreciated asset for cash and never pay tax? What more could you want from a technique? It's not like you're deferring the tax on the cash; you're permanently avoiding it. It's fantastic."
The irony is, the new law is a result of efforts to restrict such deals. Last year, the White House and the Congressional Joint Committee on Taxation sought to crack down on these types of transactions by restricting the cash portion to just under 50% of the value of the deal. At the time, the Joint Committee even acknowledged that its proposal "could be criticized as not going far enough" and raised the possibility of restricting the cash portion to just 20% of the deal.
For prior TaxProf Blog coverage of the deal, see here.
May 27, 2006
Reginald Mombrun (Florida A&M)
- B.S. 1985, Boston University
- J.D. 1988, North Carolina Central
- LL.M. (Taxation) 1989, Florida
My story into tax is not unlike the many tax profiles that I have read over the past two years. The only major twist is probably that I hail from Haiti, the second country in the Americas to achieve independence. Unfortunately, this fact has remained our peak achievement.
My parents settled in Boston, Massachusetts after migrating from Haiti. I graduated from Boston University with a degree in Business Administration and was debating between law school or getting an M.B.A. When I looked at sample questions for the GRE and the LSAT, I was fascinated by the LSAT questions, so I decided to try law school.
While in law school, I decided very early on that I was going to specialize in taxation--the major reason being that we had some extraordinarily gifted budding trial lawyers and I did not wish to go against them in a court of law. When I took my first tax class with Prof. Walter Nunnallle, I was completely hooked. This was the first class I had taken in law school that seemed to demand your complete attention. Additionally, Prof. Nunnallee's enthusiasm for tax law was infectious. After law school, I was fortunate to be accepted at the University of Florida's LL.M. program in taxation, where I graduated in 1989. The one year I spent there was the most challenging academic year of my life. They worked us to near exhaustion (some of us, past exhaustion) and we loved every minute of it. This was the first time that I was around so many people totally committed to tax law.
After tax school, I worked at the IRS and was fortunate to work under Eric Solomon, when he was head of the corporate division of the national office (Eric is now Deputy Assistant Secretary of the Treasury (Regulatory Affairs) and has recently been nominated to the position of Assistant Secretary for tax policy. Eric's passion for tax law infected us all at the office. I would like to think that I learned a thing or two from him. There are those who would disagree but that's my story and I'm sticking to it. I spent 14 years at the IRS during which time I was promoted to an assistant manager position and wrote many regulations, revenue rulings, procedures etc.. on corporate reorganizations, consolidated returns and other topics. On the side, I also wrote articles for Tax Notes, the Journal of Corporate Taxation, and other journals.
In 2003, while visiting a friend in Florida, the topic of law school teaching came up. That friend asked me if I ever thought about law school teaching and I confessed that I had not really thought about it. A few conversations later, I was filling out my application. I was voted on the faculty of the FAMU College of Law in 2004 and I have been there for the past two years.
It has been a rewarding experience. I now can devote a lot more time to writing. As a result (shameless plug), I recently published my first book (A Complete Introduction to Corporate Taxation (Carolina Academic Press, 2006) (with Gail Levin Richmond (Nova)). I am also presenting a paper on the repeal of the estate tax [Let's Protect Our Economy and Democracy from Paris Hilton: The Case for Keeping the Estate Tax] during the summer at the Law and Society tax panels. I also have other grand plans that will culminate, I am sure, with saving the world. To me, that is the beauty of teaching, it allows you to dream again. Practicing law is ... well... too practical.
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.
Foundation Rescinds Book Award to Death by a Thousand Cuts Because of Co-Author's Opposition to Unionization of Yale Graduate Students
Yesterday, we blogged the Yale press release (dated 5/23/06) stating that Michael J. Graetz (Yale) & Ian Shapiro (Yale) had won the Sidney Hillman Foundation Award for their book Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth (Princeton University Press, 2005). According to the Chronicle of Higher Education, the foundation at the last minute rescinded the award because of Shapiro's opposition to the unionization of Yale graduate students. From Book Prize Is Yanked From Yale Professors Over Author's Role in Graduate-Student Labor Dispute, by Jennifer Howard:
Two Yale University professors, Ian Shapiro and Michael J. Graetz, expected to receive a 2006 Sidney Hillman Award on Tuesday at a ceremony in New York City. Instead, they got phone calls on Tuesday morning telling them that the judges had reversed the decision to honor the professors' book on the repeal of the estate tax....
The telephone calls came from Bruce Raynor, president of the Sidney Hillman Foundation, which sponsors the awards....
Mr. Raynor told the authors that the last-minute reversal had been based on information that came to light about Mr. Shapiro's dealings with members of GESO, the Graduate Employees and Students Organization, in its efforts to organize a graduate-student union at Yale in the 1990s....
Mr. Graetz and Mr. Shapiro pointed out that the book, which was published last year by Princeton University Press, does not address labor organizing. "There is no connection to GESO at all," Mr. Graetz said. "This book has absolutely nothing to do with the graduate students."...
The move toward rethinking the award began last week. On Thursday, May 18, the Hillman Foundation ran an advertisement in The New York Times listing the 2006 winners in several categories: book, magazine, broadcast, photojournalism, newspaper, and blog, a new category this year. Mr. Shapiro's and Mr. Graetz's book was listed as the winner in the book category. Although Mr. Shapiro and Mr. Graetz had written "an excellent book," Mr. Raynor told The Chronicle, the decision came down to "more than just the words on the page."
Mr. Meyerson [one of the judges] read a statement he delivered Tuesday night at the awards ceremony. "Normally judges evaluate the dancer, not the dance," he said. "What we tried to do in the excruciatingly limited time available to us was to gauge the severity and credibility of the allegations. ... A crucial factor for us was that the National Labor Relations Board in the region issued a complaint against several Yale professors, and Professor Shapiro most particularly, for these actions."
As Mr. Meyerson and Mr. Shapiro both noted, the labor board
never adjudicated the graduate students' complaint because their labor action failed to meet certain legal criteria. "There was never any hearing on the merits of the complaint," Mr. Shapiro said. "People like me never got to come into a hearing and say, What's the evidence that I threatened anyone?"
Mr. Meyerson said he had consulted with a friend who was a labor lawyer, who told him that "such a complaint would not have been issued if the NLRB attorneys had not found the claims to be credible and meritorious." In the end, Mr. Meyerson and the other judges concluded that "Professor Shapiro's actions rose to a level that required the rethinking of the award."
"What we came down to was that the book was eminently qualified to win many other awards," he said, but did not fit the criteria of the Hillman Prize.
Slemrod on The Economics of Corporate Tax Selfishness
This paper offers an economics perspective on corporate tax noncompliance. It first reviews what is known about the extent and nature of corporate tax noncompliance and the resources devoted to enforcement. It then addresses the supply of corporate noncompliance -- the industrial organization of the tax shelter industry -- as well as the demand for corporate tax noncompliance, focusing on how the standard Allingham-Sandmo approach needs to be modified when applied to public corporations. It then discusses the implications of a supply-and-demand approach for the analysis of the incidence and efficiency cost of corporate income taxation, and the very justification for a separate tax on corporation income. Along the way it addresses policy proposals aimed at increased disclosure of corporate tax activities to both the IRS and to the public.
Marquette to Host Colloquium on Current Scholarship in Labor and Employment Law
Paul Secunda of our sister WorkplaceProf Blog is co-hosting the inaugural Colloquium
The Colloquium offers an opportunity for labor and employment law scholars from around the country to present their works-in-progress or recent scholarship, to get feedback from their colleagues, and to have a chance to meet and interact with those who are also teaching and researching in the labor and employment law area. Although all participants are encouraged to present their scholarship, one need not present in order to attend.
May 26, 2006
Graetz & Shapiro Win Sidney Hillman Foundation Award for Death by a Thousand Cuts
Michael J. Graetz (Yale) & Ian Shapiro (Yale) have won the Sidney Hillman Foundation Award for their book Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth (Princeton University Press, 2005). From the Yale press release:
The Sidney Hillman Foundation recognizes writers, journalists, and public figures who pursue social justice and public policy for the common good....
Death by a Thousand Cutsexamines the 2001 repeal of the estate tax -- a repeal that gained broad bi-partisan support despite the fact that the estate tax had been on the books continuously since 1916 and affected only the wealthiest two percent of Americans. Graetz and Shapiro interviewed members of congress, senators, and staffers from the key committees and the Bush White House, among others. Their book ultimately uses the story of the estate tax repeal as a lens through which to view American politics.
NY Times Editorial: Abolish the Corporate Income Tax
Interesting New York Times editorial: Abolish the Corporate Income Tax:
[An] important issue in business tax reform is whether we ought to tax corporations in the first place.
Taxing corporate income is a convenient and popular means of collecting revenue. The unfortunate side effects of the tax, however, have led economists to question its value. By lowering the net return on investment, the tax may reduce expenditures for plant and equipment, and thereby stow economic growth.
The corporate in come tax, moreover, gives businesses a powerful incentive to raise their capital by borrowing, rather than by selling new stock. Interest payments on bonds are counted as a business expense, and taxed only as personal income for the recipient. By contrast, regular corporate income is taxed twice—once, when the money is earned by the corporation, then again as personal in come, when it is paid out as dividends.
Such arbitrary advantage favors one class of Investors (bondholders) over another (stockholders), and one kind of enterprise (unincorporated partnerships) over another (corporations). More importantly, the incentive tempts corporations to go deeply into debt to reduce tax liability, thus in creasing their financial vulnerability in lean times...
Everyone would like to eliminate the bias in favor of debt capital and increase investment without sacrificing government revenue.
We favor the most straightforward war outright abolition of the corporate income tax—what is known in tax jargon as “full integration.” After abolition, corporations would continue to transmit funds to the Treasury. But these payments would serve as withholding against the personal income tax liability of individual stockholders...
A good tax system raises revenue with minimal impact on the behavior of individuals or businesses. The corporate Income tax has no place in such a system.
The kicker: Tax Policy Blog notes that the editorial was published almost 30 years ago (September 11, 1977).
IRS Eases Reporting Burden on Corporations and Shareholders
The IRS today announced (IR-2006-83) new regulatory revisions that will reduce the reporting burden on corporations and shareholders while also making it easier for them to file their tax returns electronically:
The announcement is part of an on-going effort by the IRS to remove impediments to e-file from its regulations. In addition, the agency took the opportunity to review a number of regulations to simplify, clarify and eliminate a number of reporting requirements that unnecessarily added to the burden of corporations and shareholders....
The changes apply to more than 20 regulations involving corporate and shareholder reporting requirements. A number of the revisions apply to rules governing corporate transactions, such as transfers to a corporation, mergers, spin-offs or liquidations.
High Stakes Battle Over KPMG's Attorney Fee Policy in Tax Shelter Prosecution
Interesting article in today's New York Law Journal: Briefs Reflect High Stakes in Fight Over KPMG's Attorney Fee Policy, by Mark Hamblett:
There is more at stake than money in the pretrial skirmishing over whether the government interfered with the right to counsel by pressuring KPMG to limit or withhold the payment of attorney fees to firm employees the government was investigating.
Although defense lawyers in the massive tax shelter prosecution say the federal government should be ordered to pay the fees of 16 former partners or employees, Southern District Judge Lewis Kaplan's decision to hold the government's feet to the fire on the issue is being watched closely by the defense bar and business groups.
Bell on the U.S. News Law School Rankings: Financial Aid
Tom Bell continues his series on the U.S. News & World Report Law School Rankings with a post on the revised financial aid component in the rankings:
I here briefly describe another change of note: dropping the "other direct expenditures" addend to the measure of financial aid....
The USN&WR methodology includes a measure of expenditures/student called "Financial Aid" ("Fin Aid," for short). Despite its name, though, financial aid makes up only one part of that indicator. In last year's law school rankings—the "2006" rankings—Fin Aid included three sub-measures: financial aid, other direct expenditures, and indirect expenditures. This year's rankings included only two: financial aid and indirect expenditures.
Why the change? Because here, as with most other indicators it tracks, the USN&WR relies on the American Bar Association's classification of quantitative data about law schools. This year the ABA stopped collecting data under the heading of "other direct expenditures."
Prior posts in Tom's series:
ABA: Law Schools Push for Problem Solving
We recently blogged curriculum review at Harvard Law School which, among other things, will require greater use of the problem method. Today's ABA Journal e-Report has a follow-up article on the subject, A Push for Problem Solving; As Harvard Ponders, Others Embrace Change in Law School Approach, by Stephanie Francis Ward:
The Socratic method teaches a student how to think like a lawyer, but not necessarily how to practice like one, say some academics whose law schools include a problem-solving approach in teaching, beginning the first year.
The latest institution to consider the addition for first-year law students is the eminent Harvard Law School. A curriculum review committee headed by law professor Martha L. Minow was assembled in 2003. Minow would not comment on what sort of findings the group has made, or what will be done with them, because she says the group’s work is in its early stages.
Are Elite Universities Losing Their Competitive Edge?
E. Han Kim (University of Michigan, Ross School of Business), Adair Morse (University of Michigan, Ross School of Business) & Luigi Zingales (University of Chicago & Harvard University) have posted Are Elite Universities Losing Their Competitive Edge? on SSRN. Here is the abstract:
We study the location-specific component in research productivity of economics and finance faculty who have ever been affiliated with the top 25 universities in the last three decades. We find that there was a positive effect of being affiliated with an elite university in the 1970s; this effect weakened in the 1980s and disappeared in the 1990s.
We decompose this university fixed effect and find that its decline is due to the reduced importance of physical access to productive research colleagues. We also find that salaries increased the most where the estimated externality dropped the most, consistent with the hypothesis that the de-localization of this externality makes it more difficult for universities to appropriate any rent. Our results shed some light on the potential effects of the internet revolution on knowledge-based industries.
Digabriele on Are S Corps Worth More Than C Corps?
James A Digabriele (Monclair State University) has posted A Valuation Dilemma: Are S Corporations Worth More than Otherwise Identical C Corporations? on SSRN. Here is the abstract:
In three recent court cases, the Tax Court has delivered opinions that will impact the future valuation of S Corporations. The Tax Court concluded in these cases that S Corporations are more valuable than other wise identical C Corporations. The common issue in all of these cases is; should the earnings stream of S Corporations be tax-affected.
In Gross v. Commissioner, the court stated that the principle benefit from an S Corporation election is a reduction in the total tax burden. Tax affecting (lack of) in S Corporations creates an unintended inflated value. This paper uses the Gross case as the focal point since; this is the first of the trilogy of cases on this issue.
This paper compares actual market data from private sales of S Corporations and C Corporations. A simple regression analysis was used to test the hypothesis. The conclusion is the market data comparison does not indicate S Corporations are more valuable than otherwise identical C Corporations.
IRS Launches Inquiry Into Tax-Exempt Hospitals
The IRS has launched an initiative to determine whether tax-exempt hospitals are adhering to the community benefit standard set forth in Rev. Rul. 69-545 by sending Form 13790, Compliance Check Questionnaire, to 600 hospitals across the country. The initiative follows the Senate Finance Committe hearings last year on tax-exempt hospitals. (Hat Tip: McDermott, Will & Emery.)
May 25, 2006
Ring on International Tax Relations: Theory and Implications
Diane M. Ring (Boston College) has posted International Tax Relations: Theory and Implications, 59 Tax L. Rev. ___ (2006), on SSRN. Here is the abstract:
How do countries resolve conflicts over taxation? When and under what circumstances are they able to reach agreement? The international tax literature has devoted tremendous resources to considering substantive issues in international taxation. Little attention, however, has been directed to how conflict is handled – essentially the “relations” aspect of international tax.
Drawing upon valuable work (“regime theory”) from the international relations field, Part I of the paper develops a model for evaluating when countries are likely to reach a resolution on a significant issue of tax law or procedure (i.e., create a regime). Part II then applies the model to the most well known agreement in international tax, the formation of a “regime” for addressing the pervasive problem of double taxation. Based on that analysis, the paper draws a number of specific conclusions about the case study. Part III offers more general observations about regime formation in international tax, and outlines a detailed research agenda for further developing our understanding of when regimes will and will not be formed. This improved knowledge of the relations in international tax will enhance our ability to predict the shape of international disagreements, and consider strategies likely to support regime formation.
Can You Hear Me Now? IRS to Refund $15 Billion of Telephone Taxes to Consumers
The Treasury Department and IRS announced this morning that after losing in five circuit courts of appeals, the Government is throwing in the towel and will no longer seek to enforce the 3% excise tax on long-distance telephone calls enacted during the Spanish-American War of 1898 as a "luxury" tax on wealthy Americans who owned telephones. The IRS will will issue $15 billion in refunds to consumers for long-distance telephone service taxes paid over the past three years:
- No immediate action is required by taxpayers.
- Refunds will be a part of 2006 tax returns filed in 2007.
- Refund claims will cover all excise tax paid on long-distance service over the last three years (time allowed given statute of limitations).
- Interest will be paid on refunds.
- The IRS is working on a simplified method for individuals to use to claim a refund on their 2006 tax returns.
- Refunds will not include tax paid on local telephone service, which was not involved in the litigation.
Treasury and IRS:
Circuit Court Opinions:
- Am. Bankers Ins. Group v. United States, 408 F.3d 1328 (11th Cir. 2005)
- OfficeMax, Inc. v. United States, 428 F.3d 583 (6th Cir. 2005)
- Nat’l R.R. Passenger Corp. v. United States, 431 F.3d 374 (D.C. Cir. 2005)
- Fortis v. United States, 2006 U.S. App. LEXIS 10749 (2d Cir. Apr. 27, 2006)
- Reese Bros. v. United States, 2006 U.S. App. LEXIS 11468 (3d Cir. May 9, 2006)
Confirmation of New FEMA Director Hits Snag Over "Questionable" Personal Deductions
The confirmation of David Paulison to lead the Federal Emergency Management Agency hit an unexpected snag Wednesday at his Senate confirmation hearing over three years of "questionable" deductions on his tax returns. The committee and FEMA have not released details about the deductions. AP reports:
At issue are Paulison's tax returns from 2003 to 2005, on which he claimed deductions for what FEMA spokesman Aaron Walker described as "living expenses." Collins said they were travel expenses. It was not immediately known how much the deductions were worth, and lawmakers and Senate aides refused to discuss the returns in detail, citing confidentiality concerns.
Bell on the U.S. News Law School Rankings: Placement
In our article, Ranking Law Schools: Using SSRN to Measure Scholarly Performance, 81 Ind. L.J. 83, 87 n.9 (2006), we noted Tom Bell's reverse engineering of the U.S. News rankings last year:
- The Puzzle of Penn Law School's Ranking (5/24/05)
- Gory Details, by Demand (5/24/05)
- Rank This Job (5/1/05)
Tom plans an updated series of posts on the rankings:
By dint of many hours cuddled up with Excel, I learned a very great deal about the U.S. News & World Report's 2007 ranking of law schools. This year, as last, I reverse engineered the rankings. I plan a series of posts about my findings, soon. Look for some insights about the most recent rankings, as well as some suggested reforms for future ones.
Tom is out with the first post today, Change to U.S. News Law School Rankings Methodology, which deals with U.S. News' tweaking of its methodology this year to change the placement component of the rankings:
In calculating its law school rankings, U.S. News and World Report takes two measures of a school's success at finding employment for its students: the percentage of graduates employed nine months (call it "Emp9") after graduation and the percentage employed at graduation ("Emp0"). Until the most recently-released rankings—the "2007" rankings—the Emp9 measure has counted for 12% of a school's overall score, while Emp0 has counted for 6%. Starting this year, however, Emp9 counts for 14% and Emp0 for 4%. In other words, U.S. News moved 2% from the Emp0 to Emp9.
Tom lists the law schools that benefitted most from the change, as well as those most hurt by the change.
New § 199 Regs
The Treasury Department and IRS yesterday issued final regulations under § 199 on the deduction relating to domestic production activities. In addition, the Treasury Department and IRS simultaneously issued proposed and temporary regulations regarding the application of § 199 to certain transactions involving computer software, as well as a Revenue Procedure that provides methods for calculating W-2 wages for purposes of § 199.
WSJ: Lost in Taxation
Interesting Wall Street Journal editorial: Lost in Taxation:
In Sofia Coppola's movie of a couple years ago, "Lost in Translation," Bill Murray plays an American actor who wanders around Tokyo in a state of perpetual confusion. Real-life American expatriates will feel the same way when they figure out that Congress has just revoked a large chunk of their protection from double taxation.
Unlike citizens of most other countries working overseas, Americans pay taxes both abroad and at home. Until last week, Section 911 of the U.S. tax code allowed these unofficial ambassadors to exclude up to $80,000 of their foreign earnings from U.S. taxes and provided a tax break on additional compensation, including housing costs, which in places like Hong Kong or Paris or Dubai can make apartments in Manhattan look affordable....
Chuck Grassley, the Iowa Republican who chairs the Senate Finance Committee, slipped a last-minute amendment into the tax bill that President Bush signed into law last week. The changes nudge up expatriates' tax exemption to $82,400 but substantially raise taxes on additional compensation and effectively cap housing benefits. They are also all retroactive to January 1.
Graff on State Taxation of Online Tobacco Sales
Samantha K. Graff has published State Taxation of Online Tobacco Sales: Circumventing the
Archaic Bright Line Penned by Quill, 58 Fla. L. Rev. 375 (2006). Here is the Conclusion:
Given its sizeable benefits, the Arizona statute is an attractive model for states looking for ways to mitigate the serious financial and public health costs associated with online cigarette sales. These states can rest assured that an Arizona-like statute should withstand scrutiny under the four-prong Complete Auto standard. The first prong presents the only real hurdle, given the prevailing assumption that the Bellas Hess physical presence requirement affirmed in Quill bars states from requiring remote vendors to collect and remit tobacco excise taxes. However, the physical presence requirement is inapposite to the Arizona statute. The plain language of Quill explicitly limits the Bellas Hess rule to sales and use taxes, which are entirely distinguishable from tobacco excise taxes. Moreover, Quill is a tepid decision grounded in large part on the principle of stare decisis, and its precedential value has been further weakened by the explosion of the Internet economy. Quill practically entreats lower courts not to extend the Bellas Hess rule beyond the arena of sales and use taxes. Instead, Quill indicates that for other types of taxes, the Pike balancing test should stand in for the substantial nexus prong. The Arizona statute should pass the Pike balancing test with flying colors. It imposes a de minimis burden on interstate commerce while serving as an essential tactic in a comprehensive campaign against the ills wrought by the influx of cheap smokes into the population of the state.
May 24, 2006
WSJ: Judge Orders Government to Repay $36 Million to Airline Pilots in Tax Shelter Cases Because of IRS Misconduct
Interesting article in today's Wall Street Journal: Judge Orders IRS To Repay Millions In Tax-Shelter Case, by Robert Guy Matthews:
A U.S. Tax Court judge ordered the Internal Revenue Service to repay nearly $36 million in taxes, penalties and fees to a group of mostly airline pilots who participated in a decades-old tax shelter. In trying to build its case against the pilots, two IRS attorneys cut improper deals with witnesses to sway the case in the government's favor and taxpayers are due compensation, the judge said.
About 500 taxpayers could be due refunds. In the 1980s, they settled with the IRS, but proceeded to fight the IRS assessment in various courts. An additional 1,300 taxpayers, who didn't settle their tax bills with the IRS, weren't covered under this Ninth Circuit court ruling, but are likely to get some financial compensation. At issue is a tax shelter called Kersting, named after Honolulu businessman Henry Kersting. It allowed the pilots and their families to purchase stock in one of Mr. Kersting's companies. In exchange, they would get promissory notes, on which they would have to pay interest. The deal allowed the investors to claim interest deductions on their tax returns. The tax shelter has since been ruled abusive by the IRS.