Friday, June 30, 2006
- IR-2006-102: IRS Headquarters Building Remains Closed; Tax Operations Continue
- IR-2006-103: Temporary Change of Address for Certain Hand-Delivered Documents: 950 L'Enfant Plaza, 5th Floor, Washington, DC 20024
Stuart Levine notes the difficulties that IRS attorneys are having in accessing their work:
Our e-mail server came up today but, as of now, only attorneys with Blackberries have access to our network. . . . By next week, we hope to get some access for the rest of our lawyers -- a few desktops on our intranet to share. Our other computer applications are not yet available, including saved work.
Interesting front page story in today's Wall Street Journal: How a U.K. Banker Helps U.S. Clients Trim Their Taxes, by Carrick Mollenkamp & Glenn R. Simpson:
At Barclays PLC, a British bank steeped in 300 years of tradition, the work of a team led by banker Roger Jenkins is far from traditional. For instance, in 2003 his team set up a company with no employees, no products and no customers -- just a mailing address in Delaware and a slate of British directors, mostly employees of his office. It was co-owned by Barclays and U.S. bank Wachovia Corp. The following year, according to documents filed in the United Kingdom, the jointly owned company had $317 million in profits. It paid U.K. taxes on them. Barclays and Wachovia were both able to claim credit for paying all of the tax....
The complex transactions involve a strategy called tax arbitrage, which plays off one nation's tax system against another to reduce the banks' tax bills. Barclays is the leader in this esoteric field. It collects hundreds of millions of dollars in revenue generated by Mr. Jenkins's group. His team of lawyers and bankers has helped turn Barclays from a sleepy Main Street lender into an investment-banking power.
Critics of tax arbitrage are blunt about it. "This is just a complete and utter construct to get around the rules at both ends," says Richard Murphy, an accountant and professor who works with a London nonprofit called Tax Justice Network and has consulted for the U.K. government on financing. The banks say the cross-border deals have been cleared by both U.S. and U.K. regulators and the regulatory review process is rigorous.
Legisislative documents in connection with S. 832, The Taxpayer Protection and Assistance Act of 2005, approved by the Senate Finance Committee this week in conjunction with S. 1321, The Telephone Excise Tax Repeal Act:
- Text of S. 832
- Text of S. 1321
- Democratic Staff of Senate Finance Committee, Summary
- Joint Committee on Taxation, Description of Chairman's Modifications (JCX-28-06)
- Joint Committee on Taxation, Estimated Revenue Effects of Chairman's Modification (JCX-29-06)
- Joint Committee on Taxation, Description of Chairman's Mark (JCX-25-06)
- Joint Committee on Taxation, Estimated Revenue Effects of Chairman's Mark (JCX-26-06)
Francine J. Lipman (Chapman) has published Taxing Undocumented Immigrants: Separate, Unequal and Without Representation, 9 Harv. Latino L. Rev. 1 (2006). Here is the abstract:
Americans believe that undocumented immigrants are exploiting the United States' economy. The widespread belief is that “illegal aliens” cost more in government services than they contribute to the economy. This belief is undeniably false. “[E]very empirical study of illegals’ economic impact demonstrates the opposite . . .: undocumenteds actually contribute more to public coffers in taxes than they cost in social services.” Moreover, undocumented immigrants contribute to the U.S. economy through their investments and consumption of goods and services; filling of millions of “essential worker” positions resulting in subsidiary job creation, increased productivity and lower costs of goods and services; and unrequited contributions to Social Security, Medicare and unemployment insurance programs. Eight-five percent of eminent economists surveyed have concluded that undocumented immigrants have had a positive (seventy-four percent) or neutral (eleven percent) impact on the U.S. economy.
Idrees on When Do Tax Deficiencies Actually Accrue? Resolving the Recent Circuit Split over the Accumulated Earnings Tax
Kamran Idrees (International Tax Group, Deloitte Tax, Chicago) has published When Do Tax Deficiencies Actually Accrue? Resolving the Recent Circuit Split over the Accumulated Earnings Tax, 59 Tax Law. 541 (2006). Here is the Introduction:
Generally, the Internal Revenue Code treats corporations as independent taxpaying entities, regardless of the personal characteristics of their shareholders. Thus, corporate income is first taxed to the corporation as it is earned, and then it is taxed again at the shareholder level when corporate earnings are distributed in the form of dividends. This treatment of corporate income forms the basis for the United States’ system of double taxation. Taxpayers have often sought to avoid this double taxation by forgoing the payment of dividends to shareholders and instead allowing corporate income to accumulate within the corporate entity. This strategy defers the second level of taxation until corporate earnings are ultimately distributed to shareholders. Congress, however, has armed the Service with certain statutory weapons to deal with taxpayer attempts to insulate corporate income from shareholder-level taxation. One of these weapons is the accumulated earnings tax.
The Treasury Department has announced (JS-4343) that it has named Mark Warren Deputy Assistant Secretary for Tax and Budget, Legislative Affairs:
Warren is responsible for coordinating with Congress on tax, pension, Social Security and budget issues. Warren started his career on Capitol Hill in 1995 with the House Committee on Small Business and moved to the Senate in 1997 where he served as the Senate Small Business Committee's Chief Tax and Finance Counsel and later as the Staff Director and Chief Counsel. Most recently, he served as the Chief Counsel of the Senate Republican Policy Committee from February 2004 through June 2006. He holds an undergraduate degree in finance and a law degree from Georgetown University, and a Masters Degree in tax law from New York University. Warren has also spent time in private practice working in New York and Washington, DC.
Interesting article in this morning's Washington Post: Not a Drop of Sympathy Over Flooded IRS Building, by Petula Dvorak & Robert Samuels:
Mother Nature must've been audited. How else to explain more than 20 feet of rainwater that flooded the headquarters of the Internal Revenue Service in downtown Washington this week -- a flood of tax-code proportions that ravaged the agency, closing it for a month, yet only strafed the nearby Museum of Natural History, with its dinosaur bones and diamonds?
The Joint Committee on Taxation yesterday released Disclosure Report for Public Inspection Pursuant to Internal Revenue Code Section 6103(p)(3)(C) for Calendar Year 2005 (JCX-30-06). Here is the Introduction:
Section 6103(p)(3)(C) of the Internal Revenue Code provides that the Secretary of the Treasury shall, within 90 days after the close of each calendar year, furnish to the Joint Committee on Taxation for disclosure to the public a report which provides with respect to each Federal agency and certain other entities the number of: (1) requests for disclosure of returns and return information (as such terms are defined in section 6103(b)); (2) instances in which returns and return information were disclosed pursuant to such requests or otherwise; and (3) taxpayers whose returns, or return information with respect to whom, were disclosed pursuant to such requests. In addition, the report must describe the general purposes for which such requests were made.
Pursuant to section 6103(p)(3)(C), the Internal Revenue Service prepared a disclosure report for public inspection covering calendar year 2005. This document1 sets forth the report of the Internal Revenue Service.
The IRS made over 4.6 billion disclosures of taxpayer returns and return information during 2005 to Congress, federal agencies, and other entities. Here are the Top 5 recipients::
- States: 3,154,655,451
- Bureau of Census: 1,263,657,770
- Congressional Committees & GAO: 167,053,151
- Child Support Enforcement Agencies: 19,028,431
- Congressional Budget Office: 3,188,426
Should tax liability be based on annual income or on the average of a taxpayer’s income earned over the space of several years (or even a lifetime)? This article assesses proposals to replace the current method of computing taxes with a system that would allow taxpayers to smooth out their income tax liabilities by offsetting high-income years with low-income years. While the usual discussion of this issue revolves around supposed horizontal inequities, I show that it is not clear that the current system generates horizontal inequities at all; and even if it does, I suggest as a normative issue that these horizontal inequities alone are not sufficiently important to justify a change in the method of computing tax liability.
Thursday, June 29, 2006
Bryan Camp (Texas Tech) asks about the tax issues faced by the beautiful people when companies shower them with their products to use, sparked by today's Wall Street Journal story about the New York City model given the use of an $80,000 Jaguar (Jaguar Tries a Living Product Placement, by Gina Chon):
He dines at Manhattan's most-exclusive eateries and glides past security at nightclubs. He wears custom-made shirts and drives an $80,000 Jaguar XK. But can he sell cars? Nico Bossi, a 27-year-old native of Rome, is one of New York's beautiful people. He not only looks like a runway model, he is also a real-life walking advertisement for Jaguar, the British sports-car maker....
Jaguar, a unit of Ford Motor Co., has given Mr. Bossi the sleek XK to use free, weaving it into his already fabulous lifestyle in hopes that by merely being seen in one, he will persuade friends, acquaintances and wannabes to buy a Jag.
Bryan dicusses the tax issues raised by this arrangement:
Sad story in the New York Law Journal: Partner Disbarred for Stealing From Firm, by Anthony Lin:
A former Manhattan law firm partner who filed false expense reports for almost $200,000 to pay his yacht club membership and credit card bills has been disbarred. Robert J. Pape, a former trusts and estates partner at New York's Putney, Twombly, Hall & Hirson, charged personal expenses both to his firm and to his clients. He frequently sought reimbursement multiple times for the same item in a practice known as "double dipping."
Indeed, the referee who heard the disciplinary case against Pape marveled that the lawyer had elevated double dipping to an art form. "He showed a brilliance in the way he expanded the double dip system," wrote the referee, Benjamin Altman. "[Pape's] scheme created a host of different ways to defraud, i.e., billing two clients when neither was involved, billing a non-existent client, billing two different clients when no evidence of appointments were in any diary or calendar."
The IRS headquarters at 1111 Constitution Ave. will remain closed for at least a month due to damage caused by torrential rains in the Washington, D.C. area. The basement flooded and damaged the building's electrical, heating, and air conditioning systems. From Reuters:
The IRS said it has executed business resumption plans to relocate the 2,400 employees who work in the building to 12 other sites in the Washington metro area.
The IRS said the building's sub-basement, which holds all of the building's electrical and maintenance equipment, was submerged in over 20 feet of water during heavy rains in Washington earlier this week. These systems appear to be 95 percent damaged or destroyed. The basement level was flooded with five feet of water, destroying the fitness center, food service canteens, and office equipment, fixtures and computers on these levels. Vehicles garaged in the building also were destroyed.
Other press reports:
Interesting op-ed in the Washington Post: Tax Me Once, Shame on You . . . Tax Me Twice and the System Needs Fixing, by Daniel J. Mitchell (Heritage Foundation):
Globalization is sending tax rates tumbling across the world, as jobs and capital migrate across borders in search of lower and more equitable taxation regimes. That makes it all the more imperative not only to roll back the recent tax increases on U.S. expatriates, but to eliminate double-taxation of overseas Americans altogether. Thankfully, there's a new bill in front of the U.S. Congress to do just that.
Interesting article in today's Seattle Post-Intelligencer: Timber Tax Cut Puts Two U.S. Senators in a Tight Spot; Break Tied to Estate Bill to get Murray, Cantwell, by Charles Pope:
For months, Washington Sens. Patty Murray and Maria Cantwell have argued, begged and maneuvered -- unsuccessfully -- to win a lucrative tax break for timber companies, a major source of jobs and political power in the Northwest.
And for just as long, Democrats Murray and Cantwell have repeatedly voted against full repeal of the estate tax, insisting that Republican proposals are an excessive gift to the super rich that will balloon an already enormous deficit. Instead, Murray and Cantwell have advocated more modest reform of a tax that, under current law, hits heirs of estates worth more than $2 million.
Now those unconnected issues have been joined in a make-or-break campaign by Republicans aimed squarely at Murray, Cantwell and a select few senators. In an effort to squeeze out the additional votes they need in the Senate to pass a major cut in the estate tax, Republicans added a timber provision that would exclude from the highest corporate tax rate 60% of timber sales for such companies as Weyerhaeuser and International Paper.
So far, the gambit does not seem to be working.
Murray and Cantwell have both said they are undecided about their vote, which is now expected after the Senate returns from the July 4th break. Their public comments on a bill the House passed June 22 have been underwhelming.
And that's not the only problem Republicans face. In a surprise move, GOP leaders in the Senate pulled the bill this week after failing to smooth over dissent within their ranks between conservatives who want a complete repeal and moderates who worry about the cost.
Interesting article in today's New York Times: Estate Tax Bill Could Hurt Charities, by Floyd Norris:
If the estate tax bill approved last week by the House becomes law, it will benefit wealthy families and cost the government a lot of tax revenue. But there are likely to be other winners and losers as well. Charities may find it harder to get donations and some heirs may have to wait years or even decades longer to collect inheritances, while surviving wives or husbands receive larger inheritances.
- Is business tax scholarship of declining importance?
- Is the perceived dominance of economics in tax scholarship overblown?
- Is the future of tax scholarship intradisciplinary rather than interdisciplinary?
Interesting article on Law Crossing: The Good Law Student, the Bad Professor, and the Ugly Computer, by Megan Rellahan:
Rather than going to lecture halls and taking notes the old-fashioned, pen-and-paper way, students are lugging their laptops to class and transcribing verbatim what the professor says. With computers becoming a central theme on campus, the professors are having a difficult time adjusting. Some have gone so far as to ban computer usage in their classrooms, which has stirred up nationwide controversy.
Shameless plug: I argue in a recent article that law faculty should enlist new technology (wireless handheld transmitters) to keep students engaged in the classroom. Taking Back the Law School Classroom: Using Technology to Foster Active Student Learning, 54 J. Legal Educ. 311 (2004). For New York Times coverage of the use of this technology in law schools, see here.
For prior TaxProf Blog coverage of the law school laptop wars, see:
- The War Over Student Use of Laptops and the Internet in Class (6/12/06)
- More Professors Ban Laptops in Class (5/3/06)
- Harvard Law School Debates Use of Computers and Internet in the Classroom (4/12/06)
- Law Prof Under Fire for Banning Laptops in Class (3/22/05)
- The Laptop Backlash (10/15/05)
Brian Galle (Florida State) has published The Justice of Administration: Judicial Responses to Executive Claims of Independent Authority to Interpret the Constitution, 33 Fla. St. U. L. Rev. 157 (2005):
There is a growing trend in federal agencies towards explicit consideration of the Constitution, and the principles of justice that it suggests. In controversies ranging from the Justice Department's challenge to the Oregon Death With Dignity Act to IRS regulation of the political activities of non-profits, agencies have come more and more to rely on their own view of what the Constitution requires or implies. Tax practitioners may recall similar doubts about the Service's authority dating back to the controversy over Bob Jones University.
The full abstract is here.
Linda M. Beale (Illinois) has published Tax Advice Before the Return: The Case for Raising Standards and Denying Evidentiary Privileges, 25 Va. Tax Rev. 583 (2006). Here is the abstract:
Abusive tax shelters have shone an unappealing light on tax lawyers. Some commentators suggest that these abusive shelters are the work of a small tax shelter bar. This article argues that the same practitioner norms, interpretive approaches, and tax standards that make possible the role of the so-called tax shelter bar in designing mass-marketed shelters also encourage aggressive loophole exploitation in customized tax planning by the regular tax bar.
Recent changes have set the stage for a paradigm shift in tax compliance. A new reportable transaction regime increases transparency. The 2004 Jobs Act's stiffer penalties and heightened standards for penalty protection, at least in the context of reportable transactions that have a significant tax avoidance purpose, move the target towards better compliance. Significant changes to the rules governing practice before the Internal Revenue Service add momentum.
This article argues that the best way to stymie socially wasteful tax planning is to accelerate the paradigm shift. The statutory and ethical standards for positions taken or advised on returns should be raised. A taxpayer should not be able to take a position on a tax return, nor an advisor advise a position, unless it is considered to have a greater than fifty percent likelihood of success on the merits if litigated. To make returns fully transparent and facilitate enforcement, Congress should amend the law to eliminate the applicability to pre-return tax planning advice of the common law attorney-client privilege and work product protection.
Wednesday, June 28, 2006
The Senate Finance Committee approved Chairman Charles Grassley's proposed "Pimp Tax." From the press release:
A Senate committee today approved legislation that would use the federal tax code to put behind bars criminals who make money in the underground economy by selling sexual access to girls and women....
The Grassley proposal gives the IRS harsh new criminal penalties to arrest those in the underground criminal economy. The majority of the victims of human trafficking – those who are often smuggled in from other counties and virtually imprisoned in a house set up for prostitution – are girls ages 13 to 17. In the past the IRS has been saddled by focusing on proving how much income a sexual trafficker or pimp earns in order to show that the trafficker has not been paying enough income tax. The Grassley provision packs its punch with the failure to file information returns, even the W-2 form. The new legislation makes the failure-to-file provision apply per failure. The enhanced jail time for failure to file would apply to those forms for which the associated income was earned in an underlying criminal activity. For example, if a trafficker has failed to file W-2s for five girls (employees), the maximum penalty would be 10 years in prison per failure to file, or 50 years.
The provision was added by voice vote included in S. 832, The Taxpayer Protection and Assistance Act Of 2005, passed by the Senate Finance Committee today.
Kudos to Tax Prof Mary L. Heen (Richmond), who has been appointed General Counsel of the American Association of University Professors for a two-year term commencing this month. From the Richmond press release:
She succeeds David M. Rabban, professor of law at the University of Texas, who provided distinguished service as AAUP General Counsel for four terms, from 1998-2006. School of Law Dean Rod Smolla noted: "This is an extraordinary and well-deserved honor for Mary, and we are all delighted and proud of her for this appointment. Mary is truly one of the most exceptional academic lawyers in the country, a person whom we here at the University of Richmond have come to admire for her judgment and leadership as a university professor and lawyer. She has a life-long commitment to academic freedom, shared governance, and the values of the American academy. Her selfless willingness to accept the important leadership role as General Counsel of the AAUP is a wonderful example of Mary’s strong dedication to public service, and to the high value we place on public service at the Law School."
Interesting op-ed in today's Wall Street Journal: Our Taxed Expats, by Newt Gingrich & Ken Kies:
Suppose you are trying to come up with ways to change U.S. tax law to make American business less competitive in the global economy. Your list of ideas would likely include raising the U.S. corporate tax rate even higher than its current 35% rate, already tops in the OECD. You would try to make sure that U.S. companies are subject to higher taxes than foreign-based competitors when they do business abroad. And of course, you would attempt to change our tax system to discourage the hiring of Americans overseas. Americans working overseas might actually help promote the export of U.S. goods and services abroad.
Sadly, Congress has latched on to this last idea as part of the ironically titled "Tax Increase Prevention and Reconciliation Act," signed into law by President Bush on May 17. A provision inserted in the conference agreement dramatically rewrites the rules under section 911 that limit U.S. taxation of American citizens working abroad. Specifically, the proposal would tax U.S. citizens working overseas at higher marginal rates and subject their housing to higher taxes. Adding insult to injury, these changes were drafted to take effect retroactively, back to the beginning of this year.
The Joint Committee on Taxation has released several reports:
- Description of the Chairman's Modification to S. 1321, The Telephone Excise Tax Repeal Act of 2005, and S. 832, The Taxpayer Protection and Assistance Act Of 2005 (JCX-28-06) and the estimated revenue effects (JCX-29-06)
- Present Law and Analysis Relating to the Tax Treatment of Health Savings Accounts and Other Health Expenses (JCX-27-06)
- Description of the Chairman's Mark of S. 1321, The Telephone Excise Tax Repeal Act Of 2005, and S. 832, The Taxpayer Protection and Assistance Act Of 2005 (JCX-25-06), and the estimated revenue effects (JCX-26-06)
Commentary on yesterday's KPMG tax shelter decision (blogged here):
- ataxingmatter: KPMG Tax Shelters (4): Thompson Memorandum, by Linda Beale
- Concurring Opinions: Wild KPMG Fees Decision, by Dave Hoffman
- L.A. Times: Judge Faults U.S. in Tax Case, by Kathy M. Kristof & Walter Hamilton
- New York Law Journal: Federal Judge Blasts U.S. Pressure on KPMG Case Fees, by Mark Hamblett
- New York Times: U.S. Tactic on KPMG Questioned, by Lynnley Browning
- USA Today: Judge Blasts Pressure Put on KPMG Over Legal Fees, by Greg Farrell
- Wall Street Journal Editorial: Thomsom Memo, RIP?
- Wall Street Journal's Law Blog, by Peter Lattman:
- Washington Post: Policy on Legal Fees Excessive, Judge Says, by Carrie Johnson
- White Collar Crime Prof Blog:
- KPMG's Aftermath -- Revenge of the Insurance Companies?, by Peter Henning
- Judge Kaplan's Decision - KPMG, by Ellen Podgor
- KPMG- Analysis - White Collar Cases Can Be Costly, by Ellen Podgor
Following up on this morning's post, Bell on the U.S. News Law School Rankings: Baylor Explains its LSAT & GPA Data, today's Inside Higher Ed has an article on the U.S. News - Baylor brouhaha: False Rank, by Rob Capriccioso:
One of the multitude of grievances regarding the annual U.S. News & World Report rankings of institutions of higher education is that there are ways to cheat — something that no individual student would be able to do when applying to, say, law school, without facing some mighty consequences.
A researcher with the magazine says that officials with Baylor University School of Law have repeatedly submitted misleading answers to the magazine’s questions involving LSAT scores and grade-point averages of first-year students. Baylor officials, meanwhile, insist they’ve done nothing wrong.
“We will be scrutinizing their data much more closely,” said Robert J. Morse, director of data research at U.S. News. “We’ll make sure that it doesn’t happen again.”
On two previous occasions, researchers with U.S. News were able to catch the misleading responses before publication. However, in the most recent rankings – in which Baylor Law placed 51st in the magazine’s “Top 100 Schools” – U.S. News failed to catch the misreported data. The person who was responsible for catching the error has since left the publication for a new job.
The IRS headquarters at 1111 Constitution Ave. will remain closed at least through the end of this week due to damage caused by torrential rins in the Washington, D.C. area. The basement flooded and damaged the building's electrical, heating, and air conditioning systems. See the Washington Post: Justice Dept., Archives and IRS to Stay Shuttered Rest of Week, by Paul Schwartzman & Megan Greenwell:
Terry Lemons, the agency's chief spokesman, declined to set a date for the building's reopening, saying, "We'll continue assessing the situation. "We have not had a situation like this in 20 years," he said, speaking from his home in Northern Virginia. "The building sustained significant damage in the basement. Before we can open, we need to have our electrical system and air conditioning working." Lemons said he did not know how many of the 2,400 employees assigned to the building were working. But he said: "We're continuing our tax administration work. The tax system continues to operate."
IRS employees can call the employee emergency hot line at 1-866-743-5748 (option 3, state code 32) or check the IRS's web site (keyword "employee emergency") for further updates.
The Nelson A. Rockefeller Institute of Government has issued a 16-page report, State Tax Revenue Rebounds on Strength in South and West, detailing a 6.8% surge in state tax revenues in the first quarter of 2006 compared with 2005. The chart below lists the states with the five largest and the five smallest percentage increases:
Change in First Quarter State Tax Revenue
Change from 2005
1. New Mexico
The increases in other large states were:
- Florida: 8.0%
- Illinois: 5.4%
- Michigan: 4.4%
- New Jersey: 10.4%
- New York: 6.2%
- Pennsylvania: 7.0%
- Texas: 6.0%
Personal income tax revenues rose 10.7% and sales tax revenues rose 6.5%, while corporate income tax revenues fell 13.7% (led by (90.3%) in Hawaii and (58.7%) in California).
For press coverage of the report, see the Wall Street Journal: States See Strong Revenues, But Few Propose Big Tax Cuts, by Tom Herman & Robert Guy Matthews.
The Tax Court decided an interesting § 166(d) nonbusiness bad debt deduction case yesterday: Alt v. Commissioner, T.C. Summ. Op. 2006-96 (6/26/06). Parents loaned son $97,000 to enable son to buy a pet atore. Parents mortgaged their home for $55,000, which son used to buy the pet store; the remaining $42,000 came from their savings, which son used as working capital. After a Wal-Mart and pet superstore opened nearby, son declared bankr uptcy. The court rejected the IRS's argument and permittted parents to treat $55,000 as a § 166(d) nonbusiness bad debt deduction.
The ABA Tax Section is offering a teleconference and webcast today on Grantor Trusts – Rulings, Rules and Practical Applications from 1:00 - 2:30 p.m. EST:
Our expert panel will discuss Grantor Trust Rules under Subchapter J, including recent IRS rulings, favorite techniques for “triggering” grantor trust status, and rules on EINs and tax reporting.
- A. Christopher Sega, Moderator (Venable, Washington, D.C.)
- Farhad Aghdami (Williams Mullen, Richmond, VA)
- Mary Ann Mancini (Williams Mullen, Washington, D.C.)
- Howard M. Zaritsky (Pitcairn Financial Group, Vienna, VA)
Tuesday, June 27, 2006
Tom Bell continues his series on the U.S. News & World Report Law School Rankings with a post on Baylor Explains the Data it Reported for the USN&WR Rankings:
The available evidence indicates that Baylor got ranked based on median LSAT and GPA figures different from—and rather higher than—the figures that USN&WR asked for. How did that happen? I here relate the explanation that Baylor's Associate Dean, Leah Jackson, recently sent to me.
Prior posts in Tom's series:
- Bell on the U.S. News Law School Rankings: Why Is Florida #41 Rather Than #43?
- Bell on the U.S. News Law School Rankings: Baylor & U.S. News Respond to Data Mix-up
- Bell on the U.S. News Law School Rankings: LSAT and GPA Rankings
- Bell on the U.S. News Law School Rankings: Why Is Baylor #51 Rather Than #58?
- Bell on the U.S. News Law School Rankings: Z-Scores
- Bell on the U.S. News Law School Rankings: Accuracy of the Model
- Bell on the U.S. News Law School Rankings: The Role of ABA Data
- Bell on the U.S. News Law School Rankings: Why Model the Rankings?
- Bell on the U.S. News Law School Rankings: Reverse Engineering the Rankings
- Bell on the U.S. News Law School Rankings: Winners & Losers in Use of Reported Median LSATs & GPAs
- Bell on the U.S. News Law School Rankings: Student Quality
From Bloomberg: Senate Delays Vote on Estate Tax Reduction, Timber, by Ryan Donmoyer:
Senate Majority Leader Bill Frist postponed a vote on a measure to exempt most multimillionaires from federal estate taxes after conceding Republicans lack the votes to pass legislation adopted by the House last week....
The delay allows Frist to avoid a repeat of a Senate vote on a procedural motion on June 8, when Republicans fell three votes shy of allowing a vote on outright repeal of the tax on estates valued at more than $2 million.
- Glenshaw Glass (Accessions to Wealth), by Joseph Dodge
- Eisner v. Macomber (Stock Dividends), by Marjorie Kornhasuer
- Kirby Lumber (Gain on Bond Retirement), by Deborah Schenck
- Davis (Transfer for Release of Marital Claims), by Karen Brown
- Welch v. Helvering (Deductibility of Reputation Payments), by Joel Newman
- INDOPCO (Deductibility of Takeover Expenses), by Joe Bankman
- Crane (Debt Relief from Nonrecourse Mortgage), by George Yin
- Schlude (Prepaid Dance Lessons), by Russell Osgood
- Lucas v. Earl (Income is Taxed to the Person who Earned It), by Pat Cain
- Knetsch (Sham Interest Expense), by Dan Shaviro
With Andrew's permission, we are adding links to these charts to our Tax Stories digital supplement.
Interesting editorial page commentary in today's New York Times and Wall Street Journal on what the Buffett and Gates philanthropy can teach us about the estate tax:
- New York Times editorial: Way to Let Go!
The estate tax spurs giving because gifts to charity are exempt. Several studies, including one by Congress's own budget agency, have shown that repealing the tax — or drastically lowering the tax rate, as the bill now before Congress would do — would sharply curtail charitable contributions. Philanthropists like Mr. Buffett and Mr. Gates are not up in arms over the estate tax because they voluntarily redistribute much of their wealth. But for the mega-rich who aren't so inclined, the estate tax is a useful tool to make sure that from those to whom much has been given, something is required.
- Wall Street Journal op-ed: Families Valued, by Lionel Tiger:
There has been a vigorous whoop of approval for Warren Buffett's decision to begin turning over nearly all of his staggering fortune to charitable programs. A major tranche is going to the foundation of his friend Bill Gates. Dramatic as his decision is to turn private money to public ends, it also highlights a political issue of great durability and moment -- what to do about estate taxes.
See also Reuters: Buffett Calls for Retention of Estate Tax.
Interesting article in today's Christian Science Monitor: Congress Weighs Estate-Tax Break for Wealthy, by Mark Trumbull & Gail Russell Chaddock:
More than $40 trillion in personal wealth is expected to change hands in America during the next five decades, as baby boomers and their children transfer wealth to heirs. Congress has to decide how big Uncle Sam's share will be. Republican lawmakers hope to permanently reduce the estate tax this summer. The move could allow more of that $40 trillion to escape the tax.
Those who stand to reap the big gains are billionaires, millionaires, and their heirs. But every taxpayer has a stake in the outcome. An estate-tax overhaul could affect the nation's social structure and the tax burden on ordinary Americans for years to come. "The revenue involved is not trivial," says Joel Slemrod, a University of Michigan economist. "What makes it more important, though, is this is by far the most progressive tax we have. [A large reduction] would certainly change in a substantial way who is bearing the tax burden."
Gregory L. Germain (Syracuse) has published Income Tax Claims in the Year of Bankruptcy: A Congressionally Created Quagmire, 59 Tax Law. 329 (2006). Here is the Introduction:
Whenever a debtor files bankruptcy on a date other than the first or last day of the tax year, the debtor will potentially owe some taxes on income earned before bankruptcy and some taxes on income earned after bankruptcy. For example, suppose that a debtor filed a bankruptcy petition on November 1, 2005, and owed $12,000 in taxes for the entire 2005 calendar year. Suppose also that the income upon which the taxes were imposed was earned proportionally during the year. Eleven months of the tax liability was incurred on prepetition income, and one month of the tax liability was incurred on post-petition income. How will the government’s claims for the unpaid tax liability be treated in bankruptcy?
Brian Leiter of our sister Leiter's Law School Reports has posted Law School Faculty Quality: Who is Up and Who is Down Since 2003:
Schools that have probably gained some ground (not just in total numbers, but in quality) since 2003 are Yale, Michigan, Duke, Vanderbilt, Illinois and, maybe also, Harvard, NYU, Berkeley, Texas, and UCLA. The two big stories here, I'd say, are Michigan and Duke. Michigan, which saw its mid-level tenured ranks decimated during the 1990s to the point where its "top ten" status might have been in question, has now rebounded with an increase in faculty size, and many high quality hires. Duke, which was probably the consensus choice among elite legal academics for the most overrated law school in America over the last decade (when U.S. News always put it in the top 15--sometimes, remarkably, even in the top 10), has made a strong series of lateral hires that now earn it a place, quite justifiably, in the top fifteen. (Outside the top 18, I'd say that Emory, Ohio State, Arizona State, and Arizona have all gained some ground since 2003 as well.) Schools that have probably lost some ground since 2003 would include Chicago, Virginia, USC, Cornell, and, maybe, Northwestern.
U.S. District Judge Lewis A. Kaplan ruled today that prosecutors unconstitutionally pressured KPMG to cut off legal fees for 16 former employees charged with setting up illegal tax shelters. Our sister White Collar Crime Prof Blog has a detailed analysis of the court's opinion here.
The Secretary of Education’s Commission on the Future of Higher Education has released a draft of its final report, which pulls no punches:
History is littered with examples of industries that, at their peril, failed to respond to — or even to notice — changes in the world around them....Our year-long examination of the challenges facing higher education has brought us to the uneasy conclusion that the sector’s past attainments have led it to unseemly complacency about the future.
For press reports, see:
- Inside Higher Ed: A Stinging First Draft, by Doug Lederman.
- New York Times: Panel's Draft Report Calls for an Overhaul of Higher Education Nationwide, by Karen W. Arenson
The IRS remains closed today as a result of torrential rains in the Washington. D.C. area which flooded the basement of the IRS headquarters at 1111 Constitution Avenue and caused a loss of electricity in the building. The IRS announced that there will be no guidance issued today. For more details, see:
The conservative Free Enterprise Fund continues to push for permanent repeal of the federal estate tax with one of the most blatantly false advertising campaigns we've seen this year.
To view the TV ads in question, see:
Senate Postpones Today's Hearing on Solomon's Nomination to be Assistant Treasury Secretary for Tax Policy
Congress is debating permanent repeal of the federal estate tax. The "death tax" is assessed at a high rate on the accumulated savings of deceased persons above a basic exemption amount. Some pundits say that repeal would be an unfair break for the wealthy, but the issue is more complicated than that. Many public finance experts believe that the estate tax causes broad harm to the economy by suppressing investment and generating unproductive tax avoidance activity. In addition, the estate tax might not raise any revenue for the government when all its effects are taken into account....
Does the United States need an estate tax? Table 1 shows that many countries have decided that they do not. Of 50 countries surveyed by PricewaterhouseCoopers in 2005, 24 do not have an estate or inheritance tax, including Australia, Canada, New Zealand, and Sweden. Of the 26 countries in the table that do have estate or inheritance taxes, the United States has the third highest rate at 46%:
[Click on chart to enlarge.]
Darryll K. Jones (Pittsburgh) has published Towards Equity and Efficiency in Partnership Allocations, 25 Va. Tax Rev. 1047 (2006). Here is the Conclusion:
A system that mandated capital account allocations as the presumptive method, but then allowed for non-capital allocations so long as the timing advantages were not objectively predictable would essentially be the same as the present model. Partners could simply rely on PIP restatements to obtain the illegitimate advantages available under the present law substantial economic effect safe harbor. On the other hand, a system should absolutely prohibit non-capital account allowances only if the arguments in favor of flexibility can be categorically and universally dismissed. Some scholars implicitly or explicitly adopt this view. This article has argued only that advocates for flexibility have not put forth any transaction or particular partnership relationship that could not be achieved in the absence of flexibility while admitting that the entire universe of transaction may yet be defined. It seems very doubtful that such transactions exist, but it would not be imprudent to allow for the slim possibility. While there has been no convincing efficiency argument in favor of non-capital account allocations, there are significant equity arguments against non-capital account allocations. Hence, the present proposal would make capital account allocations mandatory except in two occasions. First, non-capital account allocations would be mandated with respect to limited or preferred partners. Second, non-capital account allocations would be permissible upon application to the Secretary demonstrating the legitimate business need for the deviation and why the business need cannot be accomplished without the non-capital account allocation. If partners can meet this intentionally heavy burden, they should not be denied relief because the non-capital allocation will result in a tax advantage relative to individuals. This is consistent with the notion that efficiency gains justify and compensate for equity losses. The theoretical baseline, of course, is that efficiency and equity should exist in rough equilibrium. The proposal with regard to non-capital account allocations would adhere to that theoretical baseline.
Monday, June 26, 2006
What’s the current state of lawyer blogging on the Internet? What’s on the horizon for legal professionals who blog, or want to start a blog? Hang on, and get ready for Blog 2.0.
(Hat Tip: Drew Marksity.)
Ellen Aprill (Loyola-L.A.) has posted Inadvertence and the Internal Revenue Code: Federal Tax Consequences of State Unclaimed Property Laws, 62 U. Pitt. L. Rev. 123 (2000). Here is the abstract:
Each year Americans lose track of personal property worth, in the aggregate, hundreds of millions of dollars. We fail, for example, to cash checks for stock dividends or salary payments and neglect to claim security deposits or insurance benefits. Laws in all 50 states require businesses that hold certain kinds of unclaimed property to transfer such property to the state after periods of inactivity that vary from less than one to seven years. State governments do not themselves take title to this unclaimed property, but hold the property in perpetuity as custodian for the owner or the owner's heirs and devisees. As a result of the unclaimed property laws, states have acquired many billions of dollars of unclaimed property. This article discusses how the practical effects of these laws force us to reconsider some of the theoretical underpinnings of a variety of tax doctrines, including constructive receipt, the definition of debt, and the tax benefit rule. In particular, it exposes how our substantive tax laws assume that taxpayers act intentionally, as rational actors knowledgeable about and aware of their actions. The case of unclaimed property reminds us that our tax laws apply to human behavior and that our tax base needs to allow for human frailty. It helps us to highlight those tax doctrines, such as surrogate taxation or the rules applicable to fiduciaries, that allow for human carelessness. The study further suggests that the contours of many tax doctrines be limited to voluntary, or at least conscious, actions. Of special significance would be rethinking our notion of debt to require some conscious intention on the part of the taxpayer to make a loan.
Torrential rains in the Washington. D.C. area over the weekend caused flooding in the basement of the IRS headquarters at 1111 Constitution Avenue and forced the closure of the building today. See press reports here. See Creedence Clearwater Revival's Who'll Stop the Rain:
Long as I remember the rain been comin down.
Clouds of mystry pourin confusion on the ground.
Good men through the ages, tryin to find the sun;
And I wonder, still I wonder, wholl stop the rain.
Morse's The How and Why of the New Public Corporation Tax Compliance Norm Featured Today on Conglomerate's Junior Scholars Workshop
A paper by Susan Morse (Santa Clara), The How and Why of the New Public Corporation Tax Compliance Norm, is the focus of today's Second Annual Junior Scholars Workshop on Conglomerate:
- Susan's abstract and paper
- Commentary by Mike Guttentag (UNLV)
- Commentary by Kristin Hickman (Minnesota)
- Commentary by Claire Hill (Chicago-Kent)
The Government Accountability Office has released Puerto Rico: Fiscal Relations with the Federal Government and Economic Trends during the Phaseout of the Possessions Tax Credit (GAO-06-541) (225 pages):
This report provides information on the Puerto Rican economy, including corporate activity, during the phaseout of the possessions tax credit, as well as descriptions of the application of federal tax law and federal social policy programs in Puerto Rico.
The Joint Comittee on Taxation has released An Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options (JCX-24-06) (120 pages):
This pamphlet, prepared by the staff of the Joint Committee on Taxation, provides an overview of the special tax rules related to Puerto Rico and an analysis of the tax and economic policy implications of recent legislative options....Part I of the document provides an executive summary of the pamphlet. Part II discusses the present law tax provisions related to Puerto Rico and other U.S. possessions. Part III covers the mechanics of the possession tax credit. Part IV traces the legislative history of the possession tax credit and summarizes the findings included in several government reports released over the last 20 years. Part V contains an economic analysis of U.S. Federal tax policy issues relating to economic development in Puerto Rico. Part VI is a description of the Puerto Rico statehood, commonwealth and independent party agendas. Part VII is an analysis of the tax and economic policy implications of recent proposals regarding the U.S. tax treatment of Puerto Rico.