July 31, 2006
Tax Court: "God's Helping Hands" Can't Avoid Taxes, Interest, and Penalties
The Tax Court today sustained over $400,000 in back taxes, interest, and penalties against a husband and wife who deployed a "God’s Helping Hands Living Estate Plan Trust" to avoid taxes on their farming business. Smoll v. Commissioner, T.C. Memo. 2006-157. The Smolls previously were unsuccessful in their attempt to shelter income through this trust for prior years (1997 & 1998). Today's case involved tax years 1999-2001.
WSJ: How Tax Shelters Brought Trouble to Billionaire Wyly Family
Another interesting front-page story in today's Wall Street Journal: How Tax Shelters Brought Trouble to Billionaire Clan; Wylys Enjoy Painting, Watch Owned by Overseas Trusts As Grand Jury Investigates, by Glenn R. Simpson:
Audubon is part of a network of companies and trusts established on the Isle of Man to park large parts of the Wyly family wealth, a move that shields the money from U.S. taxes and lawsuits. To critics, the ability of the Wylys to enjoy benefits from assets that they don't own illustrates what's wrong with the huge offshore tax-avoidance industry....
The Wyly trusts will be examined tomorrow at a hearing by a U.S. Senate panel called the Permanent Subcommittee on Investigations. The panel's senior Democrat, Sen. Carl Levin of Michigan, has been probing offshore tax evasion and money laundering for several years. The panel is also looking into how the elite New York law firm Cravath, Swaine & Moore LLP provided legal advice on offshore tax shelters to wealthy individuals, people familiar with the probe say.
WSJ on House Estate Tax Bill
Interesting front-page article in today's Wall Street Journal: Senate's Pension Push May Snag On Split Over Estate Taxes, Wages, by David Rogers:
Congress is poised to adopt landmark pension legislation but faces a partisan fight over federal estate taxes and the minimum wage that threatens to delay Senate passage and disrupt other parts of the Republican agenda. The tax-and-wage struggle is expected to dominate this last week before the August recess and already threatens hopes of finishing Senate debate on a wartime Pentagon budget. It underscores the Republican determination to reduce estate taxes, which affect some of the wealthiest Americans, before the November election, in which the majority party risks losing seats to the Democrats....
Days ago, House and Senate Republican leaders had a bipartisan pension deal within their grasp but chose to gamble by taking out pieces to enrich the estate tax measure. The House late Friday night set the stage for Senate approval by adopting the pension bill, but shifted elements of the pension deal into the second, parallel bill that includes the estate-tax reduction. The effort is being driven in part by election-year politics and two personalities: Senate Majority Leader Bill Frist (R., Tenn.) and House Ways and Means Committee Chairman Bill Thomas (R., Calif.) Mr. Frist has presidential ambitions and is courting conservative supporters. For Mr. Thomas, it is a last big splash for his career....
Republicans are torn between what they see as a principled stand against the estate tax and a desire to strike the best deal now, before potentially losing power in November. Past attempts to repeal or reduce the estate tax have repeatedly failed for lack of the 60 votes needed to cut off debate. But the leadership has never gone so far in adding billions of dollars in sweeteners to make the estate tax more palatable to lawmakers, even as the future estate-tax reduction is being scaled back from what was previously proposed.
KPMG Challenges Judge Kaplan's Jurisdiction in Tax Shelter Case
Interesting article in today's New York Law Journal: KPMG Challenges Kaplan's Jurisdiction in Fee Dispute, by Beth Bar:
Embattled accounting firm KPMG has charged in court papers that the federal judge at the helm of the civil case filed against it does not have jurisdiction to preside over the matter. And even if Southern District Judge Lewis A. Kaplan does, in fact, have jurisdiction, KPMG argued in a motion to dismiss filed late July 25 that the plaintiffs should be compelled to arbitrate their claims that the company improperly capped the advancement of legal fees and is responsible for paying their defense costs.
NY Times Pans Anti-Tax Movie America: From Freedom to Fascism
David Cay Johnston pans the new anti-tax movie, America: From Freedom to Fascism in this morning's New York Times in Facts Refute Filmmaker’s Assertions on Income Tax in "America":
[E]xamination of the assertions in Mr. Russo’s documentary, which purports to expose “two frauds” perpetrated by the federal government, taxing wages and creating the Federal Reserve to coin money, shows that they too collapse under the weight of fact....
Many of the reviews in major newspapers have accepted as having some factual basis the film’s main contention, that the government illegally extracts income taxes, even though every court that has ever ruled on these issues has upheld the constitutionality of the income tax....
Early in the film Mr. Russo, the narrator, asserts that every president since Woodrow Wilson and every member of Congress has perpetrated a hoax to tax people’s wages and issue them dubious currency....
Near the film’s beginning Mr. Russo says, and others appear on screen asserting, that the IRS has refused every request to show any law making Americans liable for an income tax on their wages. Yet among those thanked in the credits for their help in making the film is Anthony Burke, an IRS spokesman. Mr. Burke said that when Mr. Russo called him asking what law required the payment of income taxes on wages, he sent Mr. Russo a link to documents, including Title 26 of the United States Code, citing the specific sections that require income taxes be paid on wages. Title 26 says on its face that it is law enacted by Congress, but Mr. Russo denied this fact. “Title 26,” Mr. Russo said in an interview last week, “is not the law, it is IRS regulations and to be a law it has to be passed by Congress.” Mr. Russo added that he had studied the matter closely and was confident that he had the facts.
Arguments made in court that the income tax is invalid are so baseless that Congress has authorized fines of $25,000 for anyone who makes them. But even though the penalty was quintupled, from $5,000, it has not deterred those who assert this and other claims that Congress and the courts deemed “frivolous arguments.”
GAO Releases Some Combined Federal Campaign Charities Owe Payroll and Other Federal Taxes
The Government Accountability Office on Friday released Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and Other Federal Taxes (GAO-06-887):
The Hazards of Academic Blogging
Interesting series of articles in the Chronicle of Higher Education on The Hazards of Academic Blogging, including two by Law Profs (and participants in our recent Bloggership Symposium at Harvard Law School):
- Exposed in the Blogosphere, by Ann Althouse
- The Politics of Academic Appointments, by Glenn Reynolds
Glenn comments on InstaPundit that "I'm sorry to see some people say that their Deans don't appreciate blogging -- my Dean has been very encouraging, and in fact says that he thinks it counts as scholarship, which surely makes me -- on a word-count basis, at least -- one of the most productive scholars around." Ann Bartow takes umbrage at this on Feminst Law Professors.
- Tax Prof Profile: Neil Buchanan
- House Passes Two Tax Bills
- Devereux Named Inaugural Director of Oxford University Centre for Business Taxation
- Secret Ballots in Faculty Appointments
- Top 5 Tax Paper Downloads
- WaPo: Estate Tax Bill Likely To Go Nowhere in Senate
- The Anonymous Lawyer
- Kaplan on Means-Testing Medicare: Retiree Pain for Little Governmental Gain
- Law Prof Book Advance: $1 Million+
July 30, 2006
Top 5 Tax Paper Downloads
1. [138 Downloads] A New Model for Identifying Basis in Life Insurance Policies: Implementation and Deference, by Jay A. Soled (Rutgers Business School) & Mitchell Gans (Hofstra) [blogged here]
2. [99 Downloads] Interstate Competition and State Death Taxes: A Modern Crisis in Historical Perspective, by Jeffrey A. Cooper (Quinnipiac) [blogged here]
3. [94 Downloads] International Tax Relations: Theory and Implications, by Diane M. Ring (Boston College) [blogged here]
WaPo: Estate Tax Bill Likely To Go Nowhere in Senate
Interesting article in today's Washington Post: Estate Tax, Wage Hike Teetering In Senate, by Jonathan Weisman & Charles Babington:
The House completed its summer work in a flurry of post-midnight debates and votes yesterday, approving changes to the federal minimum wage, estate taxes and pension laws. But with deep divisions lurking in the Senate, it all may go for naught, as have so many other recent efforts, leaving the two chambers open to perhaps the loudest taunts of "do-nothing Congress" in decades.
The Anonymous Lawyer
We previously blogged the hilarious tax lawyer profiles on the web site, Anonymous Law Firm, released in anticipation of the novel, Anonymous Lawyer, by Jeremy Blachman. The Weekend Wall Street Journal reviews the book in A Law Partner, and Life Is Still Miserable, by Cameron Stracher. My favorite passage:
When a female associate gives birth, she sends an email to the firm apologizing "for the inconvenience" and letting her colleagues know that she expects to return to work the next day. "I will, of course, be checking my BlackBerry throughout the day, so feel free to let me know if you need anything." Since email can indeed be checked throughout the day, no matter where the recipient is, Anonymous devises a tactic for humiliating the lawyer he calls "The One Who Loves His Kids" when Anonymous sees him leaving early on a Friday: Anonymous puts a Post-it note on the man's computer, listing the date and time, and saying: "Check in as soon as you get this. I have some important work for you to take home tonight. Hope it won't be much trouble. Thx."
Kaplan on Means-Testing Medicare: Retiree Pain for Little Governmental Gain
Richard L. Kaplan (Illinois) has posted Means-Testing Medicare: Retiree Pain for Little Governmental Gain on SSRN. Here is the abstract:
Medicare Part B covers most doctors' fees, diagnostic tests, ambulance services, and certain other items. Enrollees pay a monthly premium that is calculated to cover 25 percent of the program's expenditures, with the remaining 75 percent coming from general governmental revenues. But starting in 2007, this cost-sharing ratio will be increased for retirees whose annual taxable income exceeds $80,000. This means-testing of Medicare was adopted in the mammoth 2003 Medicare Act that also provided coverage of prescription drugs and was accelerated by the Deficit Reduction Act that was enacted in February 2006. This article examines the decade-long policy debate about means-testing Medicare and explores the tax implications of the mechanism that was finally created. The article also analyzes concerns about the joint administration of this program by the Social Security Administration and the Internal Revenue Service, and discusses such financial ramifications for upper-income retirees as capped contributions from former employers and possible nonenrollment in Medicare Part B.
Law Prof Book Advance: $1 Million+
Yale Law Prof Jed Rubenfeld "has recently received a whopping seven-figure sum for the sale of his first novel [The Interpretation of Murder]. He refuses to confirm the exact figure, but it is thought to be a US record." According to this press report:
His last book - Revolution by Judiciary: The Structure of American Constitutional Law - sold all of six copies when it came out last year. "And four of those were bought by members of my family!" Nonetheless, he has been described as "the most elegant legal writer of his generation," and his first academic tome, 2001's Freedom in Time: A Theory of Constitutional Self-Government, was acclaimed.
(Hat Tip: JD2B.)
July 29, 2006
Neil H. Buchanan (Rutgers-Newark)
- A.B. 1981, Vassar
- A.M. (Economics) 1991, Harvard
- Ph.D. (Economics) 1996, Harvard
- J.D. 2002, Michigan
My father was a Presbyterian minister, but I grew up on a steady diet of "Perry Mason" and knew when I was twelve that I wanted to be a lawyer. That was still the plan until my sophomore year at Vassar, when my heart was stolen by a macroeconomic theory class. I loved the math, the policy implications, the sense of dealing with something Very Important. After graduating, I immediately enrolled in the Ph.D. program in economics at Harvard. There, my interests turned toward teaching. I became one of those people who extends his graduate school career because he's having so much fun teaching undergraduate classes. I taught the intro class, seminars, summer school, etc. I even managed to land a teaching position at Berkeley one summer (despite having no prior connections there), which introduced me to the joys of the Bay Area. The next obvious step was to find a teaching position at a liberal arts college. After a one-year visiting stint at Wellesley College, I landed a tenure-track job at Goucher College, near Baltimore.
While at Goucher, I was adopted by two dogs and two cats. Proving that I really have no life, I named the dogs after my two favorite economists, Maynard (John Maynard Keynes) and Violet (Joan Violet Robinson). The cats were already named by the time they took over my house, sparing me from having to find two more economists with interesting middle names. Violet, Maynard, Katie, Murphy, and I thought that we were going to live happily ever after in the mid-Atlantic, but we were wrong. Very wrong.
By that point in my career, I had focused all of my energy on teaching and had not focused on scholarly research. Although teaching was still very fulfilling, I wanted more. I took a position at a policy research think-tank in upstate New York, finally wrote a dissertation (under the generous and invaluable supervision of Benjamin M. Friedman at Harvard, with my good friend Jeff Fuhrer acting as a patient sounding board and de-mystifier of advanced econometrics), then continued my tour of the Seven Sisters colleges by visiting at Barnard College for a year before moving on to another policy research and teaching position at Wisconsin-Milwaukee. Whew!!
By then, I had started to do some research and writing in the macroeconomic aspects of tax policy. It was also of some consequence that, after all that moving around, I had filled out an awful lot of tax forms in an awful lot of states. The differences among the states' tax systems intrigued me, causing me to think in some very concrete ways about the policy consequences of different tax systems. (Given my scholarly interests, it's also probably not a minor point that I had been able to pay my college tuition with Social Security survivor's benefits. I would be a staunch defender of the Social Security system in any event, but there's no doubt that we are all to significant degrees the products of our personal histories.)
Starting in 1995, I was invited to attend some feminist legal theory workshops that were organized by Martha Fineman, who was at that point at Columbia Law School. This led to invitations to participate in sessions at Law & Society and at the AALS. Before too long, it occurred to me that I was enjoying my time among legal scholars in ways that I never had among economists. I had always felt like a round inter-disciplinary peg in a square economics hole, and I saw that the interests and methods of legal scholars were very well-suited to my own scholarly approach.
It took some doing, but my new law professor friends (and two old law professor friends, Michael Dorf and Sherry Colb) talked me into going to law school. (The professor at Vassar who taught that macro theory class ended up going to law school, too, by the way.) Was I twelve years old again, watching re-runs of "Perry Mason"--and, by that point, "LA Law" and "Law and Order"? Once again, I loaded my four critters into my little car and moved, this time to Ann Arbor, to become a 40-year-old legal virgin. Having grown up only 45 minutes away near Toledo, this was the best of all possible worlds. Watching my nephews grow up, seeing my mother and siblings much more frequently than had ever been possible, and attending one of the best law schools in the country. What could be better?
I thought that I might become a public defender, or maybe an environmental lawyer. By the end of my first year, though, I missed teaching so much that I realized that I had to return to academia, this time as a law professor. In the meantime, I was lucky enough to be brought on to teach in the economics department at Michigan during my second and third years of law school. I was insanely busy, but it was great. My three years at Michigan were the most exciting and intellectually stimulating time of my life (so far).
In the fall semester of my second year, having been closed out of a course and needing to fill the resulting hole in my schedule, I decided to take Kyle Logue's basic tax class. I thought that I might as well take a course that "every law student should take," since I was otherwise taking as many seminars and academically-oriented courses as I could. At this point, my story--which is so completely unlike the other stories that I have read in the Tax Prof Spotlight series--has the same punch line: I was surprised to find myself hooked on tax. I followed up that course by taking two seminars with Kyle, and I knew that I had to be a tax professor. The Tax Policy Workshop at Michigan began during my third year there, which resulted in my being a student under the tutelage of Kyle, Reuven Avi-Yonah, and Jim Hines. That I had been a classmate of Jim's in grad school and had lived in the same residential house at Harvard as Reuven made being a student in the workshop somewhat surreal, but it was a great way to finish law school.
After law school, I clerked for Judge Robert Henry on the 10th Circuit in Oklahoma City. The clerkship was a great learning experience, and Oklahoma was ... let's just say it gave me a lot of stories to tell. I moved from there to New Jersey to become a law professor at Rutgers-Newark, where I just completed my third year. I have some wonderful colleagues and students at Rutgers. I am also looking forward to teaching at NYU this coming year. Having moved into New York City last year, I am already a regular presence at the great movie theaters in Greenwich Village.
Only one of my critters remains to enliven my life in Manhattan (and unfortunately, he's not getting any younger), but I know that I couldn't have made it through all the changes that I've made in the last thirteen years without all four of them. On the human side, I've been very impressed by the collegiality of law professors in general, and tax professors in particular. This is a very pleasant way to make a living.
When people see that I have a Ph.D. in economics and am now focusing on tax policy scholarship, they often think that that must have been the plan all along. I smile, cross my fingers, and tell them that, yes, it really was that simple.
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.
House Passes Two Tax Bills
- The Pension Bill (H.R. 4) passed 279-131:
- The "Trifecta Bill" (H.R. 5970) -- permanent estate tax cut, tax extenders and a higher minimum wage -- passed 230-180:
The Center on Budget & Policy Priorities has a number of critical reports on both bills:
- Pension Bill (H.R. 4):
- Trifecta Bill (H.R. 5970):
- Comparing the House Minimum Wage and Estate Tax Proposals: Who Benefits and By How Much?
- House Estate Tax Proposal Has Essentially the Same Large Long-Term Cost As Earlier Version: Phase-Ins Mask Costs, But Underlying Policy Remains Unchanged
- Buying Power of Minimum Wage at 51 Year Low: Congress Could Break Record For Longest Period Without an Increase
Devereux Named Inaugural Director of Oxford University Centre for Business Taxation
Professor Devereux is currently Professor of Economics at Warwick University.... Sir Derek Morris, Chairman of the Advisory Board of the Centre commented: "The appointment of Professor Devereux is a major step in the development of the Oxford University Centre for Business Taxation as the world’s leading academic centre for business taxation research The Centre has substantial funding and strong support from the University; and both government and business will be looking to the Centre for authoritative independent research and policy advice. Professor Devereux is one of the world’s foremost experts in business taxation and has the ideal track record to provide the leadership for this new, and long overdue, venture."
Hat Tip: Tax Grotto.)
Secret Ballots in Faculty Appointments
Ira P. Robbins (American) has posted The Importance of the Secret Ballot in Law Faculty Personnel Decisions: Promoting Candor and Collegiality in the Academy on SSRN. Here is the abstract:
Law school faculty personnel decisions are often controversial. Debates may be heated, votes may be close, and ill will may be incurred. One way to avoid this enmity and to promote or maintain a collegial atmosphere is to use secret ballots for votes on hiring, retention, promotion, and tenure. The use of secret ballots, however, allows for the possibility of voting for the wrong reasons (e.g., bias, discrimination). But open voting carries the same possibility (e.g., political correctness, fear of reprisals).
This Article discusses the evolution and significance of the secret ballot and considers the arguments for and against its use on law school faculties. It also presents the results of an original survey (with a 97% response rate) on the use of secret ballots in faculty personnel decisions at all law schools in the United States. Comments from the survey and conversations and email exchanges between the author and faculty and administrators across the country reveal a subtext that involves, among other things, the need for candor, openness, fairness, and sensitivity, on the one hand, as well as concerns about politics, frustration, anger, power, dominance, and control, on the other hand.
The Article concludes that, with secret ballots - at the very least, with an open and honest debate about whether to conduct secret ballots - may come not only candor, but also greater harmony and collegiality.
July 28, 2006
IRS Explores Tax Issues in Backdating of Options
Interesting article in today's New York Times: I.R.S. Reviewing Companies in Options Inquiries, by Eric Dash:
The IRS is examining as many as 40 companies ensnared in various stock options investigations to determine whether they owe millions of dollars in unpaid taxes. In the last few weeks, the agency has directed its corporate auditors to start reviewing the tax returns of dozens of executives and companies, which may have improperly reported stock option grants. These preliminary investigations are expected to take months, but if there is early evidence of widespread tax trouble, IRS officials said they were prepared to step up their effort....
The agency appears to be taking aim both at companies that took improper tax deductions, and at executives who received favorable tax treatment and might have misreported income....
By itself, backdating stock option grants is not illegal. But it can have severe tax consequences separate from potential accounting violations. While ordinary stock options generally qualify for favorable tax treatment, options issued at a discount to the market price do not. Backdating effectively allows such in-the-money options to appear in regulatory filings as if they were ordinary grants. The IRS is broadly focused on two main areas that may have been abused: performance-based stock options for top executives and incentive stock options that were frequently handed out to the rank and file. Each receives a different type of tax treatment.
WSJ: Caveat Benefactor
Interesting op-ed in today's Wall Street Journal: Caveat Benefactor, by Arthur C. Brooks:
Few of us will give away billions of dollars, but many will have plenty of capacity to give in the coming years. Disposable income among American professionals is higher than it has ever been, and scholars estimate that more than $50 trillion will be bequeathed by mid-century. The confidence we have in the way our money is used will determine how much of it we will give away to charities, as opposed to spending it on our own consumption or leaving it to our heirs.
Charities can give us this confidence by doing what retail firms have done for decades: offering money-back guarantees. For donations that are spent outright by nonprofits, these guarantees should hold for a reasonable but limited time; for gifts that go towards endowments, there should be periodic donor review and an option to redirect the money toward other causes. Major donors can protect their own interests by stipulating that all their money be spent within a designated period after their deaths -- a period short enough that their stated intent is not hopelessly obscured.
These are just two ideas; many other ways to protect donor intent -- and thus unlock our generosity -- are waiting to be found by enterprising charities, givers and financial intermediaries. America's dynamic economy is delivering the potential for us to enter into the nation's greatest age of philanthropy ever -- not just because of mega-givers like Warren Buffett, but because the rest of us can share our growing prosperity as well. This will only happen if we find ways to make "donor beware" a thing of the past.
Still More on Law Review Submission Policies
- Tony Sebok's Law Review Submission Guide
- Dave Hoffman's Law Review Information Wiki
- Michael Froomkin's Copyright Experiences
Kingson on The Great American Jobs Act Caper
The Act is a caper, but not a funny one. It completes a sad trilogy: the failure to cope with intercompany pricing, permitting the retention of unnecessary assets abroad for spurious reasons, and now, exempting past and some future profits from tax. [FN246] People view tax as a contest between themselves and the government, but that confuses enforcement with policy. Policy is a contest among taxpayers, and what Intel or GE or Pfizer does not pay, other people or their children will. The government is an arbiter, and it has decided that competition requires encouraging low-taxed operations abroad. That may be true, but as far as calling this a jobs bill, Pogo the Possum said it: "We have met the enemy, and they is us."
More on KPMG Tax Shelter Case
- United States v. Stein, No. S1 05 Crim. 0888 (S.D.N.Y. 7/25/06)
- Associated Press, Judge Blasts Coercion in KPMG Case, by David B. Caruso
- Bloomberg: KPMG Judge Excludes Executives' "Coerced" Statements, byAndrew Dunn
- New York Law Journal: Federal Judge Finds KPMG Employees Coerced, Suppresses Statement, by Beth Bar
- New York Times: Statements Made to U.S. Are Barred From Tax Case, by Lynnley Browning
- Reuters: KPMG Asks Judge to Dismiss Ex-Partners Fee Lawsuit, by Jonathan Stempel
- Wall Street Journal: Judge Bars Some Statements In the KPMG Tax-Shelter Case, by Paul Davies
- White Collar Crime Prof Blog: Court Suppresses Two Statements in KPMG Defendants' Cases, by Ellen Podgor
Looney & Singhal on The Effect of Anticipated Tax Changes on Intertemporal Labor Supply and the Realization of Taxable Income
Adam Looney (Federal Reserve Board of Governors) & Monica Singhal (John F. Kennedy School of Government Harvard University) have posted The Effect of Anticipated Tax Changes on Intertemporal Labor Supply and the Realization of Taxable Income on the Kennedy School website. Here is the abstract:
We use anticipated changes in tax rates associated with changes in family composition to estimate intertemporal labor supply elasticities and elasticities of taxable income with respect to the net-of-tax wage rate. Changes in the ages of children can affect marginal tax rates through provisions of the tax code that are tied to child age and dependent status. We identify behavioral responses to these tax changes by comparing families who experienced a tax rate change to families who had a similar change in dependents but no resulting tax rate change. A primary advantage of our approach is that these changes can be anticipated, allowing us to estimate substitution effects that are not confounded by life-cycle income effects. We estimate an intertemporal elasticity of family labor earnings of 0.75 for families earning between $35,000 and $85,000 in the Survey of Income and Program Participation (SIPP) and find very similar estimates using the IRS-NBER individual tax panel.
Kirsch on The Tax Code as Nationality Law
This article questions the frequently-asserted axiom that Congress's taxing power knows no bounds. It does so in the context of recently-enacted legislation that creates a special definition of citizenship that applies only for tax purposes. Historically, a person was treated as a citizen for tax purposes (and therefore taxed on her worldwide income and estate) if, and only if, she was a citizen under the nationality law. As a result of the new statute, in certain circumstances a person might be treated as a citizen for tax purposes (and therefore taxed on her worldwide income and estate) for years or even decades after she is no longer a "real" citizen under the nationality law.
The analysis first looks at international law principles, concluding that in certain circumstances the new statute exceeds the prescriptive jurisdictional limits of customary international law. It then examines the constitutional implications, arguing that the statute, at least in certain circumstances, reflects a rare occasion where Congress might have exceeded its Article I taxing powers. Moreover, even to the extent the statute is within Congress's powers, certain aspects of it violate the due process limitations of the Fifth Amendment. These conclusions highlight the importance of Congress taking constitutional and international law considerations more seriously with respect to future legislation in the increasingly important area of international taxation.
Hidden Microsoft Office Features
July 27, 2006
Farewell, San Diego!
This is a bittersweet day for me: my wife and kids left San Diego this morning to return home to Cincinnati, so I will be celebrating my birthday alone as I teach my last Tax I class tonight at the University of San Diego School of Law. It was a wonderful 7 weeks out here, as we enjoyed the Southern California lifestyle (except for the record-breaking heat wave!) and renewed friendships from our three previous summers teaching at USD. As our kids grow older and our lives become increasingly hectic, it has been a real blessing to have this time together living in a cramped 2 bedroom apartment without the many distractions of home. My thanks to the kind folks at USD for having us back and for making us feel at home at their wonderful school, and to my 74 students who worked so hard (and laughed at most of my jokes).
Boeing Will Refuse to Deduct $615 Million Settlement with Government; Grassley Slams DOJ Lawyers for Ignoring Tax Implications
We previously blogged (here and here) the controversy over the deductibility of Boeing's $615 million settlement with the federal government.. Yesterday, Boeing bailed and said it would not claim a deduction for the settlement:
"While the decision not to deduct the $615 million will be costly in the short run, it is an important long-term move to improve Boeing’s reputation and move the company in a new direction. Without question, the short-term impact of the tax issue is significant. However, the long-term value of Boeing’s reputation is even more significant. I feel strongly that the right thing for Boeing to do is not to seek tax deductibility for the settlement charges.
Senate Finance Committee Chair Charles Grassley issued a press release praising Boeing's decision but slamming the DOJ for ignoring the tax implications of the settlement:
“It’s good Boeing won’t seek a tax deduction for its $615 million settlement. That’s the right decision. However, Boeing’s lawyers believed the settlement was tax deductible. This tells me Department of Justice lawyers failed to take into account the settlement’s tax treatment and allowed Boeing’s lawyers to effectively negotiate a 35 percent discount. Any junior lawyer knows to look at a settlement’s tax treatment, yet Justice lawyers were asleep at the switch. That’s inexcusable. The Justice Department has to pay attention to the tax treatment in these big settlements.
Update: The WSJ Law Blog has more here.
Dodge on Theories of Tax Justice
Joseph M. Dodge (Florida State) has published Theories of Tax Justice: Ruminations on the Benefit, Partnership, and Ability-to-Pay Principles, 58 Tax L. Rev. 399 (2005). Here is the abstract:
This essay considers the benefit, partnership, and ability to pay principles of tax justice with respect to their foundations and how they bear (if at all) on such issues as the role and size of government, the choice of the tax base, and the structure of rates and exemptions. The method of examination is primarily by way of critique of what I call the new benefit principle, or NBP, which has recently been invoked by some commentators. The broad thesis of this essay is that the NBP - as well as its sibling, the partnership theory of (income) taxation - is little more than a rhetorical counter to street Libertarian talk that assumes one's entitlement to market outcomes. The NBP and the partnership theory do not withstand analysis at the level of entitlement theory, and they do not prescribe a politically liberal taxing and spending role for government. Specifically, the NBP and, to a lesser extent, the partnership theory, tell us very little about what the tax system should look like, and they certainly do not favor a Schanz-Haig-Simons income tax base, or, for that matter, any personal tax base with progressive features. Neither can be implemented as a substantive tax fairness principle. In contrast, an objective ability-to-pay principle is compatible with leading social justice theories and clearly favors a realization income tax base. I also argue, contrary to Murphy & Nagel and Kaplow & Shavell, that the ability-to-pay principle, as a norm of tax fairness, has a legitimate (if not pre-emptive) role in tax theory.
In light of all of the tax rankings developments reported on this blog recently, we have updated our left column permanent tax rankings resources to include links to 10 categories of tax rankings:
US News Tax Rankings:
SSRN Tax Rankings:
- Top 25 Tax Professors
- Top 25 Tax Faculties
- Top 17 Graduate Tax Faculties
- Top 10 Tax Faculty Metro Areas
- Top 10 Tax Papers (All-Time)
- Top 10 Tax Papers (Recent)
- Weekly Top 5 Tax Papers
You can click on each of these rankings for the latest results.
Law Schools and Affirmative Action
[T]his is an academic minefield, especially for the untenured. Am I dumb enough to take the bait? Well, I guess I don’t like the way I phrased the question. Diversity in legal education and the legal profession are matters of great public importance. Based on my prior and current empirical research on testing and the legal profession, I probably have some original—and hopefully productive—thoughts on this topic. I am inclined to speak honestly and not indulge the belief that I am somehow rolling the dice. If I get run out of the academy for engaging in sincere, thoughtful dialogue on matters of public importance and personal conscience, then this job is not a good long-term fit anyway.
I am tired of academics trying to score points at Sander’s expense without offering an alternative hypothesis that directly confronts the data. Faced with the bleak statistics on minorities and the legal profession, our time would be better spent embarking on a Manhattan Project for legal education that examines each nexus of the lawyer creation process, including law school pedagogy. A panel of respected, independent scholars to review the questions raised by Sander and his critics would be a step in the right direction.
- Josh Wright responds here
ABA Offers Teleconference & Webcast Today on Income Tax Implications of FLPs
Learn about the federal income tax traps and opportunities presented at each stage of a family limited partnership's existence from formation and operation through liquidation. Attend this program to learn:
- When founding partners might recognize gain upon formation of the FLP
- Why special allocations of partnership items might pose problems for traditional FLPs
- How to allocate built-in gains in the FLP
- How to avoid the perils of liquidating the FLP too soon after its formation
- When distributions of marketable securities and appreciated property from the FLP may be taxable
Submission Information for the Top 37 Law Reviews
Following up on yesterday's post, Article Length Guidelines at the Top 35 Law Reviews: Dan Solove has posted this very helpful chart from Scott Moss with submission policies at the Top 37 law reviews (article length, spacing, anonymity, mail vs. ExpressO, dates by which journals will begin reviewing this fall, etc.).
Testimony from Senate's Tax Gap Hearing
The Subcommittee on Taxation and IRS Oversight of the Senate Finance Committee has released the testimony from yesterday's hearing [blogged here] on A Closer Look at the Size and Sources of the Tax Gap:
- Mark J. Mazur, Director, Research, Analysis, and Statistics, IRS
- Michael Brostek, Director, Tax Issues, Strategic Issues Team, U.S. Government Accountability Office
- J. Russell George, Treasury Inspector General for Tax Administration
- Nina E. Olson, National Taxpayer Advocate, Taxpayer Advocate Service
- Raymond T. Wagner, Jr., Chairman, IRS Oversight Board, and Legal and Legislative Vice President, Enterprise Rent-A-Car Company
July 26, 2006
House to Vote on Estate Tax Later This Week
Interesting article today on Bloomberg: House to Vote on Estate Tax This Week, Hastert Says, by Ryan J. Donmoyer:
The House of Representatives will vote this week on legislation that combines a reduced estate tax with a measure renewing two-dozen expired breaks for business including a research credit, Speaker Dennis Hastert said. Lawmakers decided yesterday to remove the package of renewed tax breaks from broader pension legislation and attach them to a measure reducing the tax on multimillion-dollar estates because the business breaks have broad support in both political parties.
WSJ on Patenting Tax Advice
Interesting article in today's Wall Street Journal: Patented Tax Strategies May Fail To Shield You From the IRS, by Tom Herman:
It's tough enough to figure out whether a complex tax strategy is right for you -- let alone legal. Now there's something else to worry about: Getting sued by someone who has patented the technique. It may sound surprising that tax and financial-planning ideas can be patented at all. They can, just like gadgets and other inventions. While the number of tax-related patents is still small, it appears to be growing -- and is attracting attention in Congress, at the Internal Revenue Service and among tax professionals facing increasingly intense competition for wealthy clients. Adding to the interest is a lawsuit filed earlier this year against a Connecticut executive for allegedly using a tax strategy patented by a Florida man in 2003.
IRS officials and some tax lawyers worry taxpayers may be fooled into thinking that a "patented" tax strategy automatically bears the government's seal of approval -- which it doesn't. "Just so there is no misunderstanding today on this point, let me be clear," IRS Commissioner Mark Everson told a congressional panel earlier this month. "The grant of a patent for a tax strategy has absolutely no impact on IRS's determination of the effectiveness or the legitimacy of the strategy."
Lawyers, meanwhile, are questioning whether someone should be allowed to impose what amounts to a toll charge on someone else for using a technique to reduce taxes lawfully. "The proliferation of tax-strategy patents would change and burden tax practice," says Ellen Aprill, a tax-law professor and associate dean for academic programs at Loyola Law School in Los Angeles.
For prior TaxProf Blog coverage, see here.
Tax Issues in Immigration Reform
In connection with today's immigration reform hearing by the House Ways & Means Committee, the Joint Committee on Taxation has issued Present Law and Background Relating to Tax Issues Associated with Immigration Reform (JCX-32-06):
S. 2611, The Comprehensive Immigration Reform Act of 2006 as passed by the Senate on May 25, 2006, as has four tax provisions: (1) provisions relating to payment of income tax by aliens, (2) limitations on refunds and refundable credits for aliens for taxable years prior to 2006, (3) an employer protection provision that absolves an employer of civil and criminal tax liability arising out of the employment of an alien applying for an adjustment of status, and (4) amendments to § 6103 to permit the disclosure of return information to the Department of Homeland Security relating to the electronic employee verification system created by the bill and mismatched social security numbers contained in Forms W-2 filed by employers. The bill also has indirect effects on tax compliance and Federal tax revenues.
The tax provisions of the Senate bill raise many issues, including the ability to administer the payment of income tax provisions and refund limitations by the Internal Revenue Service, the necessity of absolving noncompliant employers of employment taxes, and whether the potential benefits to Department of Homeland Security workplace enforcement outweigh the adverse effects on taxpayer compliance and privacy that would result from the disclosures of return information.
Article Length Guidelines at the Top 35 Law Reviews
As we enter the semi-annual law review submission season, you may want to check out the Emory Law Library's very helpful compilation of the article length guidelines (and contact information) at the Top 35 law reviews. (Hat Tip: Larry Solum & Paul Butler.)
90 Tax Profs Call on Sen. Baucus to End Block of Solomon's Appointment as Assistant Secretary for Tax Policy
Over 90 Tax Profs have joined the ABA and NYSBA Tax Sections in sending a letter to Senate Finance Committee Ranking Minority Member Max Baucus asking that he drop his attempt to block the confirmation of Eric Solomon as Assistant Secretary for Tax Policy unless the Treasury adopts a specific timetable for closing the tax gap [blogged here]:
As tax professors in our nation’s law schools, we, the undersigned, would like to express our support for the confirmation of Eric Solomon as the Assistant Secretary of the Treasury for Tax Policy. We have long known and admired Eric’s ability, knowledge, and dedication. While we share with you a deep concern about the tax gap, we believe that the prompt confirmation of so talented a public servant will best enable the Treasury to address this and many other important issues.
Senate Holds Hearing Today on The Tax Gap
The Subcommittee on Taxation and IRS Oversight of the Senate Finance Committee holds a hearing today on A Closer Look at the Size and Sources of the Tax Gap. Here are the witnesses scheduled to testify:
- Mark J. Mazur, Director, Research, Analysis, and Statistics, IRS
- Michael Brostek, Director, Tax Issues, Strategic Issues Team, U.S. Government Accountability Office
- J. Russell George, Treasury Inspector General for Tax Administration
- Nina E. Olson, National Taxpayer Advocate, Taxpayer Advocate Service
- Raymond T. Wagner, Jr., Chairman, IRS Oversight Board, and Legal and Legislative Vice President, Enterprise Rent-A-Car Company
The hearing will take place at 2:00 p.m. in 215 Dirksen Senate Office Building.
Treasury Department Releases Dynamic Analysis of Permanent Extension of President’s Tax Cuts
The Treasury Department's Office of Tax Analysis yesterday released A Dynamic Analysis of Permanent Extension of the President’s Tax Relief:
This Report presents a detailed description of Treasury's dynamic analysis of the President's proposal to permanently extend the tax relief provisions enacted in 2001 and 2003 that are currently set to expire at the end of 2010. These enacted provisions include:
- Lower tax rates on ordinary income;
- Lower tax rates on dividends and capital gains;
- A ten-percent individual income tax rate bracket;
- Doubling of the child tax credit; and
- Reducing marriage tax penalties.
The purpose of the report is to provide a more in-depth, transparent understanding of dynamic analysis, while also illustrating the positive contributions the tax relief, together with spending reductions, can be expected to continue to make to the U.S. economy. In addition, the analysis shows the importance of making the tax provisions permanent for the U.S. economy's long-term economic growth.
Update: WSJ op-ed, Dynamic Analysis, by Robert Carroll & N. Gregory Mankiw:
Does tax relief mean more economic growth? Many people believe the answer is yes, and now they get strong support from the staff of the U.S. Treasury.
ABA Tax Section Offers Teleconference & Webcast Today on Redemptions and Purchases of S Corp Stock
A discussion of the tax consequences of redemptions and purchases of S corporation stock to the redeemed or selling shareholder, the Corporation or buying shareholder and the remaining shareholders, with special emphasis on the effect an election to close the books can have on the various parties, as well as other planning opportunities and pitfalls, and a comparison with the rules applicable to C corporations and partnerships.
- Stephen R. Looney (Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, Orlando, FL)
- Ronald A. Levitt (Sirote & Permutt, Birmingham, AL)
- Kevin D. Anderson (National Tax Office, Deloitte, Washington, DC.; Adjunct Professor, Georgetown)
August 1 Deadline for Yale Law Journal's Call for Papers
A reminder that the deadline for the Yale Law Journal's call for papers is August 1:
The Yale Law Journal announces a unique call for submissions. Hoping to enliven legal discourse through forthright engagement between academics, the Journal seeks to publish two Articles engaged in a dialogue on a single compelling legal topic. Selected Articles will be published in the same issue in the spring of 2007. For more details, see below the fold.
Because we would like the Articles to speak to each other, we strongly encourage scholars to submit pieces in development rather than completed pieces ready for submission and publication. We are particularly interested in thoroughly researched but partially written pieces that will evolve in response to one another. That said, we are willing to consider fully developed pieces already suitable for submission as Articles or Essays if the authors are willing to edit their pieces to respond to each other. The pieces will be selected on their scholarly merits and their likelihood of provoking debate. Each Article, once completed, should be between 20,000 and 25,000 words in length, including footnotes.
Interested authors should seek out a colleague in their field with a differing viewpoint who will join them in this project....There is no subject matter limitation for submissions, but the topic should be both contentious and suitable to thorough and engaging discussion.
Each submission should include a partially developed paper of at least 5000 words and the author’s curriculum vitae. The interlocutor should include a prospectus of at least 1200 words, as well as a curriculum vitae. Please send proposals via e-mail in MS Word format to the Features & Symposium Committee. The subject line should read: Debate Proposal: [Title]. All submissions must be received by August 1, 2006, and the Journal will respond by August 15.
July 25, 2006
Divided Tax Court Overrules Ewing, Follows 8th & 9th Circuits on § 6015(e)
A sharply divided Tax Court today, in Billings v. Commissioner, 127 T.C. No. 2 (7/25/06), overruled its decision in Ewing v. Commissioner, 118 T.C. 494 (2002). The majority held that it lacks jurisdiction over nondeficiency stand-alone petitions seeking innocent spouse equitable relief under § 6015(e) where the IRS has not asserted a claim against the spouse, following the holdings in Commissioner v. Ewing, 439 F.3d 1009 (9th Cir. 2006), and Bartman v. Commissioner, 446 F.3d 785, 787 (8th Cir. 2006). There was a concurrence and three separate dissents:
- Majority Opinion (20 pages) by Holmes, joined by Halpern, Thornton & Kroupa
- Concurring Opinion (4 pages) by Laro, joined by Foley, Haines, Goeke & Wherry
- Dissenting Opinion (24 pages) by Chiechi, joined by Colvin, Cohen, Swift, Wells, Gale & Marvel
- Dissenting Opinion (2 pages) by Vasquez, joined by Swift
- Dissenting Opinion (14 pages) by Marvel, joined by Cohen & Swift
Update: Stuart Levine has more here.
Ethics Quiz: Can You Double Bill Clients When Traveling?
From today's ABA e-news:
Question: You are taking a two hour plane trip from Chicago to New York to conduct a deposition in a matter involving client A. While on the plane, you review materials for a brief you will be filing for client B the following week. You normally bill clients for your time spent traveling on their behalf. Can you bill clients A and B for two hours each for a total of 4 hours?
Answer: Below the fold.
In addressing the hypothetical regarding . . . the airplane flight on behalf of one client while working on another client's matters . . . , it is helpful to consider these questions, not from the perspective of what a client could be forced to pay, but rather from the perspective of what the lawyer actually earned. . . . A lawyer who flies for six hours for one client, while working for five hours on behalf of another, has not earned eleven billable hours. . . . Rather than looking to profit from . . . the desire to get work done rather than watch a movie . . . the lawyer who has agreed to bill solely on the basis of time spent is obliged to pass the benefits of these economies on to the client. The practice of billing several clients for the same time or work product, since it results in the earning of an unreasonable fee, therefore is contrary to the mandate of the Model Rules. Model Rule 1.5.
There have been several state and local bar association ethics opinions issued on this topic. They are in general agreement with the ABA position. See , e.g., Alaska Ethics Op. 964 (1996); Nassau County (N.Y.) Ethics Ops. 95-4 (1995) and 95-10 (1995).
This rule also prohibits simultaneous court appearances on behalf of multiple clients and recycling work product for more than one client.
Update: The WSJ Law Blog has more here.
Republicans to Hold Tax Extenders Hostage to Estate Tax Reform
Interesting story this afternoon on Bloomberg: Lawmakers Remove Tax Breaks From Pension Measure, by Ryan J. Donmoyer:
Lawmakers dropped renewal of almost two dozen tax breaks, including a popular research credit, from broader pension reform legislation and will use them to muster support for reducing the estate tax later this year, a key Senate aide said. Eric Ueland, chief of staff to Senate Majority Leader Bill Frist, a Tennessee Republican, said the extension of the breaks will be stripped off the pension legislation and ``married'' to the estate tax measure.... "The death tax and the extenders fit perfectly together,"' Ueland said in an interview. The move clouds the earnings picture of as many as 16,000 U.S. companies that claim the research credit, worth about $5 billion annually.
WSJ: IRS Cracks Down on Tax Practitioners
Interesting article in today's Wall Street Journal: IRS Seeks Harsher Discipline; Planned Rules for Lawyers, Accountants Aim to Curb Tax Malpractice. by Robert Guy Matthews:
Sweeping IRS proposals to crack down on malpractice have sparked a fight between tax practitioners and the agency. The changes, for the first time, would make public the names of tax attorneys and accountants under investigation for possibly violating rules that such professionals must follow to practice before the IRS. Currently, the names and minimal additional information are made public in the Internal Revenue Bulletin, only after the IRS's Office of Professional Responsibility conducts a formal, closed-door proceeding and a penalty is assessed....
The proposals, which could go into effect early next year, reflect the IRS's stepped-up efforts to go after tax professionals who are uninformed, incompetent or peddling fraudulent tax shelters....The IRS's Office of Professional Responsibility oversees tax practitioners and was created in 2003 to replace the largely toothless Director of Practice. Besides developing the more stringent rules for practitioners, the Office of Professional Responsibility has increased enforcement: Suspensions, censures, reprimands and other actions have nearly tripled to 719 cases in 2005 from 257 in 2001. The office's roster of attorneys has increased to 25, said Stephen Whitlock, 50 years old, who became acting director of the office earlier this year.
Tax Foundation Podcast with Douglas Holtz-Eakin
This week's Tax Foundation Podcast features Douglas Holtz-Eakin:
In today's increasingly globalized world, what are the most serious threats facing the U.S. economy, and the key tax policy issues facing lawmakers? In this podcast, Douglas Holtz-Eakin, director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations and former director of the Congressional Budget Office, discusses trends in rising federal spending, dynamic scoring of federal tax policies, and options for international corporate tax reform (12 minutes, 26 seconds).
WSJ: Tax Cuts Are Good for Everyone
Interesting op-ed in today's Opinion Journal: Rising Tide: Tax Cuts Are Good for Everyone -- and Everyone Knows It But Washington Democrats, by Pete Du Point:
Today the Democratic Party is so vehemently opposed to income tax cuts that when President Bush's reached their final vote in May 2003, only 4% of Democratic legislators (2 of 48 senators and 7 of 205 representatives) voted "yes." ...
President Bush's personal income, capital gains and dividend tax rate reductions have created economic growth, significantly increased government tax receipts, and reduced the federal deficit by nearly $130 billion. As the New York Times was forced to admit in its front-page headline on July 9, a "Surprising Jump in Tax Revenues Curbs U.S. Deficit." But it isn't surprising at all; the truth is that when tax rates go down, economic activity goes up.
Senate Holds Hearing Today on How Much Should Borders Matter?: Tax Jurisdiction in the New Economy
The Subcommittee on International Trade of the Senate Finance Committee holds a hearing today on How Much Should Borders Matter?: Tax Jurisdiction in the New Economy. Here are the witnesses scheduled to testify:
Panel I: Michael B. Enzi, United States Senator
- Daniel C. Noble, Excise Tax Administrator, Wyoming Department of Revenue
- George S. Isaacson, Partner, Brann & Isaacson, Lewiston, ME
- Christopher Rants, Speaker, Iowa House of Representatives
- Robert Benham, Owner/Proprietor, Balliet’s, LLC, Oklahoma City, OK
- Gary Imig, Executive Vice President and Chief Financial Officer, Sierra Trading Post, Cheyenne, WY
- Douglas L. Lindholm, President and Executive Director, Council on State Taxation
- Dan Bucks, Director, Montana Department of Revenue
- Michael Mundaca, Partner, Ernst & Young, Washington, D.C.
The hearing will take place at 10:30 a.m. in 215 Dirksen Senate Office Building.
ABA Tax Section Calls on Sen. Baucus to End Block of Solomon's Appointment as Assistant Secretary for Tax Policy
The ABA Tax Section has joined the NYSBA Tax Section (blogged here) in sending a letter to Senate Finance Committee Ranking Minority Member Max Baucus asking that he drop his attempt to block the confirmation of Eric Solomon as Assistant Secretary for Tax Policy unless the Treasury adopts a specific timetable for closing the tax gap [blogged here]:
The ABA does not and cannot endorse any candidate for any office. We believe, however, that the position of Assistant Secretary for Tax Policy should be filled without delay. The position has been vacant since February 2004. This vacancy has had a serious detrimental impact on the development of tax policy and sound administration of the tax law. It is, therefore, imperative that the position be filled at the earliest possible opportunity.
Separately, the Tax Section shares the concerns that you have recently expressed regarding the tax gap. We would welcome the opportunity to work with you and your staff to understand better the sources of the tax gap and to help identify appropriate remedies. We would urge, however, that these concerns not cause delay in filling the position of Assistant Secretary for Tax Policy.