Tuesday, October 31, 2006
As I head home to hand out Halloween candy with my wife (a new life stage as our kids (high school freshman and sophomore) no longer need Dad walking the neighborhood trick or treating with them), I have been struggling to find a tax connection to Halloween. The ever resourceful Kay Bell provides the answer with a wonderful post: Tricks, Treats, and Taxes. The tax angles?
- States that impose sales taxes on candy
- Proposals to impose various "fat taxes"
Stuart Levine offers a neat feature at Tax & Business Law Commentary: the ability to do a Google search of 12 leading tax blogs (including TaxProf Blog):
You can now find on the right side of the page a search box ... [to] allow readers to conduct Google searches that are limited to various tax and business blogs and other related sites.... The purpose of the co-op search engine is to allow searches on tax and business law topics where the sites that will be searched are narrowed even before the search is initiated.
The New York Times today editoirializes against tax patents in Pay to Obey:
The broken American patent system has a knack for sanctioning the ridiculous. In the latest example, businesses are receiving patents for devising ways to obey the law — the tax code, to be more specific. What’s next, a patented murder defense? ...
Patents are supposed to encourage innovation, rewarding the individual for the greater good of society. But excessive or overly broad patents can slow business activity to the pace of cold molasses. And we sure don’t need something else to worry about on tax day.
Prior TaxProf Blog coverage:
- NY Times on Patenting Tax Strategies (10/20/06)
- NYSBA Releases Report on Patentability of Tax Advice and Tax Strategies (8/18/06)
- WSJ on Patenting Tax Advice (7/26/06)
- House Holds Hearing Today on Patenting Tax Advice (7/13/06)
Interesting article today on Bloomberg: Candidates Are Ignoring $1.35 Trillion Minimum Tax "Time Bomb", Ryan J. Donmoyer:
Congressional candidates this fall are furiously debating Iraq, Medicare and extending tax cuts. Most are staying quiet about an imminent legislative challenge: how to stop a tax increase that will hit more than 20 million households next year, some with incomes as low as $50,000.
Interesting article in today's New York Times: Amid Questions, Brand Says N.C.A.A. Tax Status Is Merited, by Pete Thamel:
Myles Brand, the president of the National Collegiate Athletic Association, defended the organization’s tax-exempt status yesterday in the face of questions raised by the chairman of the Ways and Means Committee. After speaking at the National Press Club in Washington, Brand told a news conference that the N.C.A.A. had been advised by outside counsel that it was in compliance as a tax-exempt organization.
Prior TaxProf Blog coverage:
- Ways & Means Chair Thomas Questions NCAA's Tax-Exempt Status (10/5/06)
- George Will on NCAA's Tax-Exempt Status (10/25/06)
- NY Times on NCAA's Tax Exempt Status (10/29/06)
Interesting article in today's New York Times: U.S. Adding New Wrinkles in Shelter Case, by Lynnley Browning:
Federal prosecutors overseeing a huge tax shelter case against former employees of the accounting firm KPMG are seeking to introduce evidence that some of the defendants received secret payments from three little-known investment boutiques.
The move by federal prosecutors in Manhattan, outlined in a motion filed on Friday, is an effort by the government to bolster its complex criminal case against the 18 defendants, who are scheduled to stand trial in January. In the filing, prosecutors also disclosed that former accountants at the investment boutiques — the now-defunct Chenery Associates of San Francisco; the Diversified Group of New York; and Gramercy, a hedge fund in Greenwich, Conn. — are expected to testify on the government’s behalf. The prosecutors contend that the firms have been promoters of aggressive tax shelters.
The Government Accountability Office has released Tax Debt Collection: IRS Needs to Complete Steps to Help Ensure Contracting Out Achieves Desired Results and Best Use of Federal Resources (GAO-06-1065)
Long time readers of this blog know that perhaps my favorite class in the basic income tax course is when I get to show the hilarious clip from The Daily Show with Jon Stewart on the tax consequences of Oprah Winfrey's gift of new cars to her studio audience. Oprah is at it again -- she had another giveaway on her October 30 show:
Every member of Oprah's audience is going home with $1,000 and a Sony DVD Handycam…but there's a catch. Oprah is challenging more than 300 audience members to donate their money to a charitable cause... The audience members can't spend their money on family members, and they'll be videotaping their stories for a future show. They only have one week to come up with a plan for their money!
The tax consequences seem straighforward -- income to each recipient ($1,000, plus fmv of the Handycam), along with a $1,000 charitable deduction to the extent the $1,000 is given to a qualifying charitable organization. Comments are open (as always). (Hat tip: Bryan Camp.)
Civil rights and income taxation may seem as far apart as any two legal subjects could be, but actually intersect in a surprising number of significant ways. Whenever money damages are sought in civil rights litigation, the tax treatment of damages will affect the amount that actually benefits the plaintiff after taxes. Even when litigation seeks non-money damages, as in predatory lending cases, civil rights lawyers need to attempt to structure the relief so that it does not cause undesirable tax consequences, such as income arising from forgiveness of debt. Civil rights lawyers may also need to analyze the financial consequences of tax benefits, such as tax-exempt status, in order to ascertain whether such benefits raise issues under the First Amendment’s Establishment Clause and the Fourteenth Amendment’s Equal Protection Clause. This essay discusses the intersection of civil rights law and income taxation in the three areas mentioned above: damages for unlawful discrimination, the forgiveness of debt by a predatory lender, and tax-exempt status for private educational and religious institutions. We conclude that civil rights lawyers need to be aware of potential tax implications of civil rights litigation to a surprising degree.
Monday, October 30, 2006
We previously have blogged the unfortunate demise of the California ReadyReturn pilot program, as well as Intuit's financial contribution in the California Controller's campaign to ensure that the program remains dead. Stanford Tax Prof Joe Bankman, the designer of the ReadyReturn program, joined Democratic Controller candidate John Chiang at a press conference today denouncing Intuit's actions. See Chiang to Punch Back at Intuit after $1 Million Contribution. (Hat tip: Jim Herd.)
Sagit Leviner (S.J.D. Candidate, Michigan) has posted A New Era of Tax Enforcement: From "Big Stick" to Responsive Rrgulation on SSRN. Here is the abstract:
This paper explores one possible solution to the problem of tax compliance. It is inspired by developments in regulation and tax administration abroad (specifically in Australia), and, particularly, it presents responsive regulation—a concept developed by Ian Ayres and John Braithwaite and recently implemented by the Australian tax administration--as an alternative approach to tax enforcement that is worth paying attention to. The responsive regulation approach is based on the proposition that effective enforcement requires a dynamic and gradual application of less to more severe sanctions and regulatory interventions. This range of sanctions and interventions should balance traditional authoritarian deterrence with strategies that rely on persuasion and encouragement through three states of communication: cooperation, toughness, and forgiveness. The Australian approach also advocates for a deeper understanding of the motivations, circumstances, and characteristics of taxpayers so that enforcement can be effectively tailored to deliver compliance. With responsive regulation, the intention is to preserve the basic principles of economic analysis that assume taxpayers are rational actors seeking to maximize their self-interest. But, responsive regulation also takes into consideration situations where taxpayers “irrationally” resist compliance; the role that social, moral, and ethical considerations play in affecting taxpaying behavior; and, particularly, the manner in which compliance can be shaped by the taxpayer-tax administration relationship. In recent years there has been a growing shift in the tax administration of the United States from emphasizing “bright-line” rules and regulations as well as their enforcement through penalties and audits toward a more balanced set of strategies that highlights quality of service and respectful and fair treatment of taxpayers. With the Australian tax administration taking what can be seen as the next step forward in terms of enforcement and research in compliance, the U.S. may find that the Australian approach is quite relevant and fits with the current trends in both countries.
Interesting article in today's New York Times: Dodging Taxes Is a New Stock Options Scheme, by Eric Dash:
In the latest twist in the stock options game, some executives may have changed the so-called exercise date — the date options can be converted to stock — to avoid paying hundreds of thousands of dollars in income tax, federal investigators say. That appears to be what happened at Symbol Technologies and Mercury Interactive, and federal securities regulators are now sifting through options data at other companies for evidence of similar tax-avoidance schemes.
Marilyn B. Cane (Nova) & Jennifer C. Erdelyi (Nova J.D. 2005) have published 1031 Tenant in Common Exchanges: A "Tic"king Time Bomb at the Intersection of Real Estate, Securities, and Tax Law?, 14 U. Miami Bus. L. Rev. 273 (2006). Here is part of the Introduction:
Greater numbers of investors are choosing to take advantage of Section 1031's tax liability deferral by purchasing fractional interests in commercial real property through "1031 Tenant-in-Common ('TIC') exchanges." The 1031 TIC exchange is a relatively new investment vehicle that raises a number of novel legal issues. Primarily, whether such an arrangement should be considered a "security" under federal tax, federal securities, and state securities laws. The provisions of Section 1031 specifically exclude exchanges involving "stocks, bonds, or notes" as well as "other securities." Therefore, if a 1031 TIC exchange is deemed to be a security, it is questionable whether the arrangement would then meet the requirements of Section 1031 and entitle the investor to a tax deferral benefit.
The IRS is "aware of the issue of whether, or under what circumstances, a TIC may constitute a security that may not be exchanged under Section 1031, and is watching how matters develop as the TIC concept evolves in the Section 1031 context." This article will explore the burgeoning 1031 TIC industry, discuss the nuances of 1031 TIC exchanges, and provide an analysis of whether such transactions are in fact, securities, and if so, whether that status poses a problem for the taxpayer seeking the advantages of Section 1031.
Fellows Presents From Beowulf to Æthelgifu: Lessons from Anglo-Saxon Will-Makers Today at Washington & Lee
Mary Louise Fellows (Minnesota) presents From Beowulf to Æthelgifu: Lessons from Anglo-Saxon Will-Makers at Washington & Lee today under the auspices of the Francis Lewis Law Center. For a version of the talk given as the Everett Fraser Professor of Law Reappointment Lecture at Minnesota on February 7, 2006, see here.
D.C. Circuit Grants Extension of Time for Murphy to Respond to Government's Petition for Rehearing En Banc
The D.C. Circuit has entered an order granting the taxpayer's motion for an extension of time (to October 31) to respond to the Government's petition for rehearing en banc in Murphy v. United States, 460 F.3d 79 (D.C. Cir. 8/22/06).
Interesting article in the Sunday New York Daily News: Empire of the Son, by Douglas Feiden:
Spitzer has lived rent-free with his family at 985 Fifth Ave. for 13 years. The 25-story tower off 79th St. has just two apartments per floor and terraces that look down at the Metropolitan Museum of Art....Thanks to his dad's generosity, Spitzer, his wife and three daughters have lived in a home graced with at least three bedrooms, four baths, a balcony, library and sweeping vistas of Central Park....
Vetted by lawyers and accountants, the living arrangement is both lawful and proper, said Darren Dopp, Spitzer's communications director: The father pays an annual gift tax on the present he gives his son. "These and other financial matters are handled by professionals who ensure that everything is done in strict accordance with city, state and federal law," Dopp said. The market value of the gift is reported annually on real estate tax filings and on Bernard Spitzer's tax returns. But citing privacy, Dopp declined to disclose the apartment's rent, the gift's value or the amount of the gift tax paid. Three real estate brokers familiar with the building say that a spread of comparable size could lease for $16,000 to $20,000 a month. That puts the gift's current value at an estimated $192,000 to $240,000 a year.
(Hat tip: Bob Hayes.)
As the D.C. Circuit weighs whether to grant the Government's petition for rehearing en banc in Murphy v. United States, 460 F.3d 79 (D.C. Cir. 8/22/06), this week's National Law Journal has an article on the case: Full Court May Weigh Taxation of Damages, by Marcia Coyle:
The Murphy decision, stemming from a whistleblower lawsuit, ignited debate and criticism among tax, employment and constitutional scholars and litigators whose descriptions of the decision ranged from "silly" and "reckless" to "momentous" and "epochal." ...
Some critics, such as tax scholar Allan Samansky of Ohio State University Michael E. Moritz College of Law, contend that the panel got the law wrong: It should have analyzed Section 61, not Section 104, an exclusion provision. And, Samansky argues, the panel should never have resorted to an originalist interpretation of the 16th Amendment. "I would say it's an outrageous opinion," said Samansky. "There's an old case-Eisner v. Macomber, 252 U.S. 189 (1920)-where the Supreme Court used the 16th Amendment to say a tax was unconstitutional because what was being taxed was not income. "But since then, no court has decided it's up to the courts to use the 16th Amendment to make judgments about what is income. Those are the type of issues that Congress decides. This second-guessing of Congress will undoubtedly make the law more complicated, uncertain and just messy with no benefit." If the decision stands, it will encourage more constitutional attacks in tax litigation, he said. The full D.C. Circuit, he added, should hear the case and reverse.
Saying he is within a "distinct minority" of tax professors, Erik Jensen of Case Western Reserve University School of Law, a 16th Amendment scholar, said the panel's decision is defensible "if you think original intention should matter" in interpreting that amendment. The ratifiers would think you were "crazy" if asked whether this type of recovery could be included in the income tax base, he said. "Having said that, the D.C. Circuit did get a lot of things wrong in the opinion," he said, blaming the government for a weak brief and argument. "I think the government had no idea this result was a possibility, but it has raised all the points it should have raised in its petition for rehearing." Review by the full circuit court or the Supreme Court, but not a reversal, "probably would be good for the state of the law," said Jensen.
The Supreme Court has granted certiorari in EC Term of Years Trust v. United States, No. 05-1541: May an innocent third party whose property is confiscated by the IRS to satisfy another person's tax liability and whose wrongful levy action under 26 U.S.C. § 7426 is time-barred instead use a different provision in the tax code, 28 U.S.C. § 1346, to seek a refund? (Hat Tip: Adam Steinman.)
- Tax Prof Profile: Gregg Polsky
- Politics and the IRS
- CREW Files Complaint with IRS Alleging Improper Political Activities by Kansas Churches
- A Tale of Two Law Schools: Colorado & New Mexico
- Top 5 Tax Paper Downloads
- "The Tax Shelter War Is Over. The Government Won."
- IRS Pushes Back Availability of 2006 Tax Forms
- NY Times Editorial on AMT
- NY Times on NCAA's Tax Exempt Status
- Editorial Board Resigns Over $1,665 Annual Subscription Cost of Journal
Sunday, October 29, 2006
2. [140 Downloads] Jewish Perspecitves on the Ethics of Tax Evasion, by Robert W. McGee (Barry University, Andreas School of Business) & Gordon Cohn (City University of New York, Stan Ross Department of Accountancy) [blogged here]
3. [123 Downloads] The Federal Income Tax Consequences of the Bobble Supreme Phenomenon, by Leandra Lederman (Indiana) [blogged here]
4. [86 Downloads] Substance Over Form? Phantom Regulations and the Internal Revenue Code, by Andy Grewal (Mayer, Brown, Rowe & Maw, Washington, D.C.) [blogged here]
Vic Fleischer blogs Friday's conference on The Future of Tax Shelters at Minnesota. The quote in the title of this post were the opening words of the keynote address by Pamela F. Olson, a Skadden tax partner and former Assistant Secretary for Tax Policy.
The IRS has posted a Tax Products Posting Schedule, which lists publication dates for various IRS instructions, forms, and publications. Senator Baucus's office issued a press release critical of the delay in the release of these materials:
Senator Baucus noted repeatedly this year that congressional delays in renewing a number of expired or expiring tax cuts would likely result in the omission of those tax cuts from annual tax forms. He also noted the potential for delays and errors in popular tax software that goes on sale in the early fall each year. The updated schedule confirms that many tax forms will be released prior to the “lame duck” session of Congress, which is the earliest opportunity for renewal of tax cuts such as the state and local tax deduction contained on Form 1040 Schedule A. Additionally, the date for publication of the standard 1040 form has been moved forward to late November.
"Another consequence of repeated delays on these tax cuts is about to come to pass, and the American people will pay the price," said Baucus today. "Even if Congress acts in the ‘lame-duck’ session, many Americans likely won’t get the full picture of tax cuts available to them for 2006. The best we can do now is to move quickly in November, and give the IRS as much time as possible to try to clean up the problems caused by Congress’s failure to get the job done."
Interesting editorial in the Sunday New York Times: Future Tax Shock:
One of President Bush’s be-very-afraid lines this campaign season is that Democrats, if elected, will raise taxes. What he doesn’t say is that if you are one of tens of millions of Americans who make between $75,000 and $500,000 a year, your taxes are already scheduled to rise starting next year — because of laws that Mr. Bush championed and other actions he failed to take. The higher taxes stem from the alternative minimum tax, a levy that is supposed to snare multimillionaires who would otherwise get away with using excessive tax shelters to wipe out their tax bills. But these days, the alternative tax is snaring many upper-middle-income filers.
Interesting article in the Sunday New York Times: Big-Time College Sports May Be Due for an Audit, by Selena Roberts:
How does the luxurious splendor of high-end college football square with the purpose of higher education? The Tax Man wants to know.
Saturday, October 28, 2006
For over 30 years, the University of Florida Graduate Tax Program has been one of the nation's leading programs for the advanced study of tax law. Among the country's 30 graduate tax programs, Florida has by far the largest number of full-time faculty and is the only school to offer three advanced tax degrees:
Graduate tax students assist in the publication of the Florida Tax Review, one of the most prestigious peer-reviewed tax journals in the country. In this 12-part series, TaxProf Blog will profile the Florida Graduate Tax Faculty. We conclude the series with profiles of Florida's two visiting tax faculty.
Gregg Polsky is visiting Florida this year from Minnesota:
I grew up in South Florida playing tennis—a lot of tennis. I’d estimate about 300 days a year between the ages of 10 and 22. Although I became pretty good at the game, playing competitive junior tennis in South Florida is quite a humbling experience. When I was a senior in high school, the player that was then the #1 ranked junior tennis player in the world was seeded third in the district tournament! My modest claim to tennis fame occurred when my doubles partner and I won the Florida state high school doubles championship (prior winners include Jim Courier) in my senior year. I attribute this accomplishment mainly (exclusively?) to my luck in having a truly gifted doubles partner (Brian Stanton), who later became an NCAA All-American at FSU. My decision about where to attend college was driven mainly by tennis. When my college career was over, I stopped playing tennis completely and swore that I’d never pick up a racket again.
Wednesday: Commissioner Mark Everson announces that the IRS will postpone collection activities against taxpayers in areas struck by Hurricane Katrina until next year. (A one-year extension of filing deadlines expired October 16.)
Thursday: David Cay Johnston reports in the New York Times (I.R.S. Going Slow Before Election) that four former IRS commissioners (Donald Alexander, Sheldon Cohen, Jerome Kurtz & Charles Rossotti) criticized the decision to defer collection enforcement because of the coming elections and Everson's "close ties" to the Bush White House: Former Commissioner Jerome Kurtz, who served under President Jimmy Carter, responded, "Never, never, never," when asked if he would have considered delaying broad-based enforcement actions like sending notices because of any election, national or local. "Oh my God, that is unthinkable," Mr. Kurtz said.
Friday: AP and Bloomberg News report that Everson denied that politics entered into the decision to delay enforcement of taxpayers in those areas: "There's no politics in this," Everson said. "As to the idea that I'm somehow close to the president, I wasn't even invited to the White House Christmas party last year."
Saturday: The New York Times published an editorial: No Taxes Until After the Election: The possibility that Mr. Everson is wielding power in ways to please his boss, President Bush, is especially disturbing given that he has courted that suspicion before. After the administration failed repeatedly this year to achieve its goal of repealing the estate tax, the I.R.S. moved to eliminate the jobs of nearly half of the agency’s lawyers who audit estate tax returns. Mr. Everson’s explanation that the employees were no longer needed was unconvincing because the agency would not release enough data for researchers to independently verify his claim. Mr. Everson needs to admit his mistakes, rather than trying to say they were not mistakes at all. And to make the I.R.S. more transparent. And to stay out of politics.
Interesting article in the New York Times: Watchdog Group Accuses Churches of Political Action, by Stephanie Strom:
A nonprofit group has filed a complaint asking the Internal Revenue Service to investigate the role that two churches may have played in the re-election campaign of Kansas’ attorney general.
The complaint by Citizens for Responsibility and Ethics in Washington, a nonpartisan legal watchdog organization, cited a memorandum from the attorney general, Phill Kline, a Republican, directing members of his campaign staff to recruit churches to distribute campaign literature and serve as the sites for events.
(Hat tip: Ann Murphy & Allan Samansky.)
As a writer and frequent campus lecturer, I am accustomed to encountering activist professors. Nevertheless, when I visited the University of New Mexico Law School recently, I was taken aback by the political fervor of the faculty.
I had been invited by the student-run Federalist Society to lecture on the foibles of campus feminism. I consider myself a feminist, but I believe that academic feminism has been hijacked by gender war eccentrics--like the law professor who confronted me at the University of New Mexico. In the question-and-answer period, she insisted that American society is a "patriarchy." Well, the UNM Law School is no patriarchy. The dean is a woman and fifty-seven percent of this year's entering class is female. ...
A 2004 study by the New Mexico Federation of College Republicans found that 100 percent of the full-time professors at the law school were registered Democrats. The Federalists could not find a conservative to serve as their faculty adviser....
The dean of the law school, Suellyn Scarnecchia, professes a commitment to diversity--but that does not include changing the school's strict "liberals only" hiring policy. She and her faculty seem not to question the ethics of running a public, taxpayer-supported law school as if it were a re-education camp for the political left.
After speaking at UNM I next lectured at the University of Colorado. Far from being under siege, the Federalists say they are treated respectfully by most faculty and students. With a few notable exceptions, the professors do not pummel students with their politics....
The state of New Mexico has only one law school. Each year it accepts only about 100 students. Under constructive leadership, it could easily be on par with Colorado, which ranks 43rd compared to New Mexico's 77th place on the list of best law schools--and Colorado is moving up all the time. Sixties-style activism and political fervor have their place, but at the UNM Law School these are practiced at the expense of the intellectual, economic and civic mission that a state law school is expected to fulfill.
Friday, October 27, 2006
Tax papers at today's First Annual Conference on Empirical Legal Studies at Texas:
- Chris William Sanchirico (Penn), Taxes, Equity, and Work Hours:
Labor income is the product of work hours and hourly earnings. The income tax, however, taxes labor income without distinguishing the contributions of these two factors. If one individual works twice as many hours as another, but at half the hourly wage, both individuals have the same labor income and, all else the same, pay the same tax. This paper studies the equity effects of this feature of the tax code. Using data from the University of Michigan's Panel Study of Income Dynamics, the paper finds that the tax code is generally more progressive in terms of “potential income” (average hourly earnings times workable hours) than in terms of “actual income” (average hourly earnings times hours actually worked). Yet, the paper also finds that this source of additional progressivity has eroded substantially over the last quarter century. This largely unrecognized change in income tax progressivity rivals in magnitude changes in progressivity due to several salient amendments to the tax code including reduced rates on capital income and the compression of the rate schedule.
- Mihir A. Desai (Harvard Business School) & Dhammika Dharmapala (University of Connecticut, Department of Economics): Corporate Tax Avoidance and Firm Value:
Do corporate tax avoidance activities advance shareholder interests? This paper tests alternative theories of corporate tax avoidance that yield distinct predictions on the valuation of corporate tax avoidance. Unexplained differences between income reported to capital markets and to tax authorities are used to proxy for tax avoidance activity. These “book-tax” gaps are shown to be larger when firms are alleged to be involved in tax shelters. OLS estimates indicate that the average effect of tax avoidance on firm value is not significantly different from zero, but is positive for well-governed firms as predicted by an agency perspective on corporate tax avoidance. An exogenous change in tax regulations that affected the ability of some firms to avoid taxes is used to construct instruments for tax avoidance activity. The IV estimates yield larger overall effects and reinforce the basic result that higher quality firm governance leads to a larger effect of tax avoidance on firm value. The results are robust to a wide variety of tests for alternative explanations. Taken together, the results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder-manager relations.
We previously have blogged the unfortunate demise of the California Ready Return pilot program. The L.A. Times (Money Floods Race for Controller) reports on the big money being spent to ensure that the program remains dead:
In recent days, Intuit has placed $1 million into a committee called the Alliance for California's Tomorrow. That group has spent $66,000 on Strickland's behalf so far. ... Intuit has inserted itself into the controller's campaign as part of its fight to block the Franchise Tax Board from simplifying the state income tax filing process. From his post on the Board of Equalization, Chiang embraced "ReadyReturn," a program designed to remove some of the agony of tax season by having the government complete low-income Californians' tax returns.The program alarms Intuit. If it were to be fully implemented, ReadyReturn could threaten sales of one of the company's most successful software programs: TurboTax. Facing a fierce lobbying effort by Intuit, the Legislature this year blocked the state from spending money on ReadyReturn.
"They spent a fortune to kill a pilot program California liked," said Stanford University law professor Joe Bankman, who helped develop ReadyReturn. "Now they are spending a fortune to make sure they get someone sympathetic elected."
While the primary purpose of the Internal Revenue Code (the “Code”) is to raise revenue, certain provisions are clearly designed to promote some other social or economic policy goal. Most of these non-revenue-related provisions provide a subsidy through the tax code by granting a special deduction (exclusion) for payments (receipts) associated with the desired activity. The classic example might be the home mortgage interest deduction, which allows a deduction for an otherwise non-deductible expense. As a result of this provision, the government forgoes the extra tax that would have been owed in the absence of the deduction in order to subsidize the activity of borrowing to purchase owner-occupied housing. Professors Stanley S. Surry and Paul R. McDaniel termed this type of implicit government spending through the tax code as “tax expenditures,” and a whole wealth of literature ensued debating the relative merits of such indirect spending versus direct and explicit government grants.
Around the world, the tax laws are shaped by concerns with competitiveness. This paper provides a general theory of how taxes impact competitiveness. As part of that theory, this paper also introduces the concept of tax-based competitiveness neutrality. A tax system is competitively neutral when taxes do not cause competitors to change their relative valuations of any investments. This paper then shows that the requirements for tax-based competitiveness neutrality depend upon whether the competition is occurring between investors or conduits. Generally speaking, the requirements for neutrality are stricter when the competition is between conduits than when it occurs between investors. This paper then uses the theory developed in the first part to analyze two sets of laws that were heavily influenced by competitiveness concerns. They are the unrelated business income tax (UBIT) and the tax treatment of cross border transactions. In both areas, the failure to recognize the nature of the competition has caused policymakers and scholars to make incorrect statements about how taxes influence competition.
Check out HowManyofMe.com -- a neat search engine that tells you how many of the 300 million Americans share your name. They report that there are 100 Paul Carons out there! (Hat tip: Alan Childress.)
How many have your name?
people with my name
in the U.S.A.
The Center on Philanthropy at Indiana University has released Study of High Net-Worth Philanthropy, funded by Bank of America. The Wall Street Journal reports on the study in Survey Finds Giving by Wealthy Largely Immune to Tax Changes:
Many wealthy people would still give a lot to charity even if Congress wiped out popular breaks for donating, a study suggests. While these high-net-worth Americans already contribute two-thirds of household charitable giving, donating $126 billion last year alone, they would give more if nonprofits could rein in administrative costs and better demonstrate the impact of donations.
The University of Minnesota Law School hosts a conference today on The Future of Tax Shelters:
Tax shelter activity has been widespread for decades. IRS attempts to curtail that activity have met with mixed results. For a time, it seemed that the IRS might have succeeded as never before, as Congress held hearings, the Treasury Department substantially expanded tax shelter disclosure requirements, and the Department of Justice brought criminal prosecutions against several KPMG tax professionals. Recently, however, there has been pushback from the courts, the tax profession, and even Congress. Did the government overreach and target legitimate business activity? Was the KPMG-prompted decline merely a cyclical downturn, to be followed by a return to previous levels of tax shelter activity? What will the future hold for tax shelters?
This conference will bring together top tax scholars and professionals as well as scholars from other disciplines who are thinking about tax shelters from different perspectives to evaluate the present and future of tax shelters.
Keynote Speaker: Pamela Olson (Skadden, Arps, Slate, Meagher & Flom; former Assistant Secretary of the Treasury (Tax Policy))
Penel #1: Moderator: Morgan Holcomb (Minnesota)
- Paper: State Tax Shelters and State Taxation of Capital, by Joseph Bankman (Stanford)
- Commentary: Kirk Stark (UCLA)
Panel #2: Moderator: Claire A. Hill (Minnesota)
- Paper: Tax Investment Strategies, Business Method Patents, and the Firm, by Dan L. Burk (Minnesota) & Brett H. McDonnell (Minnesota)
- Commentary: Brant Hellwig (South Carolina)
- Paper: Legal Evolution and Gaming the System, by Philip Curry (Simon Fraser University)
- Commentary: David Weisbach (Chicago)
- Commentary: The Consistency of Inconsistency, by Terrance Chorvat (George Mason)
Panel #3: Moderator: Bruce Snider (Minnesota)
- Paper: Compaq Redux: Implicit Taxes and the Question of Pre-Tax Profit, by Michael Knoll (Penn)
- Commentary: Robert J. Peroni (Texas)
- Paper: Of Lenity, Chevron, and KPMG, by Kristin E. Hickman (Minnesota)
- Commentary: Tax Shelters: Intentionalism’s Greatest Challenge, by Lawrence M. Solan (Brooklyn)
Paper #4: Moderator: Kristin E. Hickman (Minnesota)
Senate Finance Committee Chair Charles Grassley has sent this letter to the Association of Community Organizations for Reform Now ("ACORN") requesting information on whether ACORN has abused its charitable exemption through election and voter fraud.
There have been recent major stories in newspapers in Missouri, Ohio and Pennsylvania that have raised serious issues about the Association of Community Organizations for Reform Now (ACORN) and possible election and voter fraud. These newspaper reports, coupled with filings with the Federal Election Committee and court filings in Florida, raise serious questions about whether ACORN's actions are in conformity with federal and state laws regarding charities.
Thursday, October 26, 2006
Stanford and Yale Law Schools have issued a call for tax papers for the eighth annual Stanford/Yale Junior Faculty Forum to be held at Stanford Law School on May 18-19, 2007:
The Forum's objective is to encourage the work of young scholars by providing experience in the pursuit of scholarship and the nature of the scholarly exchange. Meetings are held each spring, at Yale one year and Stanford the next.
Approximately twelve scholars (with one to seven years in teaching and who are not yet tenured) will be chosen on a blind basis from among those submitting papers to present. Two senior scholars, not necessarily from Stanford or Yale, will comment on each paper. The audience will include the invited young scholars, faculty from the host institutions, and invited guests. The goal is discourse on both the merits of particular papers and on appropriate methodologies for doing work in that genre. We hope that comment and discussion will communicate what counts as good work among successful senior scholars and will also challenge and improve the standards that now obtain. The Forum also hopes to increase the sense of community among American legal scholars generally, particularly among new and veteran professors.
Each year the Forum invites submissions on selected topics in public and private law, legal philosophy, and law and humanities -- alternating loosely between public law and humanities subjects in one year, and private and dispute resolution law in the next. For the May, 2007meeting, the topics will cover private law and dispute resolution and includes tax.
There is no publication commitment associated with the Forum, nor is published work eligible. Yale or Stanford will pay presenters' travel expenses, who will be required to attend the entire Forum schedule. Paper submissions for the Forum should be sent to Judy Dearing at Stanford Law School by February 15, 2007. For further information, contact Ronald Gilson (Stanford) or Alan Schwartz (Yale).
Tax papers selected for the Forum in prior years include:
- The Shareholder-Based Origins of the Corporate Income Tax, by Steven A. Bank (UCLA)
- Perception and Income: The Behavioral Economics of the Realization Doctrine, by Terrence R. Chorvat (George Mason)
- The Role of Taxes in Restructuring Financially Distressed Firms, by Lorie Johnson (Georgia)
- Deputizing the Gunslingers: Co-opting the Tax Bar Into Dissuading Corporate Tax Shelters, by Richard Lavoie (Akron)
- The Cary Brown Theorem and the Income Taxation of Risk: A Reappraisal, by Ethan Yale (Georgetown)
The Department of Justice yesterday announced that former Kirkland & Ellis partner Robert Wayne Hallock was convicted of tax evasion in attempting to hide over $1 million he obtained by selling fraudulent Certificates of Deposit. (The indictment pegged the amount of unpaid tax at $325,000 - $550,000.) Joe Kristan nicely summarizes the scam:
Step 1: Sell fraudulent certificates of deposit for $1.8 million.
Step 2: Set up a bank account in the name of an LLC in Florida for the money.
Step 3. Hire somebody to use the money to buy cashiers checks.
Step 4. Procede to blow hundreds of thousands of dollars on a girlfriend, a wedding, a honeymoon, and his Barrington, IL. lifestyle.
Step 5. Leave the money off your tax return.
Joe also unearthed Hallock's trial memorandum, which argued that since Hallock was obligated under the UCC to repay the money, he did not have any income -- in his words, "a good faith belief, even if crazy, negates willfulness." For more, see today's Chicago Tribune.
Alice G. Abreu (Temple) has posted Paradise Kept: A Rule-Based Approach to the Analysis of Transactions Involving Disregarded Entities, 59 SMU L. Rev. 491 (2006), on SSRN. Here is the abstract:
Disregarded entities, single member limited liability companies whose separate legal existence is ignored for all purposes under the Internal Revenue Code, were created by the Check-the-Box regulations. Their creation was a logical consequence of the objective of those regulations, which was to provide certainty in entity classification. Nevertheless, following the promulgation of the regulations the Service has issued letter rulings that look to substance to determine whether an LLC will be treated as having a single member and has otherwise retreated from the mandate of the regulations to disregard the separate existence of such entities. By looking to substance the Service has departed from the rule-based approach that produced the regulations and risks unraveling the structure created by the regulations. To look to substance is to apply a standard: substantively similar transactions ought to be taxed similarly. While that is often an unassailable goal, in this case, its costs are too great.
The report . . . provides data on four measures of gender equity for faculty at over 1,400 colleges and universities across the country. The four indicators compared in the report for men and women faculty are employment status (full- and part-time); tenure status for full-time faculty; promotion to full professor rank; and average salary for full-time faculty. The report consists of three sections: an article on “Organizing around Gender Equity ,” authored jointly by Professor Martha West of the University of California, Davis, and John W. Curtis, AAUP Director of Research and Public Policy; aggregate national tables for each of the four equity indicators by type of institution; and an appendix listing the four indicators for each individual college and university.
- Chronicle of Higher Education: AAUP Report Blames Colleges for Gender Inequity Among Professors, by Robin Wilson
- Inside Higher Ed: New Measures for Gender Inequities, by Scott Jaschik
that will lift tax barriers that have prevented it from investing charitable trusts established by donors with the larger university endowment. To date, Harvard is the only U.S. university to have been granted this special permission.
From the Chronicle of Higher Education:
Charitable trusts typically pay dividends to donors, with the remainder of the trust going to the chosen charity when the donor dies. But tax rules have long required that the trusts be invested only in a conservative mix of stocks and bonds while steering clear of holdings in venture capital, real estate, and natural resources — asset types that are commonly owned by large university endowments. As a result, charitable trusts have been prevented from being added to university endowments’ investment pool.
Harvard University moved first to get an exemption for charitable-trust assets, and in 2004 it received a special ruling from the I.R.S. that allowed an initial transfer of $225-million in charitable trusts to the university’s huge endowment. University officials at the time said they expected the change to encourage more charitable trusts to be given by donors who were looking to benefit from the high returns enjoyed by the endowment.
The Stanford press release notes that qualifying trusts would “benefit from the strategies and management expertise that have resulted in the endowment’s strong performance, with a 10-year average annual return of 14.8% through June 30, 2006.”
The Harvard ruling is PLR 200352017 (Oct. 3, 2003). (Hat Tip: Chris Hoyt.)
Major Duties: The incumbent provides legal advice primarily concerning ethics and the Hatch Act to officials at all levels within the Departmental Offices. In addition, may be asked to provide legal advice regarding labor relations, procurement, FOIA, personnel, appropriations and other legal issues concerning agency administration. The Office also represents the Department in administrative proceedings and assists the Justice Department in representing Treasury's interest in matters before the federal courts. Working with the Assistant General Counsel, the Designated Agency Ethics Official, the Senior Counsel for Ethics and the Ethics Program Manager, this position provides legal advice in the Department's Ethics program. The incumbent's duties include: (1) preparing written opinions for the DAEO, Alternate DAEO and the Deputy Assistant General Counsel in response to requests from current and former employees; (2) identifying and advising on various ethics issues; (3) collecting and providing initial review of the public financial disclosure reports of all Presidential nominees and appointees, Schedule Cs, SES employees and other covered employees in accordance with Treasury Directives; (4) providing advice on employee requests to accept official travel expenses under the Ethics Reform Act of 1989 and other relevant authorities; and (5) drafting training materials and updates to the Treasury supplemental ethics regulations and directives.The incumbent also provides annual ethics training and ethics briefings as necessary to Treasury employees.
Salary: $65,048 - $118,828
Application Deadline: November 13.
For further details, see here.
Robert W. McGee (Barry University, Andreas School of Business), Inge Nickerson (Barry University, Andreas School of Business) & Werner Fees have posted The Ethics of Tax Evasion: A Comparative Study of Germany and the United States on SSRN. Here is the abstract:
This paper examines the issue of the ethics of tax evasion. It begins with a review of the literature and proceeds to discuss the three main views on the issue that have emerged over the last 500 years. The paper then reports on the results of a series of surveys taken of various populations in Germany and the United States. Gender and age differences are also examined.
Wednesday, October 25, 2006
A public dispute has erupted in Britain over the tax treatment of the Royal Family, with some members of Parliament pushing for greater transparency in the family's taxes and the imposition of corporate and capital gains taxes on the family. See:
- All Headline News: Prince Charles Refuses To Open Financial Records For Review
- Australian: Charles' Given Mates' Rates on Tax
- Glasgow Daily Record: Charles in Tax Probe
- Times Online: Charles Wins Treasury Support For His Refusal to Pay More Tax
- Toronto Sun: Queen and Chuck Feel Tax Heat; Brit MPs Wonder If They're Dodging
In 2011 the federal estate tax is scheduled to revert to its pre-2001 form, with a $1 million exemption and a 55% rate on large estates. Several compromise bills are now under discussion that would raise the exempt amount and lower rates. Although many arguments bear on this decision, the choice ultimately turns on the relative force of two opposing moral principles: a principle of autonomy with respect to the use of one's justly acquired property and a principle of equality with respect to unmerited advantages. We should worry much less about raising the exempt amount than lowering rates.
We previously blogged the "Shop Talk" column in the Journal of Taxation on John Cox, the long-shot 2008 Republican presidential candidate who bragged about reading "the entire Internal Revenue Code, the regulations and something called the BNA portfolios on taxes -- all cover to cover." The column noted that, if elected, Cox would be the first Presidential tax lawyer.
This month's "Shop Talk" column corrects the record -- President William McKinley was not only a tax lawyer, but was Chair of the House Ways & Means Committee and the author of a book on taxes. In addition, John Nance Garner, Vice-President under FDR from 1932-40, was a tax lawyer and the Democrats' tax policy leader from 1913-32. Moreover, Wilbur Mills was a tax lawyer who served as Chair of the House Ways & Means Committee and later abandoned his quest for the Presidency in 1972. Mills reportedly bragged about having memorized the entire Internal Revenue Code.
Lawrence Lokken (Florida) has posted Territorial Taxation: Why Some U.S. Multinationals May Be Less Than Enthusiastic About the Idea (and Some Ideas They Really Dislike), 59 SMU L. Rev. 751 (2006), on SSRN. Here is the abstract:
In November 2005, the President's Advisory Panel on Federal Tax Reform issued a report that, among other things, proposed a significant change in the rules for taxing foreign income of U.S. companies: a move from the present worldwide/credit system to a territorial or exemption system under which U.S. persons' income from active business operations in foreign countries, whether carried on directly or thru subsidiary corporations, would be exempt from U.S. taxation. Earlier in 2005, the staff of the Joint Committee on Taxation suggested a similar shift. The Panel and Joint Committee staff relied on two arguments: (1) The current system, by deferring taxation of foreign earnings of U.S.-owned foreign corporations, distorts business decisions on where and how to invest these earnings; and (2) the current system often allows U.S. multinational enterprises to achieve U.S. tax results more favorable than they could obtain under a territorial system. This paper addresses the second of these justifications. It explains some of the techniques used by U.S. multinational enterprises to achieve U.S. tax results more favorable than territorial taxation, and it examines whether these results are inevitable consequences of the current regime or flow from aspects of the current rules that could easily be changed. It concludes that Congress and the Treasury could, without adding significant complexity to the law, reform the historical worldwide/credit system in ways that would ensure tax results largely consistent with the underlying premises of this system. Moreover, if not corrected, many of the deficiencies in the current system will plague the proposed system much as they have the current system. The Panel and the Joint Committee staff fell into a common error in tax policy discussions: comparing current law, in its highly-corrupted state, with an idealized alternative and reaching the obvious conclusion that the latter is preferable. In fairness, the proposed system must be compared with the best feasible version of a worldwide/credit system.