TaxProf Blog

Government Wins Son-of-BOSS Klamath Tax Shelter Case

The Government today won a Bond Linked Issue Premium Structure ("BLIPS") tax shelter case, Klamath Streategic investment Fund, LLC v. United States, No. 5:04-CV-278 (D.C. E.D. TX 1/31/07).  Here is the Conclusion:

The court finds that the loan transactions lacked economic substance and are, therefore, disregarded for federal income tax purposes. The court also finds that no penalties are applicable. The parties are directed to confer and submit, within 15 days, a proposed form of judgment (agreed if possible) consistent with this opinion. The parties shall take into account their apparent agreement that the plaintiffs are entitled to deduct operational expenses.

Roin Presents What International Tax Scholars Can Learn from State Taxation Today at Toronto

Julie Roin (Chicago) presents Does Formulary Taxation Work?: What International Tax Scholars Can Learn from State Taxation at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series.  Here is the abstract:

The corporate, and perhaps even individual, income tax will not long survive as an effective revenue raising device unless and until countries devise an effective method of taxing the domestic income of foreign corporations. An increasing number of academics, and certainly EU bureaucrats, believe that the solution is the replacement of current arm’s length, separate entity based taxing regimes with unitary formulary taxation. The paper examines the prospects for success of formulary taxing regimes by looking at the experiences of the states of the United States, which have operated such regimes, and of the United States, in its operation of the subpart F regime.

The Demise of Trusts & Estates Practice?

Peter Lattman at the Wall Street Journal's Law Blog is the latest blogger to weigh in on the demise of Trusts & Estates as a big-firm practice area:

With profitability a top priority at Sonnenschein Nath & Rosenthal, one practice group is under the microscope: trusts and estates. Four T&E partners at Sonnenschein in recent weeks have either left or announced plans to leave the 660-lawyer firm. ...

The departures come at a time when Elliott Portnoy, the firm’s 41-year-old chairman-elect, has said he is bent on taking a hard look at the economics of Sonnenschein’s various departments. T&E may be vulnerable because it is a low “leverage” practice — fewer junior lawyers generally are needed, say, to draft a will than to complete a merger agreement.

Robert Cockren, the new chair of Sonnenschein’s T&E practice, says the firm remains committed to T&E and still has about 28 lawyers in the practice across seven offices. But he acknowledges that it is “difficult for T&E practices to meet the same sort of” profitability and productivity targets that other practice groups may achieve.

Other blogosphere commentary:

• Death & Taxes Blog:  Sonnenschein and the Demise of Big Firm Estate Planning Groups
• Trusts and Wealth Management Marketing: Is Estate Planning Becoming a Niche Specialty?

Batchelder Presents Replacing the Estate Tax With an Inheritance Tax Today at Michigan

Lily L. Batchelder (NYU) presents Taxing Privilege, Not Success: Replacing the Estate Tax With an Inheritance Tax at Michigan today as part of its Tax Policy Workshop Series.   

   

WSJ: Government Uses Tax Law to Fight Terror

Interesting article in today's Wall Street Journal:  Terror Inquiry Turns to Tax Law; Efforts to Probe Financing of Islamic Extremists Centers on IRS Violations, by Glenn R. Simpson:

The Justice Department is investigating possible criminal tax-law violations by a Boston private-equity firm that manages hundreds of millions of dollars for Muslim investors in Europe and the Middle East and is affiliated with a Swiss investment group U.S. authorities suspect of financing Islamic extremists. Federal prosecutors disclosed a grand-jury probe of Overland Capital Group Inc. in filings last week with U.S. District Court in Boston. While the Boston grand jury is examining suspected tax evasion related to complex investment structures, the case is being handled by a prosecutor from the Justice Department's counterterrorism division, the filing states.

In the years since the Sept. 11 attacks, U.S. counterterrorism agencies have been stymied in several attempts to bring terrorism cases against wealthy individuals from the Middle East. Some prosecutors have pushed the government to use tax laws as a more effective approach, a method famously employed against gangster Al Capone in 1931.

More on Taxes and Outer Space

Neil Buchanan (George Washington) has a detailed post on the story we blogged Monday about the winner of a free trip to outer space who turned down the prize to avoid having to pay $25,000 in taxes on the $138,000 value of the ride.

As a legal matter, it's completely settled that free trips are "income" and thus taxable. (For that matter, they are also consumption and would be taxed under a consumption tax regime.) As a policy matter, why (and, for that matter, how) would we create an equitable exception for this? Other people have to earn and save $138,000 if they want to take this trip, after paying taxes on their income. This prize-winner was being told that he could take a $138,000 trip for $25,000.

Anyone who thinks that the poor guy should get an even bigger break is free to pay the taxes for him. ... I'm glad that prize-winners are subject to paying taxes on their income under the same rules that apply to taxing everyone else's income, thus preventing the necessity of raising tax rates or increasing the deficit.

WSJ Criticizes Proposed Cap on Executive Compensation

Interesting editorial in today's Wall Street Journal:  Executive Camp: Congress Tries Again to Hit CEO Pay; Watch Out, Middle Class:

Here we go again. This week Democrats are partying like it's 1993 in the Senate, where they are about to fire what promises to be only the first salvo in their latest war on "excessive" CEO pay. ...

Specifically, to raise taxes on "the rich" -- for which, read: corporate executives. One of the ways the Senate bill does this is to place a cap on the amount of "deferred compensation" that a company can award its top executives in a given year. The cap is equal to $1 million or the executive's average salary for the previous five years, whichever is lower. But rather than simply tax any deferred compensation above that threshold as income, it imposes an additional 20% penalty tax on deferred comp above the limit. The Joint Committee on Taxation predicts this provision will bring in $800 million over the next decade. We'll go out on a limb and predict it brings in an amount closer to $0.

Senate leaders describe this cap on deferred compensation as closing a loophole in the 1993 law that barred companies from deducting from their taxes more than $1 million of salary paid to their CEO and other top execs. Never mind that employee salaries have always been a deductible business expense. This was the last time Democrats ran Congress, and thus the last time they could sock it to the successful.

That 1993 law has itself become a classic example of unintended consequences. The biggest "loophole" in that law was an exemption carved out for performance-based compensation, which was meant to alleviate concerns about Congress setting pay rates in the private sector. Back then, even tub-thumping Senator Carl Levin said "I don't support the government setting CEO pay in the tax code." Which he and his mates proceeded to do anyway. And businesses promptly responded by shifting CEO pay away from salary and toward stock options and bonuses to circumvent the cap.

Congress hasn't yet seen fit to close the stock-option loophole, but it has decided to decide what constitutes "excessive" deferred compensation. Deferred comp can take many forms, but it basically involves a company's agreeing to pay an employee in a future year for services rendered this year.

Peroni Presents Exploring the Contours of a Proposed U.S. Exemption (Territorial) Tax System at Miami

Robert J. Peroni (Texas) presented Exploring the Contours of a Proposed U.S. Exemption (Territorial) Tax System, 109 Tax Notes 1557 (2005) (with J. Clifton Fleming, Jr.), to the faculty and students at the University of Miami Graduate Tax Program last week as part of its Guest Speakers Series. Here is the abstract:

The Presidential Advisory Panel on Federal Tax Reform and the Joint Committee on Taxation staff have recently advanced similar proposals for a U.S. exemption system regarding particular foreign-source income of particular U.S. corporate taxpayers. According to the authors, both proposals are well meaning but ultimately flawed and unsuccessful attempts to simplify the U.S. international tax rules.

The proposals, if enacted, would do little to provide simplification for most taxpayers and would intensify some existing complexities in existing law while adding new complexities of their own. Moreover, the new ownership neutrality defense of those exemption plans is largely capital import neutrality under a new label but with all the old defects. Thus, the authors conclude, it is not surprising that the proposed exemption systems would exacerbate the economic distortions caused by the current U.S. tax rules and that the reform panel's exemption proposal would largely continue the economic bias resulting from the deferral privilege. Further, the authors say that if fundamental international tax reform is to be accomplished, the Bush administration and Congress should consider replacing the present, largely ineffective, antideferral rules with a passthrough system for foreign corporations owned by U.S. persons that ends deferral completely for those shareholders. That approach would simplify the U.S. international tax system and substantially improve its economic efficiency and fairness.

Senate Adds Tax Breaks as it Passes Minimum Wage Bill

• Associated Press
• Bloomberg
• New York Times
• Reuters
• Washington Post

ABA Tax Section Offers Teleconference & Webcast Today on Tax Practitioner Penalties

The ABA Tax Section offers a teleconference and webcast today on Tax Practitioner Penalties: A Primer from 1:00 - 2:30 p.m. EST:

The last several years of tax enforcement have focused unprecedented attention on tax professionals and the standards under which they provide their services. As a result of this push toward greater accountability, tax practitioners are faced with an array of new dilemmas: stricter statutory, regulatory, and ethical regimes; civil penalty investigations; injunction proceedings; and criminal prosecutions. Join our distinguished panelists as they outline and discuss the potentially applicable civil, criminal, and ethical sanctions for practitioners who run afoul of the rules as well as the current regulatory and enforcement environment, and its practical effect on the day to day work of tax professionals.

Faculty:

• John L. Colvin (Chicoine & Hallett, Seattle, WA)
• Brian R. Lynn (moderator) (Caplin & Drysdale, Washington, D.C.)
• Mark E. Matthews (Morgan, Lewis & Bockius, Washington, D.C.)

WSJ: The "Tax Gap" Myth

Interesting editorial in the Wall Street Journal:  The "Tax Gap" Myth:

When something sounds too good to be true, it usually is. So now is an apt time to deconstruct the much-discussed "tax gap," that mythical golden goose that the Beltway political class is counting on to fund its spending agenda. ...

The "tax gap" is the difference between what the IRS thinks taxpayers should be paying and what it collects. The IRS currently estimates this at about $290 billion a year. Ask any Congressional chairman how he intends to close the deficit, expand the Medicare drug benefit, reform the Alternative Minimum Tax or subsidize college education, and the answer is invariably "close the tax gap."

There is a better way. The more complicated a tax system, the more likely taxpayers won't understand, or will try to dodge, the rules. Simple tax regimes, such as a single flat rate, encourage compliance and efficiency, not to mention economic growth. This has been the experience of many Eastern European countries after they imposed a flat tax, and the U.S. had similar jumps in reported tax income from "the rich" following the 1986 tax reform that cut rates and closed loopholes.

At least a few "tax-gap" critics in Washington are beginning to understand all this. Messrs. Baucus and Grassley have started pairing the "tax gap" problem with the need to eliminate or simplify the Alternative Minimum Tax -- which is hitting more and more Americans. House Ways and Means Chairman Charlie Rangel has also said that fixing the AMT might require "a look at the whole tax code." Could it be that even Washington is beginning to understand that fixing the tax mess means starting over?

Should Law Professors Write for Wikipedia?

Following up on this week's posts on whether students or courts should cite Wikipedia:  my colleague Tim Armstrong asks: Should Law Professors Write for Wikipedia?

Tax Profs Quoted in NLJ Article on Rule Change to Require IRS to File Answer in Small Tax Cases

Interesting article in this week's National Law Journal: IRS Must File Answers in Small Cases, by Marcia Coyle, which quotes Nancy Abramowitz (American), Leandra Lederman (Indiana), and me on the Tax Court's proposed amendment to Rule 173 to require the IRS to file an answer in all small tax cases.  (For prior TaxProf Blog coverage, see here),

Certiorari Briefing in Coltec and Dow Chemical Tax Shelter Cases

Coltec Industries, Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 7/12/06):

• Taxpayer's Cert. Petition
• Government's Brief in Opposition
• Taxpayer's Reply Brief
• Amicus Brief of Nat'l Ass'n of Manufacturers and U.S. Chamber of Commerce in Support of Taxpayer

Dow Chemical v. United States, 435 F.3d (6th Cir. 1/23/06):

• Taxpayer's Cert. Petition
• Government's brief in Opposition
• Taxpayer's Reply Brief
• Amicus Brief of American Chemistry Council, Nat'l Ass'n of Manufacturers, and U.S. Chamber of Commerce in Support of Taxpayer

IRS's Office of Chief Counsel (CT) Seeks Attorney for Philadelphia Office

The IRS's Office of Chief Counsel, Division Counsel/Associate Chief Counsel, Criminal Tax (CT) is seeking to fill an attorney position in its Philadelphia, PA office:

Major Duties: Attorneys in the Division Counsel/Associate Chief Counsel, Criminal Tax, serve in over 30 offices located in cities across the country. The 70-plus Criminal Tax attorneys are responsible for advising and counseling the IRS Special Agents in Charge in all areas of the Criminal Tax function, including tax, currency and money laundering crimes and criminal procedure. They also provide legal counsel on investigative matters such as administrative and grand jury investigations, undercover operations, electronic surveillance, search warrants and forfeitures, the referral of cases to the Department of Justice for grand jury investigation, criminal prosecution, and the commencement of forfeitures. Criminal Tax attorneys also coordinate with other offices within the IRS and the Office of Chief Counsel on all matters involving Criminal Tax.

Salary: $70,134 - $128,118.

Application Deadline:  February 1, 2007.

For more details, or to apply, see here.

Recent Tax Think Tank Reports

• Center on Budget & Policy Priorities:
  • The Long-Term Fiscal Outlook Is Bleak: Restoring Fiscal Sustainability Will Require Major Changes to Programs, Revenues, and the Nation’s Health Care System, by Richard Kogan, Matt Fiedler, Aviva Aron-Dine & James Horney
  • If You’re Going to Do Social Policy Through the Tax Code, Do it Right, by Jason Furman
• Heritage Foundation:  Ten Myths About the Bush Tax Cuts, by Brian M. Riedl
• Tax Foundation:  Facts & Figures Handbook: How Does Your State Compare?
• Tax Policy Center:  The President's Health Insurance Proposal - A First Look, by Leonard E. Burman, Jason Furman & Roberton Williams

Commentaries on Law School Rankings

The Connecticut Law Review has published commentaries on law school rankings:

• Ronen Perry, The Relative Value of American Law Rreview: Refinement and Implementation, 39 Conn. L. Rev. 1 (2006) :

This Article complements a recently published paper in which I discussed the theoretical and methodological aspects of law review rankings. The purpose of this Article is twofold: refinement of the theoretical framework, and implementation. It proposes, defends, and implements a complex ranking method for general-interest student-edited law reviews, based on a judicious weighting of normalized citation frequency and normalized impact factor. It then analyzes the distribution of journals’ scores, and the diminishing marginal difference between them. Finally, it examines the correlation between law schools’ positions in the U.S. News & World Report 2006 ranking and their flagship law reviews’ positions under the proposed method and between these schools’ overall scores and their law reviews’ final scores.

• Alfred L. Brophy, The Relationship Between Law Review Citations and Law School Rankings, 39 Conn. L. Rev. 43 (2006):

Much recent scholarship has focused on the U.S. News and World Report rankings and other ranking systems; other scholarship has focused on citations of law journals. This paper combines those two areas. It explores the connections between U.S. News rankings (particularly the peer assessment scores) and citations of schools’ main law reviews by journals and by courts. There are high correlations between the U.S. News peer assessment scores and citations of main law reviews by journals for the U.S. News top-50 schools. For comparison purposes, the paper also looks to Brian Leiter’s rankings and finds a similar correlation.

The strength of the correlations decrease for U.S. News third and fourth tier schools. The paper considers some of the implications of the correlations for law school rankings and suggests that, perhaps, future rankings should include citations as a factor in assessing the quality of law schools. One table illustrates how differently the third and fourth tiers of U.S. News would look if law review citations were the basis for ranking law schools. A final table provides a ranking of law reviews based on journal citations.

• Ronen Perry, Response:  Correlation Versus Causality: Further Thoughts on the Law Review/Law School Liaison, 39 Conn. L. Rev. 77 (2006)
• Alfred L. Brophy, Response: Law [Review’]s Empire: The Assessment of Law Reviews and Trends in Legal Scholarship, 39 Conn. L. Rev. 101 (2006)

Kornhauser Joins Arizona State Faculty

Marjorie Kornhauser has joined the faculty of the Sandra Day O'Connor College of Law at Arizona State from Tulane. From the Arizona State press release:

Patricia White, Dean of the Sandra Day O'Connor College of Law, lauded Kornhauser's work in examining the origins of the capital gains tax, the corporate income tax and the constitutional definition of income. "We are delighted to have Marjorie join our faculty," White said. "She is one of the most prominent tax scholars in the United States and perhaps the leading figure writing in the history of tax concepts."

Kornhauser's current research projects include the role of taxation in the New Deal, voluntary taxpayer compliance (commissioned by the National Taxpayer Advocate), and taxation of the family in the United States. For the latter, she'll lead a workshop this spring at Cambridge University in England.

Her articles have been published both nationally and internationally. Some of her recent publications include:

• Choosing a Tax Rate Structure in the Face of Disagreement, 52 UCLA L. Rev. 1697 (2005)
• Doing the Full Monty: Will Publicizing of Tax Information Increase Compliance?, 18 Can. J.L. & Juris. 95 (2005)
• Rooms of Their Own: An Empirical Study of Occupational Segregation by Gender Among Law School Professors, 73 UMKC L. Rev. 293 (2004), reprinted in Women and the Law (Jane Campbell Moriarty, ed., Thomson/West, 2006)
• The Story of Macomber: The Continuing Legacy of Realization, in Tax Stories: An In-Depth Look at Ten Leading Federal Income Tax Cases, (Paul Caron, ed., Foundation Press, 2003)

USA Today: IRS Turns Blind Eye to Church Politicking

Interesting op-ed in USA Today:  Turning a Blind Eye, IRS Enables Church Politicking, by Dan Gilgoff:

A 1954 law forbids partisan political activity that aims to help, or hurt, candidates for public office. Such behavior would put a church’s tax-exempt status in jeopardy — if the government chose to enforce the law.

(Hat Tip: Lloyd Mayer.)

2006 Law Student Tax Challenge Results

Last Wednesday, we blogged the results of the the ABA Tax Section's 2006 Law Student Tax Challenge.  The ABA Tax Section has now put the results on its web site, along with a full listing of the 42 teams that entered the competition and their coaches.  (For more details, see the ABA press release.) The law schools with multiple entrants were: 

• Western New England (4 teams) (coached by Frederick Royal)
• Franklin Pierce (3) (coached by Stephen Black)
• Georgetown (3)
• Lewis & Clark (3) (coached by Henry Breithhaupt)
• Indiana (2) (coached by Anthony Infanti)
• Loyola-L.A. (2) (coached by Jennifer Kowal & Dean Weiner)
• Stetson (2) (coached by Janice McClendon)
• Syracuse (2) (coached by Robert Nassau)

Carasso & Steuerle on From Personal Income to Taxable Income, 1950-2004

Adam Carasso & C. Eugene Steuerle have posted From Personal Income to Taxable Income, 1950-2004, 114 Tax Notes 351 (2007), on the Urban Institute web site. Here is the abstract:

While much of the tax debate usually swirls around statutory tax rates, those rates must be applied to a base. The tax base can be approximated by the amount of taxable income that is reported on taxable returns. This article examines changes in the fraction of Americans' personal income subject to tax from 1950 to 2004 and the factors that explain these changes over time.

IRS Releases Sales Tax Deduction Calculator

The IRS has released an Internet-based Sales Tax Deduction Calculator to help taxpayers determine whether they are better off claiming the deduction for state and local income taxes or state and local sales taxes.  From the press release:

To figure the amount of optional general sales tax you are eligible to claim, just answer a few online questions and the system does the rest. First select either 2006 or 2005. Then, using your ZIP Code and just a few entries from your draft Form 1040, the Sales Tax Deduction Calculator will automatically figure the amount of state and local sales tax you can claim. You will see the results from your entries immediately on your computer screen. Even if state and local sales tax rates changed during the year (e.g., due to changes in state and local rates or because you moved your personal residence), the Sales Tax Deduction Calculator can handle it.

Treasury Releases Details of President Bush's Standard Deduction Health Insurance Plan

The Treasury Deparment today released Making Health Insurance Affordable for More Americans: Examples under President Bush's Standard Deduction Health Insurance Plan

• Example #1: Uninsured Family of Four ($60,000 compensation)
• Example #2:  Family of Four with Health Insurance Through Work ($60,000 compensation; employer pays $10,000 and employee pays $4,000 for health insurance)
• Example #3  Uninsured Single Mother with Two Children ($20,000 compensation)
• Example #4: Family of Four with Health Insurance Through Work ($100,000 compensation; employer pays $10,000 and employee pays $4,000 for health insurance)
• Example #5: Family of Four with Health Insurance Through Work ($100,000 compensation; employer pays $15,000 and employee pays $5,000 for health insurance)

For other examples from the Tax Foundation, see here.

Tax Policy and Technology Change

Arthur Cockfield (Queen's University), guest blogging on Law and Technology Theory, has an interesting post on tax policy and technology change.

New Study: Profs Who Give High Grades Get High Student Evaluations

Bruce A. Weinberg, Belton M. Fleisher & Masanori Hashimoto (all of Ohio State University, Department of Economics) have posted Evaluating Methods for Evaluating Instruction: The Case of Higher Education on SSRN.  Here is the abstract:

This paper studies methods for evaluating instruction in higher education. We explore student evaluations of instruction and a variety of alternatives. We develop a simple model to illustrate the biases inherent in student evaluations. Measuring learning using grades in future courses, we show that student evaluations are positively related to current grades but uncorrelated with learning once current grades are controlled. We offer evidence that the weak relationship between learning and student evaluations arises in part because students are not aware of how much they have learned in a course. We conclude with a discussion of alternative methods for evaluating teaching.

For press coverage, see today's Inside Higher Ed.

IRS Updates On-Line AMT Tool

The IRS has announced (IR-2007–18) that it has updated its online tool to help taxpayers determine whether they may owe the Alternative Minimum Tax (AMT):

Most taxpayers can enter their data and get an answer in five to 10 minutes using this Internet-based calculator.

Some Colleges Ban Citations to Wikipedia

Following up on this morning's post on how courts are increasingly citing Wikipedia:  today's Inside Higher Ed reports that professors are taking a stand against students citing Wikipedia in their papers:

As Wikipedia has become more and more popular with students, some professors have become increasingly concerned about the online, reader-produced encyclopedia. ...

Experts on digital media said ... [there is] growing concern among faculty members about the accuracy of what students find online. But some worry that bans on citing Wikipedia may not deal with the underlying issues....

In the world of college librarians, a major topic of late has been how to guide students in the right direction for research, when Wikipedia and similar sources are so easy.

IRS Grounds Prize Winner from Trip to Outer Space

The Associated Press reports that Brian Emmett has canceled the free trip to outer space he won as a prize in a contest run by Oracle Corp. because he would have to take the $138,000 value of the ride into income, resulting in $25,000 in taxes:

Since the IRS requires winnings from lottery drawings, TV game shows and other contests to be reported as taxable income, tax experts contend there's no such thing as a free spaceflight. Some contest sponsors provide a check to cover taxes, but that income is also taxable.

(Hat Tip:  Gerry Beyer.)

NY Times: Should Courts Cite Wikipedia?

Interesting article in today's New York Times:  Courts Turn to Wikipedia, but Selectively, by Noam Cohen:

A simple search of published court decisions shows that Wikipedia is frequently cited by judges around the country, involving serious issues and the bizarre — such as a 2005 tax case before the Tennessee Court of Appeals concerning the definition of “beverage” that involved hundreds of thousands of dollars ...

More than 100 judicial rulings have relied on Wikipedia, beginning in 2004, including 13 from circuit courts of appeal, one step below the Supreme Court. (The Supreme Court thus far has never cited Wikipedia.)

“Wikipedia is a terrific resource,” said Judge Richard A. Posner of the United States Court of Appeals for the Seventh Circuit, in Chicago. “Partly because it so convenient, it often has been updated recently and is very accurate.” ut, he added: “It wouldn’t be right to use it in a critical issue. If the safety of a product is at issue, you wouldn’t look it up in Wikipedia.” ...

Cass R. Sunstein, currently a visiting professor at Harvard Law School [said] "I love Wikipedia, but I don’t think it is yet time to cite it in judicial decisions,” he said, adding that “it doesn’t have quality control.”

He said he feared that “if judges use Wikipedia you might introduce opportunistic editing” to create articles that could influence the outcome of cases. He added, however, that he could not fault a use like Judge Posner’s, which “seems too innocuous for a basis of criticism.”

Many citations by judges, often in footnotes, are like Judge Posner’s, beside the main judicial point, appear intended to show how hip and contemporary the judge is, reflecting Professor Sunstein’s suspicion, “that law clerks are using Wikipedia a great deal.” ...

In a recent letter to The New York Law Journal, Kenneth H. Ryesky, a tax lawyer who teaches at Queens College and Yeshiva University, took exception to the practice, writing that “citation of an inherently unstable source such as Wikipedia can undermine the foundation not only of the judicial opinion in which Wikipedia is cited, but of the future briefs and judicial opinions which in turn use that judicial opinion as authority.”

Lederman & Hrung on An Empirical Study of Lawyers’ Effects on Tax Court Litigation Outcomes

Leandra Lederman (Indiana-Bloomington) & Warren B. Hrung (Federal Reserve Bank of New York) have published Do Attorneys do their Clients Justice? An Empirical Study of Lawyers’ Effects on Tax Court Litigation Outcomes, 41 Wake Forest L. Rev. 1235 (2006).  Here is the abstract:

Do attorneys really add value or can unrepresented parties achieve equivalent results? This fundamental question ordinarily is difficult to answer empirically. An equally important question both for attorneys and the justice system is whether attorneys prolong disputes or instead facilitate expeditious resolution of cases.

Fortunately, there is a federal court that provides an excellent laboratory in which to test and answer these questions. In the United States Tax Court (Tax Court), where most federal tax cases are litigated, the government always is represented by Internal Revenue Service attorneys but a large portion of the taxpayer litigants proceed pro se. In addition, the Tax Court is exceptional in that it maintains files on cases that settle. Furthermore, Tax Court disputes involve money, so case outcomes can be readily compared. These institutional characteristics provide the rare opportunity to isolate the effects of lawyers on outcomes in both settled and tried cases.

In order to assess the predicted and actual impacts of attorneys on case outcomes, the article identifies five distinct ways in which attorneys typically differ from unrepresented parties and explores how each of those characteristics may affect case outcomes. The article then exploits the opportunity afforded by the institutional features of the Tax Court; using a unique database of randomly selected cases, the study tests the impact of attorneys on financial outcomes in both tried and settled cases. It also tests the effects of attorneys on time to settlement and time to trial.

Interestingly, the study found that the presence of an attorney for the taxpayer significantly improved the taxpayer’s financial outcome in tried cases, an effect that increased with the experience of the attorney. No such effect existed in settled cases. Although the latter result initially is surprising, it highlights the paramount importance of procedural expertise in formal trial proceedings, as opposed to negotiations with the opposing party. The study also found that the presence of an attorney for the taxpayer did not affect time elapsed to trial or settlement. Thus, the study found that taxpayers’ attorneys, who generally are paid by the hour, neither prolonged disputes nor expedited their resolution but did significantly improve the financial outcomes of the cases they tried.

Student Sues Michigan Law School for Discriminating Against Slow Typists on Exams

Interesting post on the Wall Street Journal's Law Blog:  Slow Typist Sues His Law School:

Adrian Zachariasewycz filed suit against the ... University of Michigan Law School ... alleg[ing] that Michigan’s grading system discriminated against the likes of him because of his poor typing skills. Reads the complaint: “Certain exams taken by [plaintiff] that required students to be skilled touch-typists in order to produce a competitive response resulted in borderline failing grades by virtue of the low volume of prose [plaintiff] could type in the time allotted as compared with other students.” ...

Michigan Law School just sent the Law Blog the following statement: At Michigan Law, students generally choose for themselves whether to write examination answers by hand or whether to type on a keyboard (laptop or typewriter). Beyond the typing policy at issue in the lawsuit, every effort is made to ensure fairness and equitability in the grading and evaluation process.

NYSBA Tax Section Submits Comments on Material Advisor Rules

The New York State Bar Association Tax Section has sent a letter and report to the IRS and Treasury Department on the proposed regulations regarding portable transaction disclosure and list maintenance rules under §§ 6011, 6111, and 6112.

Saturday:

• Tax Prof Profile:  Myron Grauer
• Law Prof Consultants
• IRS Computer Tapes with Sensitive Taxpayer Information Are Missing
• American Accounting Association Meeting Papers Available on SSRN

Sunday:

• Top 5 Tax Paper Downloads
• WSJ: Charities Love IRA Rollovers
• IRS Oversight Board Releases 2006 Annual Report
• WSJ: Law School Should Be More Like Medical School
• Pozen on Tax Expenditures as Foreign Aid

Top 5 Tax Paper Downloads

There is a bit of movement on this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with the #4 and #5 papers changing places on the list:

1.  [215 Downloads]  The Constitutionality of Federal Taxes and Federal Tax Provisions, by Joseph M. Dodge (Florida State)  [blogged here]

2.  [176 Downloads]  Celebrating Life (Chai) and Taxes: Lessons Learned, Francine J. Lipman (Chapman)  [blogged here]

3.  [146 Downloads]  Wheir's the Beef?: Buffalo Law and Taxation, by Erik M. Jensen (Case Western)  [blogged here]

4.  [112 Downloads]  Taxing Emotional Injury Recoveries: A Critical Analysis of Murphy v. Internal Revenue Service, by Gregory L. Germain (Syracuse)  [blogged here]

5.  [110 Downloads]  Tax Expenditures as Foreign Aid, by David Pozen (Yale J.D. 2007)  [blogged here]

WSJ: Charities Love IRA Rollovers

Interesting article in the Weekend Wall Street Journal:  Charities Love IRA Rollovers; Groups Push for Permanent Expansion of New Law, by Arden Dale:

Seniors have until the end of the year to take advantage of a new way to make charitable gifts:

• People 70½ or older can roll over up to $100,000 a year from their IRAs to charities, but the provision expires at the end of 2007
• Charities report a slew of new donations from IRAs since the provision was signed into law in August
• Some nonprofit groups are pushing to make the provision permanent and extend its reach

IRS Oversight Board Releases 2006 Annual Report

The IRS Oversight Board has released its 2006 Annual Report.  From the press release:

The IRS made steady progress last year towards “transforming itself into a modern institution that provides efficient and effective tax administration services to America’s taxpayers,” according to the IRS Oversight Board’s 2006 Annual Report. However, “the IRS must still meet a number of challenges before it can achieve the vision of a 21st Century tax administration agency described in the IRS Restructuring and Reform Act of 1998.” ...

The Board found that the IRS is pressing forward to meet its strategic goals and credits the agency for delivering some noteworthy gains in the past year, such as an increase in enforcement activity and stable customer service levels. According to a survey commissioned by the Board in 2006, taxpayers also increasingly recognize that the IRS provides good quality service through a variety of channels, such as its web site, toll-free telephone lines and Taxpayer Assistance Centers. The Board commends the IRS for these hard-won gains.

However, the Oversight Board’s foremost concern remains the tax gap – the difference between what taxpayers legally owe and what is actually collected. The IRS’ most recent estimate for the annual net tax gap is $290 billion, based on 2001 tax returns:

WSJ: Law School Should Be More Like Medical School

Interesting article in the Wall Street Journal:  Meet the Clients, by Cameron Stracher (New York Law School):

The recent arrest of Anderson Kill & Olick paralegal Brian Valery for practicing law without a license raises a number of questions about how the ersatz Fordham graduate could have gotten away with representing corporate clients in complex litigation -- without ever having gone to law school. The more salient question, however, is: Would it have mattered if he had? ...

There appears to be an emerging consensus that although law schools may teach students how to "think like a lawyer," they don't really teach them how to be a lawyer.

It is hard not to agree. One of the biggest problems with the current state of legal education is its emphasis on books rather than people. By reading about the law rather than engaging in it, students end up with the misperception that lawyers spend most of their time debating the niceties of the Rule Against Perpetuities rather than sorting out the messy, somewhat anarchic version of the truth that judges and courts care about. When they graduate, young lawyers rarely know how to interview clients, advocate for their positions, negotiate a settlement or perform any number of other tasks that lawyers do every day. In short, they are woefully unprepared to be lawyers, despite the outrageous hourly fees charged for their services.

By giving students the false idea that being a lawyer is all about intellectual debate, we also drive the wrong students to law school in the first place. The hordes of English majors who fill our classes might think twice if they knew that economics and mathematics -- with their emphasis on problem-solving -- are the best preparation for a career in law. Flowery prose is seldom valued by an overburdened judiciary. ...

These days, to call law school a "trade school" is considered an insult to the establishment. Professors are firmly entrenched in their intellectual camps and pursue their academic agendas. Faculty members with "real world" experience are rarely hired on that basis alone -- although it is quite common to hire professors who have clerked for judges but never practiced at all. The Carnegie Foundation is to be admired for advocating more clinical education, in which students will have an opportunity to learn some hands-on skills. ...

If law schools really want to change the way they train young lawyers, they would look to medical schools. The latter require clinical "rotations" in the last two years of a student's education and then demand at least one more year of training after graduation. By the time your doctor is licensed, he has examined hundreds of patients. ...

The state bars profess interest in protecting the public, but none seem to care whether new lawyers can actually do the tasks with which they will soon be confronted. ...

[L]aw schools can still act. They could team with local practitioners and institutions and demand that their students gain sustained clinical experience -- broadly defined to include anyone needing legal help, not just the usual (nonprofit) suspects. The state bars could refuse to license lawyers until they performed at least one year of postgraduate work, as some other countries require.

Law is not brain surgery. It is a skill that can be acquired through practice and repetition.

Pozen on Tax Expenditures as Foreign Aid

David Pozen (Yale J.D. 2007) has published Tax Expenditures as Foreign Aid, 116 Yale L.J. 869 (2007).  Here is the abstract:

Whether the U.S. government should be allowed to claim credit for the private philanthropy of its citizens is a hot topic in today's foreign aid debate. Overlooked in this debate, however, is a form of aid that straddles the traditional public/private divide: charitable tax expenditures. Through the many tax privileges that the United States grants to its nonprofit organizations, the government implicitly foots some portion of the bill anytime these organizations send money abroad for development purposes. Unlike official development assistance (ODA), these tax-expenditure funds are privately organized and distributed, yet unlike voluntary transfers they are paid for by the public fisc. This is not private aid; it is privatized aid. At the same time that direct expenditures on aid were falling in recent decades, these tax expenditures were rising.

The basic, descriptive goal of this Comment is to show how nonprofit tax policies have shaped the content of American aid. The broader goal is to connect this insight with the literatures on tax expenditures and international development. If one accepts the Comment's theoretical premise, then U.S. government spending on aid is somewhat larger, and substantially different in character, than most commentators have assumed. Although tax expenditures on foreign aid raise a number of concerns, they also, I contend, possess unique virtues that make them a valuable complement to ODA.

Myron Grauer (Capital)

• B.A. 1971, Vermont
• J.D. 1975, Pittsburgh
• LL.M. 1980, Yale

            

    

My career path has been one of turning failure to reach my teenage ambitions into the greatest job a law-trained person could ever hope for (and perhaps, just as Al Gore claims responsibility for the existence of the Internet, I can claim credit for the existence of TaxProf Blog and the TaxProf email listserv.

Now, I have to admit that being a teacher had always been my ambition; it just wasn’t being a law teacher. No, my goal as a teenager was to be both a ski instructor and a comic actor and theatre teacher.

I had gone to boarding school in Vermont where I raced on the ski team, but got more credit for my graceful technique than for my speed through the slalom gates. I then enrolled in the University of Vermont (UVM) and, for a while, majored in Theatre. Unfortunately, I had a difficult time memorizing lines and keeping a straight face on stage, so all I did was ad lib. While these proclivities kept me out of a career in theatre, they held me in good stead for a career in law teaching where ad libbing is necessary and the students love it if you crack up on stage now and then.

After graduating from UVM, I was hired to be a ski instructor at Bolton Valley Ski Area near Burlington. However, I had second thoughts about the job before I ever started once I was informed that I would be teaching pre-schoolers and wiping their runny noses as they whined for most of the day. Nonetheless, I rented a basement apartment in Burlington from an elderly woman and decided to give it a go. But that first night in the apartment convinced me that I had made a major mistake in my career path. The landlady kept me awake all night with a horrible cough, and when she told me in the morning that she thanked the Lord for bringing me into her life to take care of her in her old age, I decided to get as far away as I could from her and the prospect of the runny-nosed children and immediately headed home to Pittsburgh where I worked for six months in Democratic political campaigns. While working on the campaigns, I came in contact with many lawyers and decided that law school might not be a bad place to hang out for a few years.

I was accepted into the University of Pittsburgh School of Law and loved it from the start. I had always gotten a kick out of reading Ann Landers and Dear Abby for their outrageously humorous fact patterns, and here I was being required to read fact patterns in cases that were even funnier. After I took my first year exams, I was convinced that I had better build up my muscles and that all the laughs were over because all I had ahead of me was a career as a ditch digger. Then the Law School Registrar sent me my grades and informed me that I had made Law Review because I was in the top 10% of my class. I knew that 90% of my classmates weren’t dumber than me, but if I learned one thing my first year of law school, it was when to keep my mouth shut, so I decided not to tell the Registrar that she must have matched my name with the wrong exam number, and I moved on to my second year of law school.

Pitt required all second-year law students to take basic income tax, and I was fortunate to be in Professor Bill Brown’s section. Bill had recently received his LL.M. from Yale and constantly made references in class to what Marvin Chirelstein would say. (This was before Chirelstein had ever written the first edition of his landmark book, so I was hearing the oral story of “Tax According to Chirelstein” from the mouth of Bill Brown, just as Homer heard the oral history of The Odyssey from the Greeks before he wrote it down.) Bill Brown was (and still is) such an engaging person that he not only became my mentor, but also one of my closest personal friends, so much so that we even were guests at each other’s weddings . By the time I graduated from Pitt, I knew I wanted to follow in Bill’s footsteps, get my LL.M. from Yale, and be a tax law professor. (The fact patterns in so many tax cases were so humorous that I knew I had found a motherlode of materials for performing my comic routines in front of captive audiences.)

Despite the fact that I now realized that my goal in life was to be an academic bum (It sure beat being a ski bum and having to wipe the runny noses of crying kids!), I convinced a couple of law firms that I really wanted to practice law and was able to spend four years practicing in D.C. and Pittsburgh so that I would have a few war stories to tell my future students. Although I did get to practice a little tax law, most of my practice work involved antitrust, commercial real estate mortgage lending, and commercial litigation. At least one partner with whom I worked figured me out and told me I really belonged in academia, so I took his advice to heart and sent in my LL.M. application to Yale.

Yale accepted me, not knowing that my goal in life was to be a ski bum. The Yalies figured me out, however, when I tried (unsuccessfully) to organize a Yale Law School Ski Team to compete in a winter carnival that the Vermont Law School was trying to get started. Actually, my year at Yale was one of the most enjoyable years of my life, and one of the reasons was that I had Marvin Chirelstein as my advisor and took a couple classes with him. When I accepted an offer to teach at Southern Illinois University, Marv said to me, “If you can do for their law school what Walt Frazier did for their basketball program, well….” And off to Carbondale I went.

At the time I taught at Southern Illinois, it was a very exciting place to be. I was hired by the founding Dean, Hiram Lesar, who had been the dean at Washington University in St. Louis and who was also a tax person. Because of Hiram’s vast experience in legal education (he was also a major contributor to Casner’s American Law of Property), he was able to get many distinguished senior professors to accept visitorships to SIU. I felt quite privileged as a first year law teacher to count as a colleague and friend the late Reed Dickerson who was teaching Legislation at SIU. At AALS meetings, all that we on the SIU Faculty had to do was be anywhere near Hiram and we would be introduced to a “Who’s Who” of legal education.

SIU also prided itself on having contacts with many universities around the world. Some of those universities were in Poland, and there was a sizable number of non-law graduate students there from Poland. One such graduate student named Grazyna, whom I met at a party, called me after the party to ask if I would review a contract of employment she had been offered. Not being a member of the Illinois Bar, I told her that I could not represent her, but that I would be happy to have lunch with her. So have lunch we did, and we now have been married for over twenty-one years! (I certainly am glad I was not admitted to the Illinois Bar because, as I tell my students, you should not date your clients, but since I was not a member of the Bar, Grazyna could not be my client, so I was free to date and then marry her.)

While teaching at SIU, I sent my first article out to law reviews. It had nothing to do with tax; it had to do with the NFL’s antitrust problems. Three weeks after I sent it out, I received a call from the Michigan Law Review wanting to know if I would let them publish it as the lead article in the then-current volume. At first I thought the call was a joke, but, beginner’s luck, it was a genuine offer, and I had a great experience working with their editorial board. Shortly after my article was accepted at Michigan, I was recruited by the University of Cincinnati to join their law faculty. Although SIU was (and still is) a great law school, I missed living in an urban environment and accepted Cincinnati’s offer.

I spent six wonderful years on the Cincinnati law faculty and made many friends there. An overwhelming majority of the tenured faculty voted to grant me tenure, but a small minority of the tenured faculty (including the dean who had already resigned) had a different view. I was told by one person that my problem was that my scholarly record was on downward spiral because I followed up my Michigan antitrust article with tax articles that appeared “only in” the Georgia Law Review and the Washington University Law Quarterly. Although this experience was quite difficult at the time, I now look back on it as just another humorous event in my life. I received an offer from Capital to join its Faculty as a full professor and was granted tenure during my first year there.

It is my departure from Cincinnati, however, that makes me believe I am entitled to receive credit for the existence of TaxProf Blog and the TaxProf email listserv. Once I accepted the offer from Capital, Cincinnati had an opening on its tax faculty that needed filled, and I participated in the hiring process to find my replacement. There were many interesting candidates whom we interviewed, but the person we chose to replace me was a guy named Paul Caron, and the rest is history.

I am now in my seventeenth year on the Capital Law Faculty and have the greatest colleagues one could ever hope for. I teach Basic Income Tax, Estate and Gift Tax, and Estates and Trusts (or, as I tell people who ask, “Death and Taxes”). Since coming here, I have spent more time doing administrative duties than I ever dreamed I would. I have served as Interim Director of Graduate Law Programs on more than one occasion and, in a moment of insanity, agreed to serve as Interim Associate Dean of the Law School for a year while we were in a dean search. I have served as Chair of the University’s Academic Program Review Committee and as Vice Chair of the Faculty Senate. Eight years ago when Capital had its last ABA/AALS inspection, I chaired the Self Study Committee. Unfortunately, I forgot to screw up the last Self Study, because, on the theory that no good deed goes unpunished, I was assigned to chair the Self Study Committee again for the next ABA/AALS visit that is to occur in a few weeks. Despite these administrative duties, I have continued my scholarly work on the Supreme Court’s approach to tax cases and have an article on Justice O’Connor’s approach to tax cases that is due to be published in the Arizona State Law Journal in May.

All in all, things have turned out well for a would-be ski bum turned academic bum. In fact, I have only one complaint. There’s no good skiing in central Ohio!

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.

Law Prof Consultants

Interesting article in this week's National Law Journal:  More Law Profs Consult at Firms; But Moonlighting Can Raise Red Flags, by Leigh Jones:

[Laurence] Tribe is just one of many high-profile legal scholars who have outside jobs with law firms in addition to working as full-time faculty members. The positions not only provide professors with a little cash, but they also provide a little cachet to law firms that can tout the scholar's expertise as a mark of distinction. Law school administrators say they like the idea of professors obtaining some real-world experience, but they also want to make sure their schools are getting their money's worth from faculty members....

Ohio State University Michael E. Moritz College of Law Professor Douglas Berman [and editor of our sister Sentencing Law & Policy blog] worked with O'Melveny & Myers on sentencing issues in the criminal case against former Enron Corp. Chief Executive Officer Jeffrey Skilling, and he is eager to do more consulting with private law firms. He said that because faculty pay lags woefully behind law firm partners' pay, consulting with law firms is a way to get compensated for his brainpower. He charged O'Melveny about $350 an hour for his services, he said. "A lot of it is a market reality," Berman said, adding that consulting also provides professors with welcome variety. "As you get more senior and more accomplished, writing law review articles is even more unsatisfying."

IRS Computer Tapes with Sensitive Taxpayer Information Are Missing

26 IRS computer tapes containing sensitive taxpayer information are missing in Kansas City, and officials fear that millions of taxpayers are at risk of becoming victims of identity theft.  The tapes contain taxpayer names, addresses, social security numbers, bank account numbers, and employer information.  The tapes were sent to Kansas City in August as part of an information sharing agreement between the IRS and the city tp help the city collect its 1% earnings tax, and Kansas City officials lost track of the tapes in December.  For further details, see:

• Kansas City News Leader
• Kansas City Star
• Kansas City Star
• WebCPA
• ZDNet

American Accounting Association Meeting Papers Available on SSRN

The Management Accounting Section of the American Accounting Association has placed on SSRN the papers from its 2007 Midyear Meeting held on January 5-6, 2007.  The 36 papers are available here.

Chodorow Presents Tithing and Tax Reform Today at Notre Dame

Adam Chodorow (Arizona State) presents God's Income Tax: What Jewish Tithing Practices Can Teach Us about Tax Reform today at Notre Dame as part of its Faculty Colloquium Series.  Here is the abstract:

Tax reform and religion were two of the hot button issues during the last election. While at first glance these issues seem unrelated, a number of scholars have argued that religious values should guide our decisions regarding tax reform. This article posits that the relationship between religion and taxes is even stronger than has previously been suggested. People have been tithing for thousands of years. When they determine the amount of the tithe based on their income, the practice amounts to a religious income tax, or, more precisely, God's income tax.

This article explores the Jewish traditions of tithing, looking at both agricultural tithing, which is described in the Bible, and the practice of maaser kesafim, which involves tithing from all types of income, a practice that derives from the Bible but which developed more recently. Over the centuries, religious authorities have developed a sophisticated tax jurisprudence that holds lessons for us as we struggle with the questions of whether to reform our current income tax or replace it entirely with some form of consumption tax.

In comparing Jewish tithing traditions and Federal income tax, this article (1) tests claims that Judeo-Christian values require a progressive tax system; (2) examines the ways in which culture and context affect income definition (and are likely to do so in the future); and (3) explores whether a flat-rate income tax or consumption tax will be less complex than our current tax system, as proponents for such systems claim.

ACTEC Sponsors 2007 Student Writing Competition

The Legal Education Committee of the American College of Trust and Estate Counsel (ACTEC) is sponsoring the 2007 Law Student Writing Competition:

Purpose:  This competition was created by ACTEC’s Legal Education Committee, which consists of law school professors who teach in the area of trusts and estates and practitioners who teach as adjuncts in the trusts and estates field. The competition honors the late Mary Moers Wenig, a member of ACTEC’s Legal Education Committee, who was a law school professor for over 30 years.

Consistent with ACTEC’s purposes, the American College of Trust and Estate Counsel Mary Moers Wenig Student Writing Competition was created to encourage and reward scholarly works in the area of trusts and estates. ACTEC’s purposes are to maintain an association of lawyers, international in scope, skilled and experienced in the preparation of wills and trusts; estate planning; probate procedure and administration of trusts and estates of decedents, minors and incompetents; to improve and reform probate, trust and tax laws, procedures, and professional responsibility, to bring together qualified lawyers whose character and ability will contribute to the achievement of the purposes of the College; and to cooperate with bar associations and other organizations with similar purposes.

Subjects: The paper must relate to the area of trusts and estates, broadly defined to include:

• Business Planning
• Charitable Planning
• Elder Law
• Employee Benefits
• Fiduciary Administration
• Fiduciary Income Taxation
• Fiduciary Litigation
• Estate Planning and Drafting
• Professional Responsibility
• Substantive Laws for the Gratuitous Transmission of Property
• Wealth Transfer Taxation (Estate, Gift and GST Tax)

Prizes:

• 1st Prize: $5,000 and publication in the ACTEC Journal.
• 2d Prize:  $3,000, online publication on ACTEC’s website, and possible publication in the ACTEC Journal
• 3d Prize:  $1,000, online publication on ACTEC’s website, and possible publication in the ACTEC Journal

Deadline:  May 1, 2007.

For more information:

• Official Rules
• Entry Form (Single Author)
• Entry Form (Joint Submission)

Repetti Critiques International Aspects of President's Advisory Panel on Tax Reform Report

James R. Repetti (Boston College) has posted Will U.S. Investment Go Abroad in a Territorial Tax: A Critique of the President's Advisory Panel on Tax Reform, 8 Fla. Tax Rev. ___ (2006), on SSRN.  Here is the abstract:

This article critiques the Report of the President's Advisory Panel on Federal Tax Reform (the “Report”). The Report recommends the U.S. adopt a territorial tax system that would exclude income earned by U.S. taxpayers actively conducting foreign businesses. The Report anticipates that its proposal might generate concern about whether a territorial system would cause U.S. businesses to allocate more jobs and assets overseas to low-tax countries. Referring to an article by Altshuler and Grubert, the Report says:

Researchers found no definitive evidence that location incentives would be significantly changed, which suggests that the territorial system the panel has proposed would not drive U.S. jobs and capital abroad relative to the current system.

The Report incorrectly uses the absence of evidence of an adverse effect to assert that there will be no adverse effect. Theory predicts that a territorial tax will increase the incentive for U.S. multinationals and firms with no prior foreign investment to increase capital transfers to foreign subsidiaries in low-tax countries. A careful reading of the Altshuler-Grubert study reveals that Altshuler and Grubert view their empirical results as inconclusive. Moreover, there are additional factors not considered by Altshuler and Grubert that create further uncertainty about their empirical results, as detailed in this article.

The Report justifies its recommendation for a territorial tax by asserting that the tax will eliminate the tax impediment to repatriating earnings and will make U.S. multinationals more competitive. A complete analysis of the welfare effects of a territorial tax, however, requires that such benefits be considered in the context of other welfare costs that a territorial tax may impose on domestic investment. Since a territorial tax represents a significant variance from the U.S. tax norm that all income should be taxed, the U.S. should enact a territorial system only if it can be shown that the benefits outweigh the costs. This article explains that the Report does not consider potential costs of a territorial tax that make it impossible to determine the net welfare impact of a territorial tax. As a result, this article concludes that the Report fails to make a persuasive case for such a tax.

New Issue of Basic Income Studies

The Berkeley Electronic Press has published Vol. 1, Issue 2, of Basic Income Studies, an international journal of basic income research:

Basic Income Studies (BIS) is the first academic journal to focus specifically on basic income and cognate policies. BIS provides a forum for the discussion of theoretical issues and empirical research on the design and implementation of basic income schemes, and also aims to address broader questions regarding the future direction of universal welfare policy.

Vol. 1, Issue 2, guest-edited by Loek Groot (Utrecht University), features a debate on the merits and disadvantage of using an experimental approach in basic income research.

For the full table of contents, with links to the 15 articles in the current issue, see here.

Tax Tidbits

Jim Maule (Villanova) has a cornucopia of interesting tax items on his blog this morning, including:

• The tax consequences to a pregnant Chicago woman offering to sell advertising space on her belly in exchange for Super Bowl tickets (story and vido here).
• Arizona's decision to increase cigarette taxes 80 cents pursuant to language in a ballot initiative petition, even though the actual ballot language approved by the voters said .80 cents (details here).
• The Pennsylvania Department of Revenue's announcement that it has mailed one million Forms 1099 reporting erroneous state income tax refunds and interest payments (they mistakenly used 2005 figures rather than 2006 figures).
• A new tax website with a variety of useful tools:  IRS Forum:  The Taxpayers Form.

IRS Checking Inflated Telephone Excise Tax Refunds

The IRS announced yesterday (IR-2007) Some Telephone Tax Refund Requests May Be Too High; IRS Will Deny Improper Requests:

The IRS said today that early filings show some individual taxpayers have requested large and apparently improper amounts for the special telephone tax refund. The IRS is investigating potential abuses in this area and will take prompt action against taxpayers who claim improper refund amounts and the return preparers who help them.

See Associated Press coverage.

Marriage Tax in Bulgaria

Interesting article in The Standard Daily:  Marriage Tax to be Introduced in Bulgaria:

The Kyustendil municipality has prepared a bitter wedding "present" for the newly-married couples - they will pay VAT on their wedding ceremonies which will cost by 20% more than it was the case by now. The price of the ceremony which includes a speech delivered by an authorized person and a choir performance - has been increased from 78,9 levs to 95 levs (1euro=1.95 levs). If the newly married couple does not insist on such a ritual the price is only 16 levs for putting down the signatures.

(Hat Tip:  Richard Ainsworth.)

Margalioth Presents The Case for Accelerated Depreciation at UCLA

Yoram Margalioth (Tel Aviv University Law School) presented Not a Panacea for Economic Growth: The Case for Accelerated Depreciation at UCLA yesterday as part of its Tax Policy and Public Finance Workshop Series, Here is part of the Introduction:

Accelerated depreciation deductions have been a tenet of US tax policy for the past 50 years. They are widely believed to promote economic growth.1 In this paper, I argue that accelerated depreciation is based on a questionable economic growth theory and suggest switching to a depreciation method that is closer to economic depreciation. This may allow lowering tax rates or increasing tax incentives to research and development -- the real engine of economic growth.