Tuesday, March 20, 2007
From the Girl Scouts web site:
Q: Is the purchase of Girl Scout Cookies tax-deductible?
A: No and Yes.
No, if the customer keeps the cookies. Individuals who buy Girl Scout Cookies and take the cookies home, or consume them, have purchased a product at a fair market value. For this reason, no part of the price of a box of Girl Scout Cookies used in this way is tax-deductible.
Yes, if the customer leaves the cookies with Girl Scouts. Many Girl Scouts ask customers to pay for one or more boxes of cookies for use in their community service project, for example, collecting for a food pantry. The customers not receiving any Girl Scout Cookies do not benefit directly from paying for them. Those individuals may treat the purchase price of the donated cookies as a charitable contribution.
Interesting article in today's New York Times: IRS Agents Feel Pressed to End Cases, by David Cay Johnston:
The head of the IRS faces questions in Congress today about auditors’ complaints that they are being forced to close corporate cases prematurely, allowing billions in tax dollars to go unpaid. ...
IRS officials say the auditors who are complaining are mostly older agents unwilling to adopt new approaches. Mark W. Everson, the IRS commissioner, is scheduled to testify this morning before the oversight subcommittee of the House Ways and Means Committee [blogged here]. The hearing, the subcommittee’s annual examination of IRS operations, will also look at the gap between the amount of taxes paid and the amount owed. The issue of the tax gap has taken on new urgency with the Democrats now in control of Congress and hoping to finance an ambitious agenda without raising taxes. House and Senate Democrats say the government could collect as much as $100 billion more a year. But the Treasury Department, which oversees the IRS, says it cannot realistically recover a tenth as much as Democrats suggest. ...
All 21 agents interviewed over the last two months said that the I.R.S. paid lip service to its “do the right thing” policy. They provided e-mail messages and memos in which managers and executives made little or no mention of anything but closing files quickly. ... All of the agents interviewed said they believed that the controlling factor in determining whether their superiors qualified for cash bonuses and promotions was their success at closing cases. “How the managers get paid; that’s the real policy,” one auditor in Texas said.
For Commissioner Everson's statement at this morning's hearing, see here.
Janet E. Milne (Vermont) presents Particularities of Environmental Taxation in the United States at a conference on Taxation for Sustainable Development at The Brussels Tax Forum, sponsired by the European Commission:
This conference aims to begin a tradition of an annual tax forum, organised by the EU Commissioner responsible for taxation, that will bring together, in Brussels, policy makers, experts, stakeholder and the general public from all over the world in order to discuss tax issues of particular political and general interest. The topic chosen for 2007 is Taxation for Sustainable Development. The conference will focus on the contribution that taxation can make to sustainable development and how it can promote other policy objectives, such as environmental protection, while bearing in mind economic and social aspects.
For the full program, see here.
Interesting editorial in today's Wall Street Journal: Conrad's Tax*:
Senator Kent Conrad and his fellow Democrats proposed their five-year budget outline, or at least that part of it they're willing to discuss in public. Mr. Conrad, the Senate Budget Chairman, pulled off the neat magic trick of claiming his budget includes "no tax increase," even as it anticipates repeal of the Bush tax cuts after 2010. How does he pull that rabbit out of his hat? By positing what amounts to a giant asterisk where the tax increase is supposed to go and hoping no one will notice. Mr. Conrad has no intention of extending the Bush tax cuts, which he voted against and whose repeal would slap the economy in 2011 with the largest tax increase in U.S. history. But Senate Democrats don't want anyone to know this, at least not before the 2008 election. So Mr. Conrad says his budget revenue estimates "assume that Congress will take steps to counter the effects of the expiration of tax cuts in 2010 in a manner that does not add to the nation's debt burden." How so? Well, "this additional revenue can be achieved without raising taxes by closing the tax gap, shutting down illegal tax shelters, addressing tax havens, and simplifying the tax code," he avers.
What the Senator should have said is "Abracadabra." The 10-year revenue increase from repealing the Bush tax cuts is something like $2 trillion, according to Congress's static-revenue models. Mr. Conrad is claiming that Congress will make up for all of that lost revenue by chasing down such illusions as the "tax gap," which the IRS claims is the difference between the taxes people owe and what they pay. But if this magical $345 billion a year (as of 2001) were easily found, don't you think the army of IRS auditors and tax collectors would have found it by now? ...
All of this is really sleight-of-hand to disguise that Democrats are intent on repealing the Bush tax cuts. This would raise the tax on capital gains to 20% from 15%, more than double the tax rate on dividends to 39.6% from 15%, and sharply increase marginal tax rates at all levels of income. And all of this saber-rattling about a future tax increase is coming just when the current expansion may need another tax cut to keep growth going. ...
By the way, the latest IRS data also show that the wealthiest Americans continue to carry a record share of the income tax load. As the nearby chart shows, the richest 1% paid 35.6% of all income taxes in 2004, the most recent year in which data are available. The top 10% pay a remarkable two-thirds of all income taxes. The irony is that the Bush tax cuts have made the U.S. income tax code more progressive. But according to John Edwards and other class warriors, that's not enough. If there is a virtue in Senator Conrad's magic budget act, it is that it begins to reveal where Democrats would take fiscal policy after 2008 if they run the entire government. Voters may want to look behind the Conrad curtain before their lower tax rates and higher stock-market returns go "poof."
Sue Ann Mota (Bowling State University, Department of Legal Studies) has published DaimlerChrysler v. Cuno -- Plaintiffs Lack Standing to Challenge State Franchise Tax Credit in Federal Court, According to the Supreme Court, 29 N.C. Cent. L.J. 66 (2006). Here is the Conclusion:
DaimlerChrysler v. Cuno is a case of ironies. Ironically, Cuno and other plaintiffs filed the case in state court, and when defendants removed the case to federal court, the plaintiffs requested a remand to state court, which was denied. This then put the burden on the plaintiffs to establish standing, and ultimately, they failed. Ironically, the Ohio tax scheme was challenged both by Ohio taxpayers who alleged injury because of the tax incentives given to keep the Jeep plant, as well as Michigan residents who alleged injury because they did not get the Jeep plant expansion.
I have written before about what I call “tax myopia” – the tax law's failure to consider insights from other areas of law that would inform the tax debate. (Tax Myopia, 13 Va. Tax Rev. 517 (1994)). One illustration of this theme is how the tax law has ignored insights from other areas of law on perhaps the dominant social issue of our time: when does human life begin? The question was addressed in two tax cases decided over 55 years ago, and then revisited recently.
Although Wilson v. Commissioner, 41 B.T.A. 456 (1940), refused to treat an unborn child as a person for purposes of the income tax dependency exemption, Faulkner v. Commissioner, 41 B.T.A. 875 (1940), treated as unborn child as a person for purposes of the gift tax annual exclusion. The Board of Tax Appeals justified the different results on the ground that the dependency exemption benefitted the parents while the annual exclusion benefitted the unborn child. In subsequent rulings, the Service has rejected this distinction and refused to treat unborn children as persons for both income tax and gift tax purposes. In Cassman v. United States, 31 Fed. Cl. 121 (1994), the Court of Federal Claims recently denied the dependency exemption for an unborn child but accepted the Board's facile distinction permitting unborn children to be treated as persons for tax purposes where they benefit from that treatment. Cassman thus perpetuates the schizophrenic state of the tax law in this area and ignores both basic tax principles and nontax considerations in addressing this pivotal issue.
The Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on Internal Revenue Service Operations and the Tax Gap. Mark W. Everson, Commissioner of the IRS, is the only witness scheduled to testify. From the announcement:
The Subcommittee will review overall IRS operations, the status of the current tax return filing season, and the “tax gap,” which is a term used to describe the amount of unpaid taxes owed to the federal government. The Subcommittee will review IRS operations and tax administration priorities in the areas of taxpayer services, examinations, collections, and modernization. As part of this review, the Subcommittee will examine the Administration’s budget and staffing levels for IRS as proposed in the President’s Fiscal Year 2008 Budget for the IRS. The Subcommittee will discuss the status of the current tax return filing season, including the large number of unclaimed telephone tax refunds, and consider areas where IRS can better assist taxpayers in their efforts to comply with their tax obligations. Also, the Subcommittee will discuss tax fraud schemes and tax scams that IRS has identified this year. The Subcommittee will examine the estimated annual $345 billion tax gap, identify components of the tax gap, and discuss ways IRS can improve individual and corporate tax compliance. Specifically, the Subcommittee will review the Administration’s proposals for addressing the tax gap as recommended in the President’s Fiscal Year 2008 Budget for IRS.
The hearing begins at 10:00 a.m. in 1100 Longworth House Office Building.
Monday, March 19, 2007
The ABA Tax Section has submitted comments to the Senate Finance Committee on Additional Options to Improve Tax Compliance Prepared by the Staff of the Joint Committee on Taxation:
- Joint Committee on Taxation, Additional Options to Improve Tax Compliance (8/3/06)
- TaxProf Blog coverage
The Center on Budget and Policy Priorities yesterday released Have the 2001 and 2003 Tax Cuts Made The Tax Code More Progressive?, by Aviva Aron-Dine:
With debate beginning on the Senate budget resolution, congressional supporters of the 2001 and 2003 tax cuts have begun recycling old arguments for extending all of these tax cuts. Among these is the claim that the tax cuts have made the tax code more progressive. The reality is that the tax cuts have made the tax code more regressive. A progressive tax code is one that makes the distribution of after-tax income more equal than the distribution of pre-tax income, and one tax code is “more progressive” than another if it has a larger effect in reducing income inequality. So, in order for the 2001 and 2003 tax cuts to have made the tax code more progressive, after-tax incomes would have to be less unequal today than if the tax cuts had not occurred. In fact, however, the reverse is true: the tax cuts made the distribution of after-tax income more unequal.
- T.D. 9316 & REG-146247-06: Final & Temporary Regs on Continuity of Interest in Corporate Reorganizations
- T.D. 9317: Final & Temporary Regs on Computer Software Under Section 199(c)(5)(B)
- REG-113365-04: Revised Initial Regulatory Flexibility Analysis of Proposed Rules (REG-113365-04) on Deferred Like-Kind Exchanges
- IR-2007-64: 2007 Saturn Aura Certified As Qualified Hybrid Vehicle
Interesting book on the law school experience: Testing Kate, by Whitney Gaskell:
Kate Bennett, 29, is ready to chuck her staid life in Ithaca for law school at pre-Katrina Tulane, but a moving van mishap leaves her unprepared for the first day of the notorious professor Hoffman's criminal law class. His cringe-inducing close questioning leaves Kate a laughingstock, but not in the eyes of her quickly convened study group: the dramatic, blonde goddess Lexi; the married and affable Jen; goofy Addison; 19-year-old phenom Dana; and sexy Nick, who lives in her building. The situation with Hoffman escalates; ex-boyfriend Graham shows up to woo her back. After a brief respite, Hoffman unexpectedly takes over one of Kate's classes second semester, and things get progressively more complicated: Kate spends an intimate night with Nick, has to pick up the pieces when Dana starts to crack, and uncovers a dramatic secret about Jen—all of which forces Kate to examine her commitments in love and law. Gaskell (She, Myself & I) relieves the high school–like atmosphere with sharp dialogue and various forays into New Orleans culture. But the cast is largely schematic (even in crisis), and Kate's own dilemmas (law review, anyone?) are not compelling enough to raise the stakes.
The ABA Tax Section has published the 2007 Winter issue of the NewsQuarterly. It features an interesting Point & Counterpoint on The Constitutionality of Tax Exemptions for Home State Bonds under the Dormant Commerce Clause, introduced by Christopher M. Pietruszkiewicz (LSU):
The income tax system in Kentucky exempted interest on bonds issued by the Commonwealth of Kentucky but taxed interest on bonds from other states. In Davis v. Department of Revenue (blogged here), a Kentucky court determined that the state’s disparate tax treatment of bond interest discriminated against interstate commerce. While the decision is limited to the taxation of bonds under the Kentucky income tax system, its rationale may have a much broader application in increasingly competitive financial markets and raises questions about the ability of states to self-create tax incentives. In this article, Linda Beale [Wayne State] argues that the home-state interest exemption should be viewed as constitutional and not violative of the dormant Commerce Clause. The NewsQuarterly encourages readers to submit responses or comments to this essay, which may be published in a subsequent issue.
Following up on Friday's post, Judges Use Law Reviews "Like Drunkards Use Lampposts: More For Support Than for Illumination", Adam Liptak has an interesting article in today's New York Times: When Rendering Decisions, Judges Are Finding Law Reviews Irrelevant:
The assembled judges pleaded with the law professors to write about actual cases and doctrines, in quick, plain and accessible articles. “If the academy does want to change the world,” Judge Reena Raggi said, “it does need to be part of the world.” To an extent, her plea has been answered by the Internet. On blogs like the Volokh Conspiracy and Balkinization, law professors analyze legal developments with skill and flair almost immediately after they happen. Law professors also seem to be litigating more, representing clients and putting their views before courts in supporting briefs.
- Ann Althouse, Althouse: "I haven’t opened up a law review in years. No one speaks of them. No one relies on them."
- Jack Balkin, Balkinization: Judges Lose Cite of Law Reviews
- Doug Berman, Law School Innovation: The Judicial (and Judicious?) Decline of Law Review Cites
- Al Brophy, MoneyLaw: The Declining Importance of Law Reviews
- Dale Carpenter, The Volokh Conspiracy: Two More Thoughts on the Decline of Law Review Citation
- Michael Dorf, Dorf on Law: Dorf on Dorf
- Orin Kerr, The Volokh Conspiracy: How Often Should Judges Cite Law Review Articles?
- Peter Lattman, The Wall Street Journal's Law Blog: Judges Are Ignoring Law Review Articles
- Elizabeth Nowicki, Truth on the Market: Helpful Law Review Articles?
- Dan Solove, Concurring Opinions: Why Are Judges Citing Fewer Law Review Articles?
- Eugene Volokh, The Volokh Conspiracy: How Much Should Legal Scholarship Aspire To Being Cited by Judges?
Oleksandr Pastukhov (Ph.D. Candidate, Interdisciplinary Centre for Law & Information Technology, Katolieke Universiteit Leuven (Belgium)) has published International Taxation of Income Derived from Electronic Commerce: Current Problems and Possible Solutions, 12 B.U. J. Sci. & Tech. L. 310 (2006). Here is part of the Introduction:
This article endeavors to defend the thesis that the developed countries' refusal to change the existing tax rules may prove short-sighted: the near-absolute mobility of capital in cyberspace allows businesses to relocate to another jurisdiction at little cost, and more and more developing countries, as well as some rather developed ones, are turning into “tax havens” to attract more businesses. Countries start competing with each other for shares in tax revenues by lowering their effective tax rates or creating special tax regimes to preserve their tax bases. In the long run, such a “race to the bottom” will reduce the tax revenues of all nations and thus undermine the declared goal of promoting global welfare.
Brian Leiter reports on a memo from the Florida Dean warning of an impending drop in the U.S. News ranking. We previously blogged Tom Bell's posts on the reasons behind Florida's higher ranking than the data tracked by U.S. News otherwise would suggest:
- Bell on the U.S. News Law School Rankings: Why Is Florida #41 Rather Than #43?
- Bell on the U.S. News Law School Rankings: Florida Explains its LSAT & GPA Data
Brian notes that "both the University of Florida and (especially) Florida State University are underranked by U.S. News relative to their actual academic and scholarly strengths, but that should hardly be surprising given that U.S. News doesn't really try to measure academic or scholarly strengths."
As the law school world anxiously awaits the March 30 release of the new U.S. News & World Report Law School Rankings, today's Chronicle of Higher Education and Inside Higher Ed report that Arizona State University President Michael M. Crow will receive up to a $60,000 bonus if his school rises from its current third tier ranking:
Lloyd Thacker, founder of the Education Conservancy and a leading critic of the role of magazine rankings, had strong words for the idea of such a linkage: “rotten, educationally irresponsible, wimpy, short-sighted and wrong.” Raymond Cotton, a Washington lawyer whose practice focuses on presidential contracts, said that 90 percent of the contracts on which he works these days have bonus clauses, and he said that he has heard many trustees talk about concern about the U.S. News rankings, but he said he has never seen the rankings as part of a contract and that he would discourage any client from going ahead with such an approach.
See also local press reports.
We previously blogged (here and here) the Tax Court's amendment of Rule 173(b) to require the IRS to file answers in small tax cases (the amount in controversy is $50,000 or less). The IRS Chief Counsel has issued amended procedures (CC-2007-009) in response to the changes in Rule 173(b):
This Notice amends the procedures for filing answers with the Tax Court to reflect amended Rule 173(b) of the United States Tax Court’s Rules of Practice and Procedure. Rule 173(b) now requires the filing of answers in all small tax cases brought pursuant to section 7463 in which the petition is filed after March 13, 2007. Previously, answers were not required to be filed in small tax cases unless the case presented an issue on which the Commissioner bore the burden of proof, such as cases in which the Commissioner determined fraud or relied upon an exception to the 3-year statute of limitations, or as otherwise directed by the court. Answers in small tax cases are to conform to the requirements applicable to answers generally as provided in Tax Court Rule 36. The provisions set out below replace the provisions currently in the CCDM on the general requirements of Answers, Pretrial Memoranda, and Affirmative Allegations, and delete the section related to Answers in “S” cases.
The Treasury Inspector General for Tax Administration has released The Process to Separate Joint Tax Accounts for Innocent Spouse Cases Has Been Improved; However, Additional Actions Are Needed (2007-40-053) (3/9/07):
IRS employees did not ensure proper actions were taken or taken timely in 27% of the taxpayer accounts reviewed. The IRS did not always take action or take timely action to:
- Suspend collection activity against the taxpayer requesting Innocent Spouse relief
- Resume collection activity for the nonrequesting spouse
- Prevent refunds from being issued to the nonrequesting spouse
- Allow refunds to be issued to the nonrequesting spouse once the tax liability had been fully paid ...
As a result, some taxpayers requesting Innocent Spouse relief may not have been protected from enforced collection actions, and the Federal Government’s interests may not have been protected.
Joseph M. Dodge (Florida State) has posted The Apportionment of Direct Taxes Under the Constitution on SSRN. Here is the abstract:
Under the U.S. Constitution as amended by the Sixteenth Amendment, any federal tax that is a "direct tax" (which is not an "income tax") must be apportioned among the states in accordance with the respective populations of the various states. The purpose of this Article to solve the riddle of what is a "direct tax" that is subject to the apportionment requirement. Since the apportionment requirement can only apply inequitably across the nation, the correct labeling of any federal tax (other than an income tax) as a "direct tax" amounts to the proverbial "kiss of death," as no such tax will be enacted.
Sunday, March 18, 2007
- Tax Prof Profile: Robert Keller
- Newsweek: What Tax Lawyers in NY Times/Boston Globe & Chicago Tribune/L.A. Times Acquisitions Could Have Learned from McClatchy/Minneapolis Star "Double Dummy" Structure
- TIGTA: 100,000 Taxpayers Claimed $1.8 Billion in Improper Noncash Charitable Contributions
- Hellerstein & Swain on The Streamlined Sales and Use Tax: Overview of Current Status
- Top 5 Tax Paper Downloads
- IRS Clarifies Rules for Disclosing Tax Shelter Penalties in SEC Filings
- Government's Tax Case Against "Guru of Ganja" Goes Up in Smoke
- Buchanan on Quantifying Scholarship
- Tax Foundation Provides Resources for Tax Return Filers
- Ohlsson on Tax Avoidance – A Natural Experiment
2. [169 Downloads] Tax Shelters and the Code: Navigating Between Text and Intent, by Steven Dean (Brooklyn) & Lawrence M. Solan (Brooklyn) [blogged here]
4. [100 Downloads] Pensions and Risk Aversion: The Influence of Race, Ethnicity, and Class on Investor Behavior, by Dorothy A. Brown (Washington & Lee) [blogged here]
On Friday, the IRS released an advance copy of Rev. Proc. 2007-25, 2007-12 I.R.B. ___ (3/19/07), which clarifies the rules for disclosing tax shelter penalties in SEC filings:
This revenue procedure amplifies Rev. Proc. 2005–51, 2005–2 C.B. 296, which provides guidance to persons who may be required to pay certain penalties under §§ 6662(h), 6662A, or 6707A, and who may be required under § 6707A(e) to disclose those penalties on reports filed with the SEC.
Interesting Associated Press story: US Judge Urges Dropping Marijuana Charges Against "Ganja Guru":
A federal judge told prosecutors to consider dropping marijuana-growing charges against self-proclaimed marijuana guru Ed Rosenthal. U.S. District Judge Charles R. Breyer granted the Department of Justice's motion for a delay in Rosenthal's retrial, which was scheduled to begin Monday. Earlier in the week, the judge dismissed money laundering and tax charges against Rosenthal.
Breyer said Friday he wants the government to assess whether it should go forward in light of his ruling. Rosenthal, 62, was convicted on three marijuana-growing felonies in 2003. Breyer sentenced him to just one day in prison, which Rosenthal served, saying the "Guru of Ganja" reasonably believed he was growing the plants on behalf of Oakland officials for a city medical marijuana program.
Rosenthal, 62, was convicted on three marijuana-growing felonies in 2003. Breyer sentenced him to just one day in prison, which Rosenthal served, saying the "Guru of Ganja" reasonably believed he was growing the plants on behalf of Oakland officials for a city medical marijuana program. A federal appeals court overturned his conviction last year because of misconduct by a juror who consulted an attorney on how to decide the case. Federal prosecutors indicted Rosenthal again in October over the same marijuana operation, adding four counts of hiding money and five counts of filing false tax returns. The judge said the additional charges were motivated by Rosenthal's appeal and complaints that his first trial was unfair. Rosenthal, a longtime pro-marijuana activist, has written books on how to grow marijuana and how to avoid getting caught.
- Blogs Posts and Podcasts
- IRS Resources
- Other Resources
- Studies and Commentaries
The objective of this paper is to empirically study if and to what extent people legally reduce their tax payments. There are few empirical studies of tax avoidance although avoidance may seriously affect the possibilities to raise tax revenue. I use a sample of Swedish siblings receiving inheritances in 2004. These children of deceased had the opportunity to avoid inheritance taxes by partly or fully ceding their inheritances to the grandchildren. My first main result is that almost two thirds of the children avoid taxes. The likelihood of avoiding taxes decreases with age. The more of the taxes a child potentially can avoid, the more she avoids. Second, only one out of four minimize their tax payments. The more of the taxes a child potentially can avoid, the more likely he is to minimize taxes. And third, siblings tend to make the same choices whether or not to avoid taxes and to minimize taxes.
Saturday, March 17, 2007
Robert I. Keller (Maryland)
- B.S. 1963, Penn
- LL.B. 1966, Harvard
After majoring in accounting at the Wharton School, I actually entered law school (in 1963) with thoughts of being a tax lawyer. Bernie Wolfman’s course in basic income tax (he was visiting at Harvard in 1964) made me even more enthusiastic. Immediately after law school, I joined the Philadelphia law firm of Wolf, Block, Schorr & Solis-Cohen, the firm where Bernie Wolfman had been a partner. It was a large firm (by 1966 standards) of 60+ lawyers. I didn’t know how to spend my huge $7,800 salary. (Within one year our salaries were raised to $13,500, when New York firms dramatically raised starting salaries to $15,000).
Newsweek: What Tax Lawyers in NY Times/Boston Globe & Chicago Tribune/L.A. Times Acquisitions Could Have Learned from McClatchy/Minneapolis Star "Double Dummy" Structure
Interesting article in this week's Newsweek: The Double Dummy Can Be Very Smart, by Allan Sloan:
Tax law isn't exactly a bundle of laughs. But tax lawyers occasionally compensate by inventing hilarious terms like "horizontal double dummy" to describe the paper-shuffling that they do....
[K]nowing about double dummies—a term apparently borrowed from bridge— is the key to unlocking one of the little mysteries of the newspaper business. To wit: why can McClatchy Newspapers get a tax break by selling its Minneapolis operations for less than it paid, while the New York Times Co. can't do that with The Boston Globe, and Tribune Co. can't do it with the Los Angeles Times? The answer: McClatchy did a double-dummy deal when it acquired the Star Tribune's parent company, Cowles Media, in 1998. But Times and Tribune did standard corporate reorganizations when they bought Affiliated Publications and Times Mirror, respectively, in 1993 and 2000. Most acquiring companies could do double dummies, but few go that route.
McClatchy completed the sale of the Minneapolis Star Tribune—or, to be technical, the McClatchy subsidiary that owned the Star Tribune—to Avista Capital Partners for $530 million last week. In addition, McClatchy says, the sale will generate a tax loss worth about $160 million, bringing total proceeds to $690 million. The double dummy is helping McClatchy make the most of a bad deal. It paid a whopping $1.2 billion for Cowles in 1998: about 85% in cash, the other 15% in McClatchy stock....Because McClatchy used a double dummy, anyone who got McClatchy stock in the deal had a tax-deferred transaction. In conventional deals, a buyer has to pay at least 40% of the price in stock for sellers to get the tax deferral. Even better, McClatchy got to add the $1 billion of cash that it paid in the deal to its "tax basis" in Cowles—the amount at which it valued Cowles for tax purposes. McClatchy wouldn't disclose its basis in Cowles. But by my math, without that $1 billion bump-up in basis, selling the Star Tribune for $530 million might have triggered a tax bill, not a refund.
"You can get the best of both worlds when you use a horizontal double dummy for a cash-and-stock transaction," says Lehman Brothers tax expert Robert Willens, who deconstructed the McClatchy-Cowles deal for me. "Selling stockholders worried about taxes can defer their gains by taking stock, and you can add the cash you pay to your tax basis in the acquired company."
The Treasury Inspector General for Tax Administration has released The IRS Needs to Improve Procedures to Identify Noncompliance With the Reporting Requirements for Noncash Charitable Contributions (2007-30-049) (3/5/07):
The IRS revised tax forms and publications and provided training and information to employees to facilitate implementation of the new requirements for claiming noncash charitable contributions. However, taxpayers and tax practitioners still need to be better educated concerning requirements for claiming charitable contributions. Also, additional procedures need to be established to identify noncompliance with charitable contribution requirements during returns processing. Better education of taxpayers and preparers and additional returns processing procedures will enable the IRS to address potential noncompliance, as Congress intended in its legislation. TIGTA estimates 101,236 taxpayers could have claimed unsubstantiated noncash contributions totaling approximately $1.8 billion for the period January 15 through September 21, 2006.
Walter Hellerstein (Georgia) & John A. Swain (Arizona) have published The Streamlined Sales and Use Tax: Overview of Current Status in State & Local Commentary (RIA, March 2007):
This commentary focuses on the significant new developments relating to the streamlined sales and use tax. The commentary generally provides a preview of important new developments.
Friday, March 16, 2007
The report describes activities conducted by the IRS from October 1, 2005, through September 30, 2006, and includes information about returns filed and taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce.
During Fiscal Year (FY) 2006, the IRS collected more than $2.2 trillion in tax and processed over 228 million returns. Over 80 million returns, including 54.3% of individual income tax returns, were filed electronically in FY 2006. Over 108 million individual income tax return filers received tax refunds totaling $243 billion. In FY 2006, IRS spent an average of 42 cents to collect each $100 of tax revenue.
IRS examined nearly 1.3 million individual income tax returns in FY 2006, more than double the number examined in FY 2000. Examinations of business tax returns grew for the second year in a row, reaching over 52,000 in 2006. IRS personnel answered over 32.6 million toll-free calls from taxpayers, and the IRS Web site received about 194 million visits.
Interesting article in today's New York Lawyer: Federal Judges Discuss Usefulness of Law Reviews, by Thomas Adcock:
Kicking off a recent friendly-but-frank discussion about the relevance of contemporary law review articles, Dean David Rudenstine of the Benjamin N. Cardozo School of Law offered one description: "useless blather puffed up with self-indulgence" ...
Judge Sack returned to the not-so-funny problem under consideration: today's highly theoretical articles are largely ignored and seldom cited by judges, a dramatic turnabout from a generation ago when the mostly practical content of law reviews was a significant element of judicial decision-making. Judge Sack was sorry to say that the bench now uses law reviews "like drunkards use lampposts, more for support than for illumination." ...
"If the academy wants to change the world, it must decide if it wants to be a part of the world." ...
Although Judge Sotomayor agreed that brainy law professors should not trouble themselves by contemplating reactions from the bench to their writings, she leveled a sharp gaze at the Cardozo Law faculty and declared, "If you think that judges are not as capable of creative thought as you are, I beg to differ." She added, "My question to academics: do you really think you're serving some function to someone?"
(Hat Tip: Kasey Ingram.)
Graham & Wu on Executive Compensation, Interlocked Compensation Committees, and the 162(m) Cap on Tax Deductibility
John R. Graham & Yonghan Wu (both of Duke University, Fuqua School of Business) have posted Executive Compensation, Interlocked Compensation Committees, and the 162(m) Cap on Tax Deductibility on SSRN. Here is the abstract:
Tax code section 162(m) effective prohibits corporate tax deductibility of non-performance based compensation expenses over $1 million for any one of its top 5 employees. This $1 million cap also applies to all forms of compensation if a firm has an insider on its compensation committee, thus imposing differing cost of compensation on firms with differing compensation committee structures. Using the introduction as a natural experiment, we provide evidence of agency problems and private benefit seeking behaviors that increases with managerial entrenchment and interlocked compensation committee. We find a significant salary reduction for executives dropping their interlock statuses as a result of 162(m). More broadly, we examine 162(m)'s effect on compensation and describe where it is ineffective or has unintended consequences.
Vaughn E. James (Texas Tech) has published The African-American Church, Political Activity, and Tax Exemption, 37 Seton Hall L. Rev. 371 (2007). Here is the abstract:
Ever since its inception during slavery, the African-American Church has served as an advocate for the socio-economic improvement of this nation's African-Americans. Accordingly, for many years, the Church has been politically active, serving as the nurturing ground for several African-American politicians. Indeed, many of the country's early African-American legislators were themselves members of the clergy of the various denominations that constituted the African-American Church.
In 1934, Congress amended the Internal Revenue Code to prohibit tax-exempt entities--including churches and other houses of worship--from allowing lobbying to constitute a “substantial part” of their activities. In 1954, Congress further amended the Code to place an absolute prohibition on political campaigning by these tax-exempt organizations. While these amendments did not specifically target churches and other houses of worship, they have had a chilling effect on efforts by these entities to fulfill their mission. This chilling effect is felt most acutely by the African-American Church, a church established to preach the Gospel and engage in activities which would improve socio-economic conditions for the nation's African-Americans.
This Article discusses the efforts made by the African-American Church to remain faithful to its mission and the inadvertent attempts made by Congress to impede the fulfillment of this mission. The Article will propose a solution to the tug-of-war that would enable the Church to fulfill its mission while acting within the confines of the law. This proposal would allow the future involvement of the Church and other houses of worship in political activity, with these entities funding their involvement with taxable funds. The adoption of this proposal would allow the Church, for the first time since 1954, to fulfill its mission without fear of breaking the law or losing its tax-exempt status.
The New York Times has announced that it is providing free access to its online TimesSelect feature "to all registered college students and faculty with a .edu in their e-mail addresses." (The usual fee is $49.95 per year.) The Chronicle of Higher Education reports that since many schools offer their alumni free e-mail addresses that end in .edu, many grads may be tempted to take advantage of this offer to avoid:
“It’s an honor system,” said Vivian Schiller, senior vice president and general manager of NYTimes.com, in an interview with Advertising Age, a trade magazine of the ad industry. “And we’re assuming that the alumni of this nation’s colleges and universities have a thorough-enough education in ethics to keep them honest.”
IRS Lists 40 Frivolous Positions That Will Subject Taxpayers to a $5,000 Penalty If Taken on 2006 Tax Returns
The IRS yesterday listed 40 frivolous positions that taxpayers should avoid in filing their 2006 returns. From IR-2007-61:
The guidance lists 40 positions which have no basis for validity in existing law or which have been deemed frivolous by the United States Tax Court or other federal court. If these or other frivolous positions are contained in a tax return, taxpayers could face a $5,000 penalty – 10 times the previous maximum. ...
Notice 2007-30 contains a list of frivolous positions that will trigger the increased penalty amount. Four revenue rulings issued in conjunction with the notice address specific frivolous claims often made to the IRS. The revenue rulings center on:
On Monday, I blogged Brian Leiter's rankings of the Top 15 Most-Downloaded Law Faculties (and compared them to the Top 15 Most-Downloaded Tax Faculties). A debate has erupted over Brian's decision to exclude Ohio State and Emory, "whose presence in the top 15 was due entirely to one provocatively titled article by Christopher Fairman who teaches at Ohio State and is visiting at Emory; without Fairman’s paper, neither Ohio State nor Emory would be close to the top 15."
This essay questions the methodology of Brian Leiter's latest addition to his Law School Rankings, the “Most Downloaded Law Faculties, 2006.” Leiter's new ranking purports to rank the top fifteen most downloaded law schools for 2006. While the ranking uses annual download data from the Social Science Research Network (SSRN), he excludes two schools entirely: #8 Emory School of Law and #10 Ohio State Moritz College of Law. In Leiter's own words, “It was necessary to exclude Ohio State and Emory whose presence in the top 15 was due entirely to one provocatively titled article by Christopher Fairman who teaches at Ohio State and is visiting at Emory.” The paper he refers to is entitled Fuck. It explores the legal implications of the use of the word. An earlier version of the piece is available on SSRN as a working paper; it is now available in final form at 28 Cardozo Law Review 1171 (2007). In this essay, I question Fuck's exclusion on three grounds. First, from a procedural standpoint, Leiter has not articulated precisely why this scholarship was excluded. Absent some articulation, authors are unable to predict future results. Is it the title, the subject matter, the author or article downloads that trigger exclusion? Second, from a scholarly perspective, Leiter's exclusion appears to be word taboo at work—precisely the theme of the article he now bans. Third, exclusion of any scholarship illustrates Lawrence Solum's “right people thesis.” In this case, Leiter's exclusion marginalizes the scholarship of others on the premise that the “right people” can't possibly be downloading in such large numbers. Hopefully, this Essay will advance the conversation on whether as a community we benefit from this type of law school ranking.
For more law prof blogosphere commentary, see:
- Ann Bartow, Feminist Law Professors: Fuck, SSRN Rankings
- Doug Berman, Law School Innovation: SSRN Rankings and Leiter's (Rank?) Omission
For the record, Chris's original article in question had 18,040 downloads as of 10:00 p.m. EST on March 15, 2007. making it the third most downloaded paper in history in the Legal Scholarship Division of SSRN (it is just outside the Top 10 downloaded papers on all of SSRN).
I previously blogged the IRS's announcement of a pilot program to solicit greater public input in the development of guidance (Notice 2007-17), as well as David Cay Johnston's critical article in the New York Times (IRS Letting Tax Lawyers Write Rules). Yesterday, Senate Finance Committee Chair Max Baucus and ranking member Charles Grassley sent letters to Treasury Inspector General Russell George and IRS Chief Counsel Don Korb questioning the IRS's plan. From the press release:
Sen. Baucus: “What’s best for taxpayers should be the IRS’s number-one concern when they make new rules for administering tax policy. I want to make sure that outside groups don’t skew the IRS’s view. In the end, the IRS needs to run the IRS."
Sen. Grassley: “We don’t need K Street lawyers writing enforcement regulations to help their clients create tax shelters. That would be worse than a camel’s nose under the tent. It would be the whole caravan. We might as well have the Justice Department let defense counsels write sentencing guidelines."
Thursday, March 15, 2007
What are the benefits of the President's health care reform plan and health savings accounts, and are there any potential drawbacks? Would the President's plan dissuade companies from offering health insurance to employees? If health savings accounts did not cover routine care, would this dissuade individuals from seeking preventive care? In this in-depth podcast, U.S. Senator Orrin G. Hatch (R-Utah) explains why these criticisms of health care reform plans are unfounded and discusses the importance of equal tax treatment for those who purchase health insurance on their own and those who receive it through their employers. (7 minutes, 33 seconds)
Mihir A. Desai (Harvard Business School) presents Taxation and Corporate Governance: An Economic Framework at UCLA today as part of its Tax Policy and Public Finance Workshop Series, moderated by Kirk Stark & Eric Zolt. Here is the abstract:
How do the tax system and corporate governance arrangements interact? This chapter begins by reviewing an emerging literature that explores how agency problems create such interactions and provides evidence on the importance of those interactions. This literature, however, has neglected how taxation can interact with the various mechanisms that have arisen to ameliorate the corporate governance problem, such as concentrated ownership, accounting and information systems, high-powered incentives, financing choices, payout policy, and the market for corporate control. The remainder of the chapter outlines interactions between these mechanisms and the tax system that may prove fruitful areas for future research.
Under a prominent and influential economic model known as the permanent income hypothesis, people's decisions depend on their expected lifetime income, not their current income. If completely true, this hypothesis would have radical implications for tax, transfer, and entitlements policy. For example, unless modified by other information, it would suggest replacing the income tax with a consumption tax, establishing lifetime income averaging, viewing Social Security as irrelevant other than as a system for transferring lifetime resources between individuals, and dramatically changing welfare law to base aid purely on people's lifetime income, as distinct from their current circumstances. However, incomplete markets and departures from rational behavior, by shortening people's planning horizons, weaken some of permanent income's implications and refute others.
Jay A. Soled (Rutgers Business School, left) & Mitchell M. Gans (Hofstra, right) have published A New Model for Identifying Basis In Life Insurance Policies: Implementaiton and Deference, 7 Fla. Tax Rev. 569 (2006). Here is the abstract:
The life insurance marketplace has changed significantly. Many insureds who once held their policy until death or surrendered it to the issuing company during life now instead sell it to a third-party investor. As a result, the computation of a policy’s tax basis has become increasingly important. Yet, surprisingly, the Code fails to provide a methodology for making this determination. The IRS has endorsed one approach in its published guidance but has failed to adhere to it in its private letter rulings. This paper calls for a new model. After suggesting legislation, the paper explores alternative implementation strategies against the backdrop of deference jurisprudence. It concludes that, absent legislation, the IRS should withdraw its published guidance and incorporate the proposed model in regulations.
- 3:40 p.m.: A public lecture on IRS Careers and the Role of Tax Lawyers in Enforcement
- 4:30 p.m.: A guest at the Tax Law Society's IRS 94th Anniversary Celebration
- 6:00 p.m.: A public lecture on Choice of Forum for Tax Litigation
On Monday, we blogged the attempt by Dean Christopher Edley Jr. to convince the University of California Board of Regents to permit Boalt Hall to increase its tuition and fees at a higher rate than California's other public law schools (Law Students Want "a Great Education, Not a Cheap One"). Today's L.A. Times reports on the success of those efforts: UC, Cal State Approve Fee Hikes, by Larry Gordon & Richard C. Paddock:
The regents set a 10% fee hike for law schools at UCLA, UC Berkeley and UC Davis and business schools at UCLA and UC Berkeley. A higher fee was imposed on the five schools on the assumption that most students will earn high salaries after they graduate....
Christopher Edley Jr., dean of Boalt Hall law school at UC Berkeley, had urged the regents to treat professional schools separately. Edley, who is seeking to restore the law school's national standing, also proposed a 16% fee hike for Boalt this year and for at least four more years. The regents declined to impose a higher increase for Boalt but adopted a policy allowing professional schools to be treated differently, setting the stage for bigger hikes in the future.
H&R Block, the world’s largest tax preparation company, is now the first in its industry to open up shop in the fast-growing 3D online universe known as Second Life. The company today launched “H&R Block” Island*, a new destination for the multitudes of people who spend more than 7 million hours per month as they live, work, and play in Second Life. With digital tax professionals sharing free advice, providing access to the latest tax preparation products, and hosting tax-related events, tax time may never be the same. ...
A virtual H&R Block tax experience where real life tax professionals will be available in avatar form to answer tax-related questions free of charge. H&R Block’s virtual tax advisor avatars are named Hope Bechir and Rex Philbin. Hope and Rex will hold office hours in Second Life from 6-7 p.m. PDT on Tuesdays and Thursdays starting March 13 through April 17, 2007.
Under current law, the number of taxpayers affected by the AMT is projected to rise from about 4 million in 2006 to more than 23 million in 2007 and more than 32 million in 2010. On average, taxpayers affected by the AMT in 2010 will owe an additional $3,600 in taxes. Two primary culprits are responsible for this impending explosion: the failure to index the AMT for inflation and the 2001–2006 tax cuts. This article illustrates the growth of the AMT that would have taken place if the different incarnations of the tax that have existed since 1990 were in place today and explains the reasons for the changes in the projections under each scenario.
[Click on chart to enlarge.]
The current Federal tax system has four main elements: (1) an income tax on individuals and corporations (which consist of both a “regular” income tax and an alternative minimum tax); (2) employment taxes on wages (and corresponding taxes on self-employment income); (3) estate, gift, and generation skipping taxes, and (4) excise taxes on selected goods and services. This document provides general data related to each of these elements.
Here is one of the many interesting charts:
As the IRS begins to crack down on religious organizations' possible intervention in political campaigns, religious organizations are altering the nature of the messages they preach to their congregations. Currently, the IRS treats religious organizations no differently than other tax-exempt organizations. This general application of § 501(c)(3) does not account for the special First Amendment concerns that arise when a religious organization's activities are at issue. It does not provide adequate protection for religious or political speech or for the free exercise of religion, making the IRS's interpretation of § 501(c)(3) vulnerable under a Smith hybrid claim. To avoid these constitutional difficulties, the IRS should defer to religious organizations in determining whether a message that is arguably both political and religious is a religious one. This doctrine of deference will become increasingly important for the survival of religious organizations as political campaigns grow in length and intensity and religion and politics become even more intricately intertwined.
Dennis J. Ventry, Jr. (American) has posted a dozen tax articles on SSRN:
- Tax Politics and the New Substantial Understatement Penalty, 113 Tax Notes 98 (Oct. 2, 2006)
- IRS Penalty Report: A Call for Objective Standards, 112 Tax Notes 1183 (Sept. 25, 2006)
- Vices and Virtues of an Objective Reporting Standard, 112 Tax Notes 1085 (Sept. 18, 2006)
- Filling the Ethical Void: Treasury’s 1986 Circular 230 Proposal, 112 Tax Notes 691 (Aug. 21, 2006)
- Lowering the Bar: ABA Formal Opinion 85-352, 112 Tax Notes 69 (July 3, 2006)
- No Joke: Circular 230 Is Here To Stay, 111 Tax Notes 1409 (June 19, 2006)
- ABA Formal Opinion 346 and a New Statutory Penalty Regime, 111 Tax Notes 1269 (June 12, 2006)
- The Reaction to the 1980 Proposed Amendments to Circular 230, 111 Tax Notes 1141 (June 5, 2006).
- Reasonable Basis and Ethical Standards Before 1980, 111 Tax Notes 1047 (May 29, 2006)
- Tax Shelter Opinions Threatened the Tax System in the 1970s, 111 Tax Notes 947 (May 22, 2006)
- Raising the Ethical Bar for Tax Lawyers: Why We Need Circular 230, 111 Tax Notes 823 (May 15, 2006)
- The Collision of Tax and Welfare Politics: The Political History of the Earned Income Tax Credit, 1969-1999, 53 Nat'l Tax J. 983 (2000)