TaxProf Blog

Halloween and Taxes

Continuing a TaxProf Blog tradition, here are this year's Halloween and taxes items:

• Associated Press:  Tax Law:  Are You Eating Those Pumpkins?
• Don't Mess with Taxes:  Tax Treats from Washington, D.C.
• Greg Mankiw's Blog:
  • The Deadweight Loss of Halloween
  • Trick or Treat
• Mauled Again
  • Halloween Brings Out the Lunacy
  • Tricky Treating:  Teaching Tax Trumps Tasty Tidbit Transfers
• Roth & Co.:  Happy Halloween!
• John Swain, The Pumpkin Tax, 46 State Tax Notes 363 (10/29/07)

Prior TaxProf Blog Halloween coverage below the fold:

• Halloween and Taxes, Part II (11/6/06)
• Halloween and Taxes (10/31/06)
• A TaxProf Halloween Treat (10/31/05)
• A Tax Perspective on Halloween (10/31/05)
• Can Witches Deduct Cost of Schooling? (10/31/05)

(Hat Tip: Jim Maule, Kark Stark, and John Swain.)

Politico: Victor Fleischer -- "Academic It Boy"

Check out the cool video and article on Politico on Victor Fleischer's role in sparking the private equity tax debate:

Here is the beginning of the article (Professor's Proposal Angers Wall Street, by Lisa Lerer):

With a shock of spiky red hair and a self-described case of stage fright, University of Illinois law professor Victor Fleischer doesn’t seem like the kind of guy to simultaneously take on Wall Street billionaires and high-profile lawmakers. But over the past year, the baby-faced professor has fallen into the adversarial role, challenging Congress to curtail some of The Street’s biggest payouts.

In 2006, the 36-year-old lawyer published a draft of his paper suggesting a tax hike for hedge fund, venture capital and private equity managers. At the time, his work made the reading lists of a handful of nerdy graduate students and professors fascinated by the inner workings of the tax code.

Today, the paper — scheduled to be published in next year’s New York University Law Review — is a must-read in Washington. As Congress feverishly debates tax policy, Fleischer has become this season’s academic It Boy.

“No one had any idea that this issue would become such a political firestorm,” Fleischer says, sitting in a restaurant near his modest Champaign, Ill., home. “It’s such an arcane issue that’s so hard to explain and understand, and now it’s something that presidential candidates have to have on their list of issues.”

Last week, Rep. Charles B. Rangel (D-N.Y.) introduced his long-awaited “mother of all tax reforms.” Included in the $1 trillion bill is the controversial tax hike on the private equity, hedge fund and venture capital industries.

The legislation would do almost exactly what Fleischer suggests: hike taxes on the “carried interest” portion of the investment manager’s income from the current 15 percent capital gains fee to the 35 percent income tax that rich Americans typically pay. A proposal in the Senate would apply the same increase to publicly traded private equity firms.

Staudt Presents The Ideological Component of Judging in the Taxation Context Today at Penn

Nancy Staudt (Northwestern) presents The Ideological Component of Judging in the Taxation Context, 84 Wash. U. L. Rev. ___ (2007) (with Lee Epstein (Northwestern) & Peter Wiedenback (Washington University)), at Penn today as part of its Center for Tax Law and Policy Seminar Series.  Here is the abstract:

One of the most enduring divides that scholars have uncovered between decision making in different areas of the law is the role of politics, whether in the form of partisanship or ideology. Study after study confirms a strong correlation between judges' political preferences and their behavior in civil rights/liberties-type cases, but researchers have only rarely identified an association between politics and decisions in economics cases. Some argue that the apolitical nature of decision making in the business and finance contexts is due to the fact that judges simply do not have political preferences in these areas, or if they do, other factors work to neutralize them.

In our view, the existing literature highlights a curious puzzle: Why do judges appear to stand above politics in the areas of the law that are rife with conflict and controversy in the other two branches of government? Lawmaking in the context of taxation, bankruptcy, securities, antitrust, corporate law, to name just a few examples, is highly political in both the legislative and executive branches, as many empirical scholars have documented. For this reason, we seriously question the claim that judges are unique in that they have no political or ideological preferences when it comes to business and finance. Our conjecture is that the null findings in the literature are due to the technical difficulties associated with uncovering politics in large-N studies addressing economics decision-making rather than to a lack of judicial interest in these issues. But this is precisely the question we investigate here.

Distance Learning in Law Schools

Interesting article in today's Inside Higher Ed:  Legal Education at a Distance, by Scott Jaschik:

As online education has become more and more popular, law schools have largely been on the sidelines. The ABA will not accredit distance programs, and has strict limits on the use of distance education in traditional programs.

On Tuesday, however, the online only Concord School of Law — which has managed to grow without ABA recognition — announced a merger with Kaplan University. In terms of corporate ownership, this isn’t much of a change — both Concord and Kaplan are divisions of Kaplan Inc., a major player in for-profit higher education. But because Kaplan University is regionally accredited (which Concord is not), the merger will make Concord students eligible for federal student loans and to defer repaying their past student loans when enrolled. These are seen as advances for Concord — whose officials say that they believe law school’s efforts will eventually change attitudes about distance legal education.

While the ABA has not changed its rules, it has quietly approved an unusual variance from its procedures to allow the Penn State Dickinson School of Law to offer many more courses at a distance than ABA rules permit. While the effort relates in part to particular characteristics of the Penn State program (which makes use of two physical campuses), the ABA waiver represents the broadest experiment to date in the association giving its blessing to the extensive use of distance education.

Google Law School Rankings

1. Harvard
2. Stanford
3. Yale
4. Michigan
5. Columbia
6. Chicago
7. Cornell
8. Brooklyn
9. Vanderbilt
10. NYU
11. North Dakota
12. Wisconsin
13. Pennsylvania
14. Suffolk
15. New York Law School
16. UC-Berkeley
17. Minnesota
18. Notre Dame
19. Tulane
20. George Washington
21. Vermont
22. Indiana-Bloomington
23. Texas
24. Widener
25. University of Washington
26. John Marshall (IL)
27. Washington University
28. Santa Clara
29. Baylor
30. Loyola-L.A.
31. UCLA
32. UC-Davis
33. Duke
34. Capital
35. George Mason
36. Southwestern
37. SUNY-Buffalo
38. North Carolina
39. Valparaiso
40. Wake Forest
41. Lewis & Clark
42. Temple
43. Maryland
44. Connecticut
45. Richmond
46. Drake
47. Boston University
48. Northwestern
49. Regent
50. New England
51. USC
52. Oregon
53. Miami
54. Duquesne
55. Wayne State
56. New Mexico
57. Penn State
58. Quinnipiac
59. Marquette
60. Villanova
61. Northeastern
62. Virginia
63. Case Western
64. Emory
65. Loyola-Chicago
66. St. Mary's
67. BYU
68. San Francisco
69. Seton Hall
70. Alabama
71. Georgia
72. Georgetown
73. Hofstra
74. South Carolina
75. William & Mary
76. Gonzaga
77. Creighton
78. Liberty
79. Rutgers-Newark
80. Boston College
81. St. Louis
82. Albany
83. Thomas Cooley
84. Campbell
85. Pace
86. Idaho
87. Whittier
88. Fordham
89. Pepperdine
90. San Diego
91. St. Thomas (FL)
92. Washburn
93. Roger WIlliams
94. Seattle
95. Oklahoma City
96. SMU
97. Pittsburgh
98. Hawaii
99. Nevada
100. California Western
101. Utah
102. Memphis
103. Colorado
104. Indiana-Indianapolis
105. McGeorge
106. Howard
107. Florida Coastal
108. Massachusetts
109. Loyola-New Orleans
110. Chapman
111. Rutgers-Camden
112. Maine
113. Kansas
114. Texas Tech
115. John Marshall (GA)
116. Ave Maria
117. Catholic
118. Concord
119. Thomas Jefferson
120. CUNY
121. Charleston
122. Mississippi College
123. Missouri-Columbia
124. LSU
125. North Carolina Central
126. Tennessee
127. Hamline
128. Southern Illinois
129. Mississippi
130. Arkansas-Little Rock
131. Washington & Lee
132. Florida
133. Mercer
134. Missouri-Kansas City
135. Cincinnati
136. Dayton
137. Western New England
138. Akron
139. Baltimore
140. UC-Hastings
141. DePaul
142. Chicago-Kent
143. Franklin Pierce
144. Louisville
145. Montana
146. Kentucky
147. American
148. Barry
149. Drexel
150. Texas-Wesleyan
151. Charlotte
152. West Virginia
153. UC-Irvine
154. Ohio State
155. St. John's
156. Detroit-Mercy
157. Elon
158. Arizona
159. Thurgood Marshall (Texas Southern)
160. Stetson
161. University of St. Thomas (MN)
162. Appalachian
163. South Dakota
164. Touro
165. Golden Gate
166. Faulkner
167. Houston
168. Iowa
169. Illinois
170. Nebraska
171. Georgia State
172. Florida State
173. Arizona State
174. Denver
175. Oklahoma
176. District of Columbia
177. Cleveland State
178. Nova
179. William Mitchell
180. Willamette
181. Ohio Northern
182. Michigan State
183. La Verne
184. Tulsa
185. Arkanas
186. Toledo
187. Wyoming
188. Northern Kentucky-Chase
189. South Texas

Results based on Google search for "law school" on October 30, 2007.  For details of Google's search algorithm, see here.

Update:  As other have pointed out, these rankings of course favor schools with "Law School" in their title (as opposed to "College of Law" or "School of Law"):

Top 10 -- "College of Law" search:

1. Georgia State
2. Florida State
3. Michigan State
4. Arizona State
5. Stetson
6. Illinois
7. Syracuse
8. Iowa
9. Cincinnati
10. Denver

Top 10 -- "School of Law" search:

1. NYU
2. Texas
3. Harvard
4. Columbia
5. Indiana-Bloomington
6. Boston University
7. Washington University
8. University of Washington
9. UCLA
10. Emory

Tax News Roundup

• Associated Press:
  • Beenie Man Fces Tax Evasion Charges
  • Bush Signs 7-Year Internet Tax Ban
• Chicago Tribune:  "Count Rangula" Just in Time for Halloween (op-ed), by Cal Thomas
• CNN Money:  Tax Break Tug-of-War on Tap; Despite Pressure to Pass AMT Relief, Lawmakers Are Still Weighing Whether and How to Pay for It and a Host of Other Tax-Break Extensions, Too, by Jeanne Sahadi
• Forbes:  Congress Tells IRS It Can Count on AMT Relief Before End of Year
• New York Times:
  • Plain Truth About Taxes and Cuts, by David Leonhardt
  • Rangel Offering Broad Tax Plan, and Big Target, by Steven R. Weisman
• The Hill:
  • Businesses Ready ... Aim ... Hold Their Fire, by Jessica Holzer
  • Pelosi Finesses Tax Message, by Mike Soraghan
• Reuters:  U.S. May Raise Tax on Private Equity and Hedge Funds, by Kevin Drawbaugh
• Roll Call: The "Great Pumpkin" Delivers a Tax Gift for Republicans, by David Winston
• Wall Street Journal:
  • Study Shows Tax Rise Under Rangel Plan, by Sarah Lueck
  • Taxpayers Find Ways to Lessen AMT's Impact; Advisers Push New Strategies As Congress Again Debates Ultimate Fate of Feared Tax, by Tom Herman & Jane J. Kim
• WebCPA:  Tax Follies on the Hill, by Michael Cohn

Camp on Proceduralist Reflections on Tax Consequences of Home Mortgage Foreclosures

Bryan Camp (Texas Tech) has posted Proceduralist Reflections on Tax Consequences of Home Mortgage Foreclosures, 117 Tax Notes 483 (10/29/07), on SSRN.  Here is the abstract:

In tax law and theory, procedure gets short shrift. Yet sometimes, procedure makes all the difference. That seems to me to be particularly true regarding the recent publicity over the tax consequences of foreclosures on taxpayers' principal residences. H.R. 3648, passed by the U.S. House of Representatives on October 4, 2007, and pending in Congress as of the date of this article, purports to address the alleged problem with the law. This article examines the pending legislation and, more importantly, examines the overlooked role of procedure in creating the problems faced by taxpayers who are told they have taxable income even when they have just taken a huge financial hit in losing their home.

My thesis is that Congress is amending the wrong statute. H.R. 3648 does little to help those taxpayers who find themselves in foreclosures because it completely ignores procedure. Congress should instead amend the statutes concerning third-party reporting procedure because current statutes force both the IRS and taxpayers into an inefficient process to find the right substantive answer. While I will also make a few observations about its substance, I will focus mostly on the procedural aspects of the bill -- or lack thereof. I propose an alternative statutory reform that can fix what is a very real problem for a great many taxpayers, taxpayers who theoretically owe nothing but as a practical matter get stuck with a hefty tax bill. Part I of this article reviews the substantive issue. Part II explains why the issue presented is really a procedural problem. Part III critiques H.R. 3648 and explains how true reform could be accomplished through a simpler amendment.

Tax Court: Chicago Lawyer Does Not Have Reasonable Cause to Avoid Penalties for Failure to Pay Tax on Yearly Income of $103,000 - $214,000

The Tax Court yesterday ruled against Carl R. Klein, who joined the Chicago law firm of Defrees & Fisk as a partner in March 2006. According to his firm bio, Mr. Klein (who got his J.D. from Indiana in 1970) "has over thirty years of experience, specializing in corporate and securities law along with merger and acquisition transactions."

During the 1997-2000 tax years at issue in Klein v. Commissioner, T.C. Memo. 2007-325 (10/30/07), Mr. Klein practiced law with various Chicago law firms and had AGI of between $103,000 - $214,000.  When he did not pay his entire tax liability for these years, the IRS began collection proceedings against him.  At his § 6330 hearing, Mr Kelin claimed:

1. He was entitled to abatement of the “penalties” assessed against him because he had reasonable cause for his failure to pay the taxes.
2. The IRS should have accepted his offer-in-compromise based on doubt as to collectibility because of the possibility of discharge of his taxes in the event he filed for bankruptcy.
3. Alternatively, in the event his offer-in-compromise was not accepted, the IRS should have allowed him to pay his tax liability in installments.

As to the second point, Mr. Klein argued that "respondent had not considered that his future earnings were uncertain because petitioner was aging and was at that time practicing law without associates and without a formal office or support staff. In addition, petitioner contested the settlement officer’s calculation of petitioner’s realizable collection potential, claiming that increased allowances should have been made for petitioner’s basic living expenses."  The settlement officer recommended rejection of Mr. Klein's offer-in-compromise, and the Appeals Office issued notices of determination sustaining the levy actions for 1997-2000.

The Tax Court rejected Mr. Klein's two arguments.  First, the Tax Court held that Mr. Klein's failure to timely file and timely pay was not the result of reasonable cause:

Petitioner contends that his failure to file returns timely and timely pay taxes was due to personal circumstances during the years at issue and that these circumstances constituted reasonable cause for purposes of § 6651(a). Specifically, petitioner claims that his

marriage was ending, the firms he was associated with were collapsing around him, or not following through on promised remuneration, and he was in the midst of a significantly over-budget rehabilitation project on a dream home that almost immediately upon completion he was forced to sell due to the divorce. This occurred all while trying to assure his family’s needs were met.

In spite of the personal adversity he encountered, petitioner succeeded in generating substantial income for the years at issue and apparently chose to spend this income to maintain an elevated lifestyle and to “assure his family needs were met” as opposed to paying his taxes. Petitioner is an attorney and obviously knew he had an obligation to obey the tax laws, including the obligation to file timely returns and pay the taxes when due. The obstacles petitioner describes simply do not rise to a level amounting to reasonable cause. After reviewing the record and applying the de novo standard of review for all years at issue, we hold that petitioner is liable for the additions to tax under § 6651(a)(1) and (2) for all of the years at issue.

Second, the Tax Court rejected Mr. Klein's argument that the IRS abused its discretion in rejecting his offer-in-compromise on the basis of doubt as to its collectibility:

Respondent, in applying the published guidelines, allowed petitioner $2,474 per month for basic living expenses, which petitioner agrees was substantially the same as the amount provided for under the published guidelines. When subtracted from the $22,000 gross monthly income that petitioner disclosed in his offer-in-compromise, and in the light of respondent’s records which showed that petitioner had $302,400 in wages and $13,400 in nonemployee compensation for tax year 2004, respondent concluded that petitioner would be able to pay his bythen $252,462 tax liability in full over 48 months.

We agree with respondent that petitioner had sufficient income to meet his basic living expenses as well as to pay his tax liability in full. Petitioner basically wants the Government to permit him to use his current and expected future earnings to maintain a lifestyle more lavish than the standard for the Chicago area (petitioner’s living expenses are more than twice those of the average national and local standards) plus $4,000 per month for “business expenses” without having to fully satisfy his past due tax obligations. The record does not disclose any special circumstances that warrant acceptance of petitioner’s offer-in-compromise ($70,000 to extinguish a tax liability over $200,000).

Tax Profs at Central States' Annual Conference

Tax Profs with speaking roles at the Central States Law Schools Association (CSLSA) Annual Meeting and Conference held last week at Wayne State:

• Linda Beale (Wayne State),Tax Shelters and the Tax Minimization Norm: How Does the Patenting of Tax Advice Transform the (Global) Playing Field
• Susan Cancelosi (Wayne State), What Lies Beneath: Medicare Reform in a Presidential Election Year and its Potential Impact on Healthcare for the Elderly
• Jonathan Forman (Oklahoma), Promoting Economic Justice in the Face of Globalization
• James Loebl (Valparaiso), The Section 67 Question: Are Fees for Investment Advice Fully or Partially Deductible by a Trust?

ABA Tax Section Offers Teleconference & Webcast Today on Installment Sales

The ABA Tax Section offers a teleconference and webcast today on Installment Sales: Myths, Legends, Pitfalls, and Difficult Issues from 1:00 - 2:30 p.m. EST:

This panel will address the complex issues practitioners encounter in the design, implementation and reporting of installment sales to grantor trusts. The program will not be a review of the basics of the installment sale transaction but, rather, will be an advanced discussion focusing on the "tough" issues related to this sophisticated wealth transfer strategy. The comprehensive program materials include transactional forms provided by four separate law firms (including sales agreements, promissory notes, self-canceling promissory notes, security agreements, guaranty agreements, assignment and assumption agreements, confirmation agreements, and sample gift tax returns) as well as sample correspondence to clients describing the structure, benefits and administration of the installment sale transaction.

Faculty:

• John F. Bergner (Moderator) (Winstead PC, Dallas)
• Stephen R. Akers (Bessemer Trust Co., Dallas)
• Derek Fletcher (Winstead PC, Dallas)
• Laura S. Hundley (Holland & Hart, Boulder)
• Edward M. Manigault (Jones Day, Atlanta)

Feds to Try Donor Who Gave $1m to Law School for Chair He Filled at $100,000/Year

I previously blogged the strange case at Florida A&M Law School, which named as the holder of a $1.75m endowed chair (paying $100k annually) the donor (attorney Shirley Cunningham Jr.) for whom the chair was named in recognition of his $1m gift (which triggered a $750,000 matching gift from the state).  The Associated Press updates the story in Law School Scandal Could Surface at Lawyers' Fen-Phen Trial, by Brett Barrouquere:

A $1 million endowed chair at Florida A&M Law school could become central to the trial of three Kentucky lawyers on wire fraud charges that they bilked clients out of millions in a settlement over the diet drug fen-phen. ...

Cunningham gave the money to Florida A&M in January 2002 with the condition that the school grant him the position at a $100,000-a-year salary. The school fired Cunningham in 2005 after interim FAMU president Castell Bryant said there was no evidence Cunningham had done any work at the law school.

Tax Court Splits Over Whether Taxpayer Can Raise Issue Not Raised in § 6320 Administrative Hearing

In Giamelli v. Commissioner, 129 T.C. No. 14 (10/30/07), a sharply divided Tax Court held that a taxpayer could not raise the underlying tax liability on appeal when it was not raised in the § 6320 administrative hearing in the Appeals Office.  Nine judges joined the majority opinion; seven judges joined three separate dissenting opinions; and one judge concurred (joined by one of the judges from the majority).

San Diego Names Judge Laro Director of its Graduate Tax Program

The University of San Diego School of Law today appointed Tax Court Judge David Laro as Director of its Graduate Tax Program, effective in 2008.  From the press release:

The school’s tax law program was recently ranked 10th in the nation by U.S. News & World Report in their 2008 list of America’s Best Graduate Schools. USD School of Law has consistently been listed in the top ten graduate tax programs since the 2004 ranking.

Judge Laro’s long-standing relationship with the University of San Diego began in 1998, when he first became an annual visiting professor of law. In his role as director, Laro will be working on program and curriculum development to enhance the law school’s vibrant tax program. He will continue to teach, including courses in the area of corporate tax, business valuation and federal tax policy.

“Judge Laro's addition as a full-time director and professor adds great depth and experience to our already strong program,” said University of San Diego School of Law Dean Kevin Cole. “As a jurist, he is well known for the analytical quality and depth of his opinions. He also has a keen sense of the range of issues that confront practicing tax lawyers and will help us to ensure that our curriculum continues to prepare students for the most sophisticated of tax practices.”

“USD has a dedicated, resourceful administration, a highly esteemed and accomplished tax faculty and a pool of bright and enthusiastic students interested in making tax law their future career,” said Judge Laro. “Situated on the vibrant west cost and the gateway to the Pacific Rim, USD is poised to excel, and I am pleased to become part of this exciting program.”

Congratulations to USD -- that is quite a coup!  Judge Laro joins an incredibly strong group of tax scholars and teachers and solidifies USD's position as the premier graduate tax program west of the Mississippi River.

Johnson Presents The Impact of Taxes on Choice of Venue for Distressed Debt Restructuring Today at Lewis & Clark

Lorie Johnson (Georgia) presents The Impact of Taxes on Choice of Venue for Distressed Debt Restructuring at Lewis & Clark today as part of its Faculty Colloquium Series.

WSJ: How Law Students Can Cut Debt, Boost Job Prospects

Interesting article in today's Wall Street Journal:  How to Cut Debt, Boost Job Prospects From Law School, by Amir Efrati:

[H]ow can a prospective student choose a school that offers the best chance of landing a good job?  [R]eing strictly on widely publicized rankings can be a mistake, experts say. "If you go to a school ranked 35th or 40th over one that's ranked 70th or 80th, you are by no means substantially increasing your chances of landing a high-paying job," says Bill Henderson, a law professor at Indiana University-Bloomington who studies the legal job market. For one thing, the talent pool at a higher-ranked school is generally deeper, making it harder to perform better than your classmates -- a must if you want a chance at a big-firm job.

For students aiming for the private sector, here are some tips to help identify the law schools that will provide the best job opportunities and do the least damage to your bank account.

• Consider an in-state public law school:  Unless you've been accepted at a nationally recognized top-tier school, where getting a job is easier regardless of your grades, think hard about minimizing cost.
• Be a big fish:  If your law-school admissions test score doesn't qualify you for admittance at the top 20 to 30 schools ranked by U.S. News & World Report in its annual law-school rankings and your goal is a high-paying law-firm job after graduation, consider going to the school where you will get the biggest tuition discount and where you will be among the top incoming students.
• Ask about on-campus recruiting:  Many employers consider only the top-ranking students, based on their first-year grades, for interviews for the summer-associate jobs that are the path to full-time employment upon graduation. Ask the school and second-year students what percentage of the class gets interviews with the big law firms that offer the highest starting salaries.
• Look for transfer opportunities:  Another perk for big fish: Elite schools are increasingly plucking the best students from lower-ranked schools.
• Check alternative law-school rankings: Rankings published by U.S. News are dominant in the industry, but they reveal few details about graduates' employment prospects. Some schools greatly outperform their U.S. News rank in placing students at the highest-paying firms or in prestigious federal appeals-court clerkships. A handful of alternative rankings have proliferated online in recent years to satisfy the growing demand for measuring employment outcomes of law graduates. Brian Leiter, a law professor at University of Texas-Austin, for example, posts lists ranging from Supreme Court clerkship placement to the scholarly reputation of schools. In the spring, Prof. Henderson of Indiana and another law professor are expected to publish a new ranking in the legal trade publication National Law Journal showing what percentage of a school's class got jobs at the nation's 250 largest law firms.
• Scrutinize schools' data on graduate employment:  Most law schools try to keep track of where their graduates end up and what their salaries are, but some schools are more forthright than others.
• Think about location: Unless a school is nationally recognized, it's tough to take its degree to firms on the other side of the country.

Bill has a detailed follow-up on his Empirical Legal Studies blog.  And check out the comments on Amir's post on the Wall Street Journal's Law Blog:  Law Blog News You Can Use:  How to Get a BigLaw Job.

Update:  The ABA Journal has more in Picking a Law School? Be Cheap and a Big Fish, by Debra Cassens Weiss.

Dexter on Shock, Awe, & Expropriation: The Act of State Doctrine and Loss Deductions Under § 165

Bobby L. Dexter (Chapman) has posted Shock, Awe, & Expropriation: The Act of State Doctrine and Loss Deductions Under Section 165 of the Internal Revenue Code, 82 Tul. L. Rev ___ (2007), on SSRN.  Here is the abstract:

The Act of State doctrine generally dictates that American courts not sit in judgment with respect to the acts of a foreign sovereign on its own soil. Courts commonly reason that although nothing in our Constitution requires recognition of the doctrine, adherence to its mandate effectively allows the Judicial Branch to steer clear of any actual or perceived interference with the Executive Branch's conduct of foreign policy. Wholly aside from established notions of the proper separation of powers, appeal to the doctrine is also a generous display of international comity, allowing domestic courts to defer to the sovereign authority of a foreign power. Courts hearing domestic tax disputes involving foreign expropriation losses routinely appeal to the Act of State doctrine in refusing to characterize the loss as a "theft." In this Article, I question whether a court appealing to the Act of State doctrine to reach one conclusion is obligated (even if only for the sake of analytical consistency) to defer to or recognize the executive, legislative, and judicial acts of that state (or the acts of other branches) in reaching related conclusions, consistent with established tripartite articulations of the Act of State doctrine. In arguing against a deconstructionist paradigm, I reason that a monolithic mindset enhances administrability, effectively polices judicial whim, and minimizes the potential for taxpayer whipsawing.

Using Data to Manage a Law School

Interesting op-ed in today's National law Journal:  Stats: How I Learned to Stop Worrying and Love the Numbers, by William A. Chamberlain (Assistant Dean, Law Career Strategy and Advancement, Northwestern):

During my first week at Northwestern, my boss, the associate dean, mentioned in passing "You might want to take a class in Excel." My stomach clenched and my palms grew sweaty. I had arrived in the land of the spreadsheet.

Each month, I was told, I would prepare a detailed agenda for a meeting with the associate dean and the dean to go over our placement statistics -- not just where we were in relation to the past year's annual numbers but where we were precisely a year before (comparing, for example, March 2005 with March 2004) in a number of areas: stats on the most recent graduating class, the current 3Ls (permanent jobs) and 2Ls (summer placements) and numbers of clerkships (applicants and recipients). These numbers were to be broken down by JD students overall, transfer students, 2-year JD students (an international student program), and JD/MBA students. In addition, I was to report on the placement numbers for our LLM programs (U.S. v. international placements for international students) and our tax program by full-time, part-time and joint degree. ...

In addition to meetings with the dean and annual reporting, I also present statistical information to the faculty and to our alumni Law Board. The Law Board presentations cover the percentage of growth in the legal market in different regions of the country, salary increases, number of on-campus interview employers and job fair employers as compared with previous years, percentages of employers from different regions, numbers of clerkships (applicants, applications, judges and recipients), in addition to a spreadsheet featuring ten years of historical data on our placement by class in terms of job type, geographical location, and U.S. News placement rankings for at-graduation and nine-months percentages.

Early on in my time here, I was introduced to Performance Goals: numerical goals for the placement of upcoming classes at graduation, nine months after graduation, summer placements for 1Ls and 2Ls, geographical breakdown of placements, clerkships (applicants and clerkships obtained) and LLM placement (both international and tax). Yikes! Not only current numbers but future numbers!

Most of the numbers do tie in with the rankings. Our dean is a big fan of benchmarking in general as a method for determining how we are doing on both micro and macro levels. His point is that you can't tell how well you are doing without both internal and external data. Over time, I do seem to be getting a handle on all the numbers (or at least a better one). And, amazingly, I have become a convert.

Are the spreadsheets still a pain? Yes. Have I come to love the numbers? Well, at least I appreciate them. Have I become an expert at discussing bi-modal distributions and plotting graphs? No. But there is a part of me that revels in being able to know on any given day, exactly (or almost exactly) how many folks in each class are seeking employment and what types of jobs they are seeking. I know how many have taken jobs in the various practice types as well as the geography. And I know how many 3Ls are in the market this January as opposed to last. One spreadsheet tracks the employment history of each student in each class from 1L summer to nine months after graduation. We know how many of our students come from outside the Midwest and how many are taking jobs outside the Midwest. We know how many students attended our Meet the Employers Night and how many attend each program. All of these numbers are comparative with prior years as of the same date. What a sense of control!

And I think knowing the numbers is important in terms of our mission as a career center. While they do not tell the whole story, the numbers do provide some assurance that we are on the right track and are helpful in planning for the future. Perhaps best of all, the numbers provide hard evidence of all we are accomplishing.

Dueling WSJ Op-Eds on Rangel Tax Plan

• The AMT Must Go: Stop the Middle-Class Tax Raid, by Charles B. Rangel:

Fundamental tax reform must begin with a repeal of a tax that is now hitting middle-class families and is threatening to grab back the benefits promised under the 2001 and 2003 tax cuts. I'm talking about the AMT, and I've just introduced legislation to strike it from the tax code before it ensnares millions of middle-class Americans. ...

My proposal meets the president's goal of a "revenue-neutral" reform and more. My legislation would repeal the AMT, so that taxpayers will no longer have to fill out multiple tax forms, or wonder year after year whether they will be hit. My reforms would also provide economic security to taxpayers. They would allow millions of additional families to access the $1,000 child tax credit, raise the standard deduction, and expand access to the earned-income tax credit so that working adults will not face tax liability before reaching the poverty level. In total, the bill provides increased tax benefits to more than 90 million families. This is meaningful tax relief for those who need it most.

Tax reform will not be achieved overnight. However, this package should bring even the most partisan conservatives to the table for an overdue debate on the future of our nation's tax policies. This nation must come to grips with the repercussions of recent fiscal irresponsibility.

Opponents will attack my reforms by labeling them a tax increase. This false rhetoric ignores the tax cuts that would be provided to some 90 million Americans as well as the Joint Committee on Taxation's Determination that the bill is revenue-neutral. Some of my Republican friends have even suggested financing of tax reform with a round of tax cuts that are not paid-for. Supporters of this approach should have the courage to lay out a precise plan for how they will pay for the ongoing war in Iraq, the commitments to our veterans, much-needed improvements in our infrastructure. and investments in our health-care and education systems.

The introduction of my bill marks the start, not the end, of the legislative process. Tax reform requires painful choices and my bill reflects that reality. But those who would attack my bill without suggesting alternatives are in the posture of defending the status quo, a posture that is outside the mainstream desires of the American people and the bulk of the business community.

• Inconvenient Tax Truths: Charlie Rangel and Other Liberal Leaders Want to Raise Tax Rates Even If It Means Lower Tax Revenues, by Pete Du Pont:

Nobel Peace laureate Al Gore believes global warming is "an inconvenient truth." Here are some economic truths that America's liberal leadership finds too inconvenient to support.

Tax rate reductions increase tax revenues. ... Federal tax revenues have been rising between 6.7% and 14.5% in each of the past three years, but the proposed tax increases, by slowing rather than stimulating the economy, would ensure that these percentages decline. ... [T]he Rangel bill shows in which direction tax policy will proceed if there is a Democratic president and Congress in 2009.

A much more interesting approach was introduced in the House three weeks ago by Rep. Paul Ryan, a Wisconsin Republican: elimination of the AMT, extension of the 15% capital gains and dividend rates that expire in 2010, and giving taxpayers a choice between filing under the current tax system or a new option with just two income tax brackets, 10% for joint filers with incomes less than $100,000 and 25% for those with higher incomes. It includes a $25,000 standard deduction plus a $3,500-a-person exemption, which comes to $39,000 for a family of four. The new option would be a flat-tax choice, with no other exemptions or loopholes, and the AMT would be gone.

Every taxpayer would be able to make a choice between the current tax system with the AMT burden, tax rates from 10% to 35%, and many complex deduction options, or the Taxpayer Choice Act. Mr. Ryan estimates that the federal government's revenues--excluding AMT revenues, the elimination of which would cost the government only about 2.4% of revenues over 10 years--would be about the same as under the current system, and the top 5% and 1% of taxpayers would pay slightly higher taxes than they do today.

Such a system would stimulate the economy, increase economic growth and job opportunities, and simplify a very complex and frustrating current tax system. But for the liberal establishment a flat tax with lower rates would be a very inconvenient truth. Much better in their view are the substantial Rangel tax increases.

Store Tries to Make Red Sox World Series Victory Less Taxing

I previously blogged the tax consequences of the latest example of refunds tied to a local sports team's success:  Jordan's Furniture in Boston ran a "Monster" promotion promising that customers who purchased furniture between March 7 and April 16 would have their entire purchase price refunded if the Red Sox went on to win the 2007 World Series.  Jordan's has said all along that any refund would be taxable to the customers:

Per IRS regulations, Rebate Claim Forms valued at $600.00 and above will be issued a 2007 1099 Form from Jordan’s Furniture and will be reported to the Internal Revenue Service.

The Boston Globe reports today that Jordan's is checking with its tax lawyers to find a way to avoid sending 1099s to their customers:

Jordan's ... is also trying to figure out if the deal can be sweetened even further. Tatelman said his lawyers are investigating whether the payments to customers are taxable. Jordan's had planned to report the payments to the Internal Revenue Service and send the customers federal 1099 tax forms, but Tatelman said that may not be necessary. "It's really a rebate. It's not a prize," Tatelman said, although some critics have argued that the Jordan's promotion is actually an illegal lottery.

Jordan's Knows Cost of Victory Full Well, by Bruce Mohl.  (Hat Tip:  Eric Lustig.)

Tax Court Again Denies IRS Employee's Claimed Deductions from Side Businesses

I previously blogged the case of IRS employee Sharon T. Myrick, whom the Tax Court held had failed to establish that she was in the event planning business and thus disallowed $15,786 in claimed business expenses and sustained an accuracy related penalty for the 2002 tax year. Myrick v. Commissioner, T.C. Summ. Op. 2007-143 (8/15/07).  The Tax Court yesterday again disallowed $24,171 in claimed business expenses relating to Ms. Myrick's two other alleged side businesses (Avon Products and Prepaid Legal Services) and sustained an accuracy related penalty for the 2001 tax year.  Myrick v. Commissioner, T.C. Summ. Op. 2007-184 (10/29/07).

Gourio & Miao on Dynamic Effects of Permanent and Temporary Dividend Tax Policies on Corporate Investment and Financial Policies

Francois Gourio & Jianjun Miao (both is Boston University, Department of Economics) have posted Dynamic Effects of Permanent and Temporary Dividend Tax Policies on Corporate Investment and Financial Policies on SSRN. Here is the abstract:

We develop a neoclassical partial equilibrium model to analyze the dynamic effects of permanent and temporary dividend tax policies on corporate investment and financing decisions. Facing a tax system with corporate and personal income taxes, dividend tax and capital gains tax, a firm decides how much to invest and how to finance investment by equity or debt subject to collateral constraints and capital adjustment costs. We characterize steady state and simulate transitional dynamics following tax policy changes. We find the following novel results: First, both temporary and permanent dividend tax changes do not have long-run effects on a firm's capital formation, but have short-run effects on its investment and financial policies. Second, an anticipated temporary dividend tax cut has a short-run effect of lowering investment, similar to an anticipated permanent dividend tax increase. Third, a firm responds asymmetrically to an anticipated permanent dividend tax increase versus an anticipated permanent dividend tax cut due to the collateral constraint. Finally, in anticipation of future tax changes, the firm engages in tax arbitrage by borrowing or saving in order to transfer corporate earnings across time so as to reduce shareholder's tax burden.

Tax Profs at Tulane Tax Institute

Tax Prof presenters at last week's 56th Annual Tulane Tax Institute:

• Dane Ciolino (Loyola-New Orleans), Professionalism and the Tax Practitioner
• Stanley M. Johanson (Texas), Recent Developments in Estate and Gift Taxation
• Michael B. Lang (Chapman), Current Ethical Issues for Tax and Estate Planning Practitioners
• Stuart Lazar (Tulane), Recent Developments in the Taxation of Corporations and Shareholders
• Ira Shepard (Houston), Recent Developments in the Taxation of Individuals, Estates and Trusts

Avis Contests Law Blogger’s Fair Use of Logo

Great post on Info/Law:  Avis Contests Law Blogger’s Fair Use of Logo, by William McGeveran (Minnesota):

Last month, law blogger Eric Turkewitz of the New York Personal Injury Law Blog published this post about a judicial decision overturning a federal statute that’s relevant to liability of rental car companies. He illustrated the post with the logos of Avis and Hertz. The other day, as Turkewitz explains here, he received [a cease and desist order from Avis]. ...  Memo to Mr. Turkewitz: Don’t do it!

Update:  Eric followed the advice here.

IRS Grants Tax Relief for Southern California Wildfire Victims

The IRS announced today (IR-2007-178) that it is extending tax return filing and payment deadlines for victims of the Southern California wildfires:

Taxpayers in the Presidential Disaster Area –– consisting of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties –– will have until Jan. 31, 2008, to file returns, pay taxes and perform other time-sensitive acts. The extended deadline applies to items due on or after Oct. 21, 2007, when the fires began, and on or before Jan. 31, 2008. This includes the federal withholding tax return, Form 941, normally due Oct. 31, and the estimated tax payment for the fourth quarter, normally due Jan. 15. In addition, the IRS is waiving the failure to deposit penalty for employment and excise deposits due on or after Oct. 21, 2007, and on or before Nov. 5, 2007, as long as the deposits are made by Nov. 5, 2007. ...

Affected taxpayers in a presidentially declared disaster area also have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. For details on figuring a casualty loss deduction, see IRS Publication 547, “Casualties, Disasters and Thefts.” Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “California Wildfires” at the top of the form so that the IRS can expedite the processing of the refund.

Hymel & Mann Present Tax Incentives for Ethanol Today at Loyola-L.A.

Mona L. Hymel (Arizona) & Roberta F. Mann (Widener) present Moonshine to Motorfuel: Tax Incentives for Fuel Ethanol at Loyola-L.A. today as part of its Tax Policy Colloquium Series.  Ann Carlson (UCLA) & Martin Wachs (Rand Corp) are the commentators.  Here is the Conclusion:

In this article, tax incentives and subsidies for ethanol (and other biofuels) have been evaluated for their economic and environmental effectiveness. Ethanol be part of a solution for reducing dependence on foreign oil and greenhouse gas emissions, particularly in the transport sector. However, the tax incentives for ethanol production should be restructured. For example, corn constitutes about 90% of the feedstock for U.S. ethanol production, although cellulosic sources show increasing promise. Changing the source and methods of agriculture can limit adverse environmental and economic effects of ethanol production. Taxes and other subsidies need to be structured to take these variables into account. As analysts continue to evaluate environmental subsidies and environmental taxes, policy makers must respond by eliminating wasteful subsidies and crafting tax incentives and other subsidies for biofuels that will facilitate the move away from fossil fuels towards renewable energy sources.

Tax News Roundup

• AlterNet:  Charlie Rangel: America's Richest Need to Pay Their Share, by Sam Pizzigati
• ataxingmatter:  Cheney's Attack on the Rangel Plan, by Linda Beale
• Bloomberg News:  Rangel's "Mother of All" Tax Bills Is "Psycho" (op-ed), by Kevin Hassett
• Conglomerate:  Now We Know the Score ..., by Victor Fleischer
• Financial Week:  Rangel Tax Bill Cranks Up Washington’s Corporate Worrywarts; Dust Unlikely to Settle for a Few Weeks, by Nicholas Rummell
• Greg Mankiw's Blog: Redistribution in the Rangel Bill, by Greg Mankiw
• Human Events:  Taxpayers Will Balk at Rangel’s Pitch (op-ed), by Andrew Moylan
• Natonal Review:  Time for New Alternatives (editorial)
• New York Daily News:  Rangel's Knifing of New York, by E.J. McMahon
• U.S. News & World Report:  Is Democratic Tax Bill a Return to Carternomics?, by James Pethokoukis
• Wall Street Journal:  The Mother of All Tax Hikes (op-ed), by Dick Armey

Contest for Tax Students

The TaxGirl invites tax students to write a guest post on "any hot tax policy issue" to be published on the site:

I don’t mean a news or legal summary. I want a policy post -- tell me what the issue is and why it matters. In other words, pick a topic and take a position. Tell me why the law is right or wrong, or just make me think about things in a different way. The kind word here is policy.

And here's what you can win:

• A pound of organic coffee (to help keep you awake during your study sessions)
• A taxgirl mug (to drink the aforementioned coffee)
• Your post on my site (cool mention on the resume)
• Bragging rights
• I’ll write your law professor in any tax course and tell them to give you an A

Tax Porn

In the rankings silly season, in which U.S. News has circulated peer surveys to various law school deans and faculty (including tax faculty for the ranking of tax programs), the Institute for Austrian and International Tax Law has sent around Report of Academic Activities 2006-07, an extraordinarily well done 35-page booklet.  It is, of course, ironic that the coolest piece of tax porn I have seen was sent by a non-U.S. law school! 

    

Red Sox Win!

Red Sox win; Boston-area furniture buyers rejoice; I'll try not to gloat:

Henderson on Gaming the U.S. News Rankings by Increasing the Number of 2L Transfers

Bill Henderson (Indiana) digs into the data on the number of 2L transfers and their effect on the recipient schools' U.S. News rankings and "brands."  Here are some of the data:

In our Student Quality as Measured by LSAT Scores study, Andy Morriss and I theorized that a heavy intake of transfer students was likely the preferred gaming strategy of high ranked schools (lower ranked schools, in contrast, relied upon part-time programs). ... In Tier 1, Georgetown (+14%) and Washington University (+18%) have the largest net inflow of transfer students. In Tier 2, the big net gainers are Florida State (+20%) and Rutgers-Camden (+16%). ... [In] Tiers 3 and 4, [t]he biggest net outflows are from Thomas Cooley (Tier 4, -28%), Valparaiso (Tier 4, -18%), and Whittier (Tier 4, -17%).

(Hat Tip: Brian Leiter.)

Ten Law Schools Form Network to Improve Legal Education

Interesting article in this week's National Law Journal:  A Fresh Look at Legal Education; Network of Law Schools Reviews Curriculum, Focus, by Vesna Jaksic:

A network of 10 law schools [CUNY, Dayton, Georgetown, Harvard, Indiana, New Mexico, NYU, Southwestern, Stanford, and Vanderbilt] has launched an ambitious project aimed at improving how law schools operate, ranging from changes in curricula to providing more practical, real-world training for law students.

See also Dayton Press Release.

CRS Releases Report on Securities Basis Reporting

The Congressional Research Service has released Tax Gap: Proposals in the 110th Congress to Require Brokers to Report Basis on Publicly Traded Securities (RL34216):

Recent and projected large deficits and the need for revenue to offset spending or tax reduction proposals have generated congressional and executive branch interest in different proposals to reduce the tax gap. Proposals in the 110th Congress to require brokers to report adjusted basis on publicly traded securities sold by individuals are examined in this report.

Cowan on The Rise and Fall of Entity Isolation in Sales and Use Taxes

Mark J. Cowan (Boise State University, College of Business and Economics) has posted Tax Planning Versus Business Strategy: The Rise and Fall of Entity Isolation in Sales and Use Taxes, 44 Idaho L. Rev. ___ (2007), on SSRN.  Here is the abstract:

The purpose of this Article is to analyze, from both a legal and a business strategy perspective, the once-popular tax planning technique known as “entity isolation.” This technique is most applicable to so-called “bricks-and-clicks” companies that sell goods both remotely (online or via catalog) and at physical stores. The technique involves isolating the firm's remote sales operations in an affiliated legal entity that is separate from the legal entity which holds the firm's store operations. If the remote sales entity is actually operated separately from the store entity, the remote entity can avoid sales and use tax collection duties on sales shipped to states where the affiliated store entity has stores or other physical presence. Entity isolation was once so widespread that it was considered a major threat to the very existence of the sales tax. In recent years, however, most major bricks-and-clicks retailers have abandoned the technique and have begun to collect sales and use taxes on their online and catalog sales in states where they have stores. This abandonment did not result primarily from changes in the law; it resulted because entity isolation was diametrically opposed to the industry's optimal business strategy. While the law was demanding that the remote sales affiliate be operated separately from the store operations, optimal business strategy was dictating that remote and store sales operations be integrated and the customer be provided with consistent, seamless service across all marketing channels. While others have analyzed entity isolation from a pure tax law or policy perspective, this Article adds to the literature by analyzing the issue from a business strategy perspective. The story of the rise and fall of entity isolation highlights problems with our current state tax system, epitomizes the often dysfunctional relationship between business strategy and tax planning, and serves as a vivid—and needed—reminder to tax planners, business managers, and policymakers that tax planning should not be allowed to inhibit sound business strategy.

TaxProf Blog Weekend Roundup

Saturday:

• Tax Prof Profile:  Adam Rosenzweig
• Giving Students Chocolate Increases Teaching Evaluation Ratings
• Buckles on Is the Ban on Participation in Political Campaigns by Charities Essential to Their Vitality and Democracy? A Reply to Donald Tobin
• The Supreme Court's Upcoming Decision on Rule 10b-5 "Scheme Liability" and its Implications for Tax Shelter Fraud Litigation
• NYSBA Submits Comments on Proposed § 901 Regs

Sunday:

• Top 5 Tax Paper Downloads
• Tax News Roundup
• CTJ Publishes Weekly Tax Digest
• Demystifying the Path to Legal Academia
• Fleming, Peroni & Shay on Fairness in International Taxation: The Ability-to-Pay Case for Taxing Worldwide Income
• Moses Comes to Mississippi College School of Law

Top 5 Tax Paper Downloads

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new #1 paper and a new paper debuting on the list at #5:

1.  [492 Downloads]  The Virtual Tax Library: A Comparison of Five Electronic Tax Research Platforms, by Katherine Pratt, Jennifer M. Kowal & Daniel Martin (all of Loyola-L.A.)  [blogged here]

2.  [220 Downloads]  Taxing Blackstone, by Victor Fleischer (Illinois)  [blogged here]

3.  [185 Downloads]  The Optimal Relationship Between Taxable Income and Financial Accounting Income: Analysis and a Proposal, by Daniel N. Shaviro (NYU)  [blogged here]

4.  [153 Downloads]  Democracy and Opportunity: A New Paradigm in Tax Equity, by James R. Repetti (Boston College)  [blogged here]

5.  [131 Downloads]  Can Discriminatory State Taxation of Municipal Bonds Be Justified? Thoughts on the Davis Topside Briefs, by Brian D. Galle (Florida State) & Ethan Yale (Georgetown)  [blogged here]

Tax News Roundup

• Bloomberg News:  Rangel Says House Will Approve Buyout-Firm Tax Rise Next Month, by Alison Fitzgerald
• Cincinnati Enquirer:  Can Tax Reform Save Ohio?, by Carolyn Pione
• Greg Mankiw's Blog:  The Mother of All Tax Reforms, by Greg Mankiw
• Milken Institute Review:  The Alternative Minumum Tax: Assault on the Middle Class, by Leonard E. Burman
• New York Daily News:  Mayor Bloomberg, President Bush Blast Rangel Tax Plan, by Kirsten Danis & Richard Sisk
• New York Times:  Cheney Attacks Democratic Plan to Revamp Tax Code, by Steven Lee Myers
• Newsday:  Clinton Lukewarm on Rangel Tax Reform Proposal, by Glenn Thrush
• Rep. Tom Reynolds' Letter to Edward Kleinbard, Chief of Staff of the Joint Committee on Taxation (seeking data on Rep. Rangel's proposed AMT patch)
• San Jose Mercury News:  AMT Tax Mess May Not be Fixed Soon, by Mark Schwanhausser
• ScrappleFace:  Rangel’s "Mother of All Tax Reforms" Gets Abortion, by Scott Ott
• Start Making Sense: New Tax Bill Introduced by Congressman Rangel, by Daniel Shaviro
• Tax Foundation:  Tax Foundation Offers a First Look at the Rangel Tax Reform Legislation
• Tax Policy Center:  Distributional Effects of the Major Individual Income Tax Provisions of H.R. 3970, by Greg Leiserson & Jeff Rohaly
• The Economist:  America's Tax System:  Rewriting the Code
• U.S. News & World Report:  Rangel Tax Bill Could Reverse "Reaganomics," by James Pethokoukis
• Wall Street Journal
  • How Rangel Aims to Pay for AMT Cut, by Sarah Lueck
  • Indexing & ETFs:  How You Can Boost Your After-Tax Returns, by Eleanor Laise
  • Tax Code Overhaul: Good or Bad Economics? (interview with Alan Auerbach, Alan D. Viard, and William Gale)
  • Tax Tip:  Pay to be Taxed by Social Security Breaks $100,000, by Tom Herman
• Washington Post:  Corporate Taxes, in Need of Reform, by Jason Furman

CTJ Publishes Weekly Tax Digest

Citizens for Tax Justice has published its weekly Tax Justice Digest with a number of interesting pieces on:

• Chair of House Tax-Writing Committee Proposes Comprehensive Tax Reform
  • Individual Income Taxes Would Be Simpler and More Progressive
  • Corporate Taxes Would Be Simpler and More Efficient
  • Republicans Defend Government Interference in the Economy Through the Tax Code, Defend Complexity in the Tax Code
• State Tax Justice News
  • TABOR Alert: South Carolina
  • More Misguided Tax Cuts Aimed at Senior Property-Owners (Wyoming)
  • If It Sounds Too Good... (Indiana)
  • Wisconsin Lawmakers Finally Make it to the Finish Line

Demystifying the Path to Legal Academia

Interesting (and timely, given the just-completed AALS meat market) article in the Harvard Law Record:  Prof. Levinson Demystifies the Path to Legal Academia, by Dina Awerbuch:

On Tuesday, October 16, Harvard Law professor Daryl Levinson gave a lunchtime presentation to students interested in entering legal academia. ... Over the course of an hour, Levinson explained what qualities law schools are looking for in potential hires these days, the steps that students should take during and after law school towards becoming a professor, and why anyone would even want this job in the first place. ...

Law school hiring committees primarily look to candidates' potential to write valuable scholarship, and only secondarily at their ability to be competent teachers. Levinson drew chuckles from the audience with his wry comment that "perhaps you've noticed this." ...

So what exactly do law schools look for in an entry-level professor? A quarter century ago, the answer was clear. Historically, law schools looked to the traditional indicia of academic achievement: high grades, membership on the law review, and prestigious clerkships. However, this has long since ceased to be true. As law schools discovered that high grades were not good predictors of whether a candidate would produce good scholarship, and as the forms of scholarship valued by the legal academy shifted, the qualifications for candidates changed. Even practical legal experience is not a good predictor of scholarly ability, and, Levinson noted, "is pretty nearly disqualifying." Levinson pointed out that today's younger professors have no significant practical experience, and that if they tried to become involved in the world, "the world would probably recoil in horror."

Instead of fancy grades, clerkships, and practical experience, the modern credential of choice for law school hiring committees is a graduate degree in an allied field such as economics, political science, and even English or psychology. Approximately twenty-five percent of entry-level professors hired last year had Ph.D.'s, and a large number had Master's degrees.

Here's a sad commentary in the Q&A following the talk:

Q: What do you most dislike about being a professor?

A: It's a bad job . . . for people who like to make a difference in the real world. Increasingly, this is an ivory tower profession.

(Hat Tip: The Volokh Conspiracy.)

Fleming, Peroni & Shay on Fairness in International Taxation: The Ability-to-Pay Case for Taxing Worldwide Income

J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Ropes & Gray, Boston) have posted Fairness in International Taxation: The Ability-to-Pay Case for Taxing Worldwide Income, 5 Fla. Tax Rev. 299 (2001), on SSRN.  Here is the abstract:

Although the ability-to-pay fairness principle is a foundational element of American income tax policy, it has played a surprisingly small role in evaluating the U.S. international income tax regime. Perhaps this is because the application of the ability-to-pay concept to international income taxation is complicated by the presence of foreign taxpayers, by income earned through C corporations and by the claims of other governments to tax cross-border income. Nevertheless, it is possible, and indeed essential, to analyze international tax policy in terms of fairness. In this article, we extensively explore the international dimension of the ability-to-pay norm. We argue that this fairness criterion supports the conclusion that taxing worldwide income and ending the deferral privilege provides a tax regime that is superior to either the current U.S. international income tax system or the adoption of an exemption system.

Moses Comes to Mississippi College School of Law

Press release here.

This week's Tax Prof Spotlight continues a series of profiles of folks starting their careers this fall as law school tax professors. I hope the profiles will help introduce our newest colleagues to the tax community.

Adam Rosenzweig (Washington University)

• B.A. 1995, UCLA
• J.D. 1998, Georgetown
• LL.M. (Tax) 2002, NYU

    

      

Similar to many others, tax law was not the field in which I envisioned I would dedicate my professional and academic life when I enrolled in law school. However, as is often the case, my path was paved by learning from and working with some of the best teachers and mentors one could hope for. In particular, I have had the great fortune to be affiliated with three of the finest tax law programs in the country - as a student at Georgetown and NYU, and as a Visiting Assistant Professor at Northwestern.

In retrospect, I can honestly say that I was interested in pursuing an academic career since I started studying the law. At the time, however, each step along the path of my career seemed unrelated to such an end

I enrolled at Georgetown not knowing whether I wanted to pursue a career in law at all, let alone a career in tax law. After several tax classes at Georgetown and an editorial position on The Tax Lawyer, however, I decided to accept a position as an associate in the tax department at Simpson Thacher & Bartlett in New York while simultaneously pursuing an LL.M. in Taxation at NYU part-time. I took a one-year leave of absence from both to clerk for the Honorable James L. Dennis of the U.S. Court of Appeals for the Fifth Circuit, after which I returned to New York to continue at STB and to complete my LLM. The one thing all of these experiences shared was that they permitted me to delve (to differing degrees) into the policy implications of the law -- which increasingly fascinated me. By the time I completed my LL.M., I decided to pursue these academic aspects of the tax law as a full-time career. When the opportunity to teach at Northwestern as a Visiting Assistant Professor arose shortly thereafter, I immediately jumped at the chance. After two incredibly rewarding years at Northwestern, I recently joined the faculty at Washington University, where I will teach Basic Tax and International Tax as regular parts of my teaching package. My colleagues and the staff at Washington University have been wonderful, and I am excited to teach my first International Tax class this fall.

With respect to my scholarship, I intend to combine my interest and background in alternative investment funds and financial instruments with my interest in cross-border and international transactions. To this end, I have co-authored an essay on the tax treatment of partners in service partnerships [Anachronisms in Subchapter K of the Internal Revenue Code – Is it Time to Part With Section 736?, 100 Nw. U. L. Rev. 379 (2006)], and recently published an article on international tax arbitrage [Harnessing the Costs of International Tax Arbitrage, 26 Va. Tax Rev. 555 (2007)]. I am currently working on articles considering the cross-border tax aspects of hedge funds trading in derivatives and the international relations aspects of international tax more broadly. In addition, I recently joined Sandy Guerin and Philip Postlewaite as a co-author on the (hopefully soon to be) forthcoming Seventh Edition of the Aspen casebook, Problems and Materials in Federal Income Taxation. In between, I try to maximize my time with my wonderful and supportive wife Andrea (without whom I would not be where I am today) and our two sons Samuel Lee (age 2 ½) and Henry Fisher (7 mos.) as we explore Saint Louis. To the extent any time is left, I hope to return to jogging and golf, to which I have devoted less time than I would have liked over the past couple of years.

Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools or on one of our international tax colleagues. 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.

Giving Students Chocolate Increases Teaching Evaluation Ratings

From Empirical Legal Studies blog:  "A recent study to be published in an upcoming issue of Teaching of Psychology Journal, found that students who eat chocolate before filling out a course evaluation may give their professor a higher rating than they otherwise would."

The article has a wonderful title:  Fudging the Numbers: Distributing Chocolate Influences Student Evaluations of an Undergraduate Course.  Here is the abstract:

Student evaluations are an important source of information for instructors seeking to improve their teaching methods and for academic departments to evaluate an instructor’s teaching effectiveness. Prior research has shown that student evaluations may be mediated by several unintended aspects of a course. In this study, we examined whether a positive event that is entirely external to the course would increase average student evaluations. Students from three different lectures taught by the same instructor evaluated the courses and instructor, with half offered chocolate before the evaluations took place. Overall, students in the chocolate condition rated the instructor more positively than did the non-chocolate control group. This result raises questions about how to standardize evaluation procedures to minimize and control for the influence of external factors on student evaluations.

As Homer Simpson says, "mmm, chocolate."  For more, see:

• Daily Collegian (Penn State)
• Daily Princetonian
• Harvard Crimson
• Inside Higher Ed
• L.A. Daily News
• Mauled Again

Buckles on Is the Ban on Participation in Political Campaigns by Charities Essential to Their Vitality and Democracy? A Reply to Donald Tobin

Johnny Rex Buckles (Houston) has posted Is the Ban on Participation in Political Campaigns by Charities Essential to Their Vitality and Democracy? A Reply to Professor Tobin, 42 U. Rich. L. Rev. ___ (2008), on SSRN.  Here is the abstract:

Religious and other charitable organizations are described in section 501(c)(3) of the Internal Revenue Code only if they do not participate or intervene in any political campaign on behalf of (or in opposition to) a candidate for public office. A charity that engages in such political campaign activity forfeits its federal income tax exemption and its ability to receive donations that are deductible by donors in computing their federal taxable income. The two-fold penalty effectively prohibits many charities from supporting or opposing political candidates. In a recent article, Professor Donald Tobin argues in favor of this effective ban by asserting that removing it would threaten the American democratic system and the vitality of charitable organizations. This Paper responds to Professor Tobin's thesis. This Article explains why his arguments do not establish that the ban on political campaign participation by charitable organizations is essential (1) to protect the vitality of the charitable sector in general, and churches in particular, or (2) to maintain a properly functioning democracy in the United States. However, this Article also explains why unfettered intervention in political campaigns by charities would pose some problems. This Article concludes that some electioneering by charities is proper, and that alternatives to the ban would better address the most compelling concerns raised by Professor Tobin.

The Supreme Court's Upcoming Decision on Rule 10b-5 "Scheme Liability" and its Implications for Tax Shelter Fraud Litigation

Mark S. Pincus (J.D. 2008, Fordham) has posted Circuit Split or a Matter of Semantics? The Supreme Court's Upcoming Decision on Rule 10b-5 "Scheme Liability" and its Implications for Tax Shelter Fraud Litigation, 76 Fordham L. Rev. 423 (2007), on SSRN.  Here is the abstract:

After IRS investigations exposed widespread fraud among tax shelter promoters, angry investors sued for securities fraud under SEC 10b-5, which provides a cause of action against "primary violators" of the Rule but not against mere "aiders and abettors." This controversial distinction is further complicated by the recent introduction of "scheme liability" lawsuits under two previously obscure provisions of Rule 10b-5. This Note examines the circuit split over the "primary violator," "aider and abettor" distinction in scheme liability claims, arguing that the circuits' conflicting concepts of scheme liability actually cover similar conduct, and that tax shelter promoters likely will be considered primary violators under either concept.

NYSBA Submits Comments on Proposed § 901 Regs

The New York State Bar Association Tax Section has sent a letter and report to the IRS and Treasury Department on the proposed § 901 regulations relating to compulsory payments of foreign taxes.

Tax Profs on Today's Taxation as a Global Socio-Legal Phenomenon Panel

Allison Christians (Wisconsin), Steven Dean (Brooklyn), Diane Ring (Boston College), and Adam Rosenzweig (Washington University) are participating on a panel today at the International Law Weekend: Toward a New Vision of International Law on Taxation as a Global Socio-Legal Phenomenon:

The modern state and its power to tax are coextensive with the construct of citizenship and the ideas about political, social, and economic rights and obligations that connect peoples and their governments. This panel will explore ways in which key players advance ideas about sovereignty, citizenship, and the jurisdiction to tax, the extent to which states and substate and nonstate actors cooperate with each other in allowing jurisdictional intrusion to foster revenue collection, how states resolve conflict amidst cooperation, and the practical and normative aspects of the evolving construct of the tax jurisdiction in a globalized world.

The conference is sponsored by the American Branch of the International Law Association and is being held at the House of the Association of the Bar of the City of New York, 42 West 44th Street, New York City.

Bouma & Mason on Non-Discrimination at the Crossroads of International Taxation

Herman B. Bouma (Buchanan Ingersoll, Washington, D.C.) & Ruth Mason (UConn) have posted IFA 2008 Brussels Congress: USA Branch Report: Non-Discrimination at the Crossroads of International Taxation on SSRN.  Here is abstract:

This is the Report of the United States Branch of the International Fiscal Association (IFA) to the 2008 IFA Congress in Brussels. The Report covers Subject I of the Congress, Non-Discrimination at the Crossroads of International Taxation

It is not entirely clear why the United States includes nondiscrimination articles in its bilateral tax treaties, but obviously there is the feeling that “discrimination” against a national or resident of a fellow treaty partner is not a good thing. The apparent thinking is that when two countries enter into an income tax treaty together, they do so on the basis of friendship and mutual respect, and thus they should treat each other's nationals and residents as their own, at least when they are “in similar circumstances.” Part I of the Report reviews the nondiscrimination article in the U.S. Model Tax Treaty and interpretations of the U.S. Model as well as treaties in force by the U.S. Treasury Department and U.S. courts. Part I also makes suggestions for improvement of the nondiscrimination article of the U.S. Model Treaty.

Part II analyzes prohibitions of tax discrimination contained in sources other than U.S. tax treaties, including the Constitution, friendship, commerce and navigation treaties (FCNs), bilateral investment treaties (BITs), the International Convention on Civil and Political Rights, the NAFTA, the WTO agreements, and customary international law. While the U.S. Constitution contains several provisions that the Supreme Court has interpreted to provide protection from tax discrimination - including the Due Process, Privileges and Immunities, Equal Protection and the Commerce Clauses - cases invoking those protections have mostly involved tax discrimination by U.S. states against residents of other U.S. states, so it is unclear to what extent they protect foreign tax residents. Part II concludes that U.S. trade treaties do not provide nonresident aliens and foreign corporations significant protection from tax discrimination by the United States beyond that contained in bilateral tax treaties.

This report will be published in Cahiers de droit fiscal international Vol. 93b. Reports of other Branches and USA Branch Reports for past Congresses are available on the website of the International Bureau of Fiscal Documentation.

ABA Role in Law School Accreditation Challenged Over New Diversity Standard

Interesting article in The American Lawyer:  ABA Accreditation Process Under Fire; The Education Department Raps the ABA's New Diversity Standards for Law Schools, by Nate Raymond:

Is the ABA making illegal demands for diversity when it accredits law schools? Two government agencies have taken aim at the ABA's accreditation process, which the U.S. Department of Education relies on to determine whether law schools are eligible for certain federal programs. The ABA says its standards are in line with the law and with standards used by other accreditors.

At issue are 2006 amendments to the diversity standards set for law schools by the ABA's accreditation arm, the Council of the Section of Legal Education and Admissions to the Bar. The changes came in response to the U.S. Supreme Court's 2003 ruling in Grutter v. Bollinger, which held that law schools could consider race in admissions but could not use quotas to achieve diversity. The ABA's amended rule says law schools "shall demonstrate by concrete action" a commitment to achieving diverse student bodies, staff, and faculty. It also informs law schools, for the first time since the rule was originally adopted in 1980, that they may use race and ethnicity in admissions processes to promote diversity, consistent with Grutter. The rules stipulate that the ABA will evaluate schools based on the results of their diversity efforts.

In June the Department of Education threatened to revoke the ABA's accreditation authority if it didn't change how it administered its diversity rules and other standards [blogged here]. The department uses assessments of colleges and universities by approved outside accreditors like the ABA to determine whether the institutions are eligible to participate in programs like federal student financial aid.

Two months later, in August, a report from the U.S. Commission on Civil Rights criticized the ABA for setting diversity standards that the commission says are better left to individual law schools [blogged here].

The ABA, which annually accredits about 190 law schools, says that the rule is similar to standards used by other accrediting agencies, such as the National Council for Accreditation of Teacher Education and the Liaison Committee on Medical Education. "I considered it a very standard and very sensible thing to do," says Steven Smith, former chair of the ABA's accrediting council and dean of California Western School of Law, who helped craft the rules.

Affirmative action critics say the rule changes encourage law schools to impose racial preferences in violation of Grutter. "It seemed pretty clear to us that the changes were being made in an effort to increase the pressure on law schools to get their numbers right in admissions and hiring," says Roger Clegg, president and general counsel of the Center for Equal Opportunity (CEO), which opposes affirmative action. "If that meant using racial or ethnic and gender quotas or preferences, then so be it."

Virtual Income, Real World Tax

Interesting post on Virtually Blind:  Two Experts Suggest Virtual World Profits May Be Taxable Even Before Conversion to Real World Cash, by Benjamin Duranske:

Though it is widely understood that profits made running a business that deals in virtual goods or services are taxable, tax agencies have not yet seriously pursued enforcement, and there is an open question regarding when these profits are taxable. Two recent presentations [by Second Life’s "Tax Anderton" (in real life, a member of The Chartered Institute of Taxation in the U.K.) and Bryan Camp, Professor of Law at Texas Tech University] suggest that enforcement is getting incrementally closer, both in the EU and the United States, and more interestingly, both commentators suggested that profits may be taxed even before they are converted to “real” currency.

(Hat Tip: Legal Blog Watch.)

Elkins on Taxing Income Under Inflationary Conditions: The Israeli Experience

David Elkins (SMU & Netanya School of Law) has posted Taxing Income Under Inflationary Conditions: The Israeli Experience, 60 SMU L. Rev. 363 (2007).  Here is the abstract:

The Article presents in broad outline the method adopted by Israeli legislation for the purpose of neutralizing the effects of inflation and calculating the taxpayer's real accession to wealth. Neutralizing the effects of inflation, while necessary in order to measure real accession to wealth, might appear to be a daunting, perhaps even insurmountable, task. Almost every item of income and almost deduction are affected by inflation and would require adjustment. Because of this, most countries' income tax systems simply ignore the effects of inflation in computing taxable income.

During the late 1970s and early 1980s, Israel experienced a period of triple-digit inflation and its income tax was consequently forced to devise methods by which to identify real as opposed to nominal gain. It turned out that neutralizing inflation was much simpler than might be assumed, so much so that what was originally intended as temporary legislation is still in force, despite Israel's present low inflation. It is a model, furthermore, which could serve at least as a basis for discussion in other countries where there exists a desire to tax real accession to wealth.