TaxProf Blog

WSJ: Law School Rankings That Matter

Interesting op-ed in today's Wall Street Journal:  School Rankings That Matter, by Cameron Stracher (New York Law School):

The school at which I teach -- New York Law School -- jumped to fifth on the list of New York area law schools (with an all-time high passage rate of 90%), while Benjamin N. Cardozo Law School at Yeshiva University leapfrogged to third, behind only NYU and Columbia. Cardozo, however, is ranked 52nd by U.S. News among all law schools (fourth in New York), while New York Law School is ranked in the "third tier" of law schools (along with Albany, Hofstra, Pace and Syracuse). So which ranking matters? ...

[T]here are really two kinds of law schools: those at which students decide where they want to interview, and those where firms decide. The large majority of law schools belong to the latter group. Hiring partners admit that they use GPA or other bright-line criteria (like law review membership) to interview at Tier 2, 3, and 4 schools, while taking resumes from nearly everyone at Tier 1 schools.

In short: The difference between the 55th-ranked law school and the 105th law school is of little significance in determining which students are more likely to get a good job. At both schools, unless a student is in the top 15% or 20% of his class, he has little chance of getting a high-paying job directly upon graduation. Students might be better served by going to a lower-ranked law school and doing better, rather than going to middling law school and not doing as well.

For more, see the Wall Street Journal Law Blog:  Do the U.S. News Rankings Matter?, by Peter Lattman

Chodorow on Agricultural Tithing and (Flat) Tax Complexity

Adam Chodorow (Arizona State) has published Agricultural Tithing and (Flat) Tax Complexity, 68 U. Pitt. L. Rev. 267 (2006). Here is the abstract:

Tax complexity has been a major concern since the modern income tax was enacted. Reformers have routinely seized on complexity to justify their favored change, whether it be eliminating progressivity or the capital gains preference. More recently, consumption tax advocates have claimed that such taxes are inherently less complex than income taxes. A number of scholars have attempted to test these claims. However, such scholarship has largely been theoretical and speculative, as we do not know what form such a tax might take. Rather than imagine a hypothetical income-based consumption tax and speculate as to its implementation, in this article I study an actual tax of this type, which has existed for over 2,500 years: biblical tithing. Tithing can be seen either as a simple, flat-rate income tax, where the definition of income is limited to agricultural produce, or as a simple income-based consumption tax, where consumption is measured indirectly via the proxy of income (i.e., produce) and returns to capital are excluded from the tax base.

This study reveals that any income-based tax, whether a true income tax or an income-based consumption tax, will necessarily be complex. Questions of income inclusion, tax avoidance, and timing are unavoidable, and those issues alone generate significant complexity. This conclusion has implications both for the reform of our current income tax and for those who seek to replace it. If complexity exists in this fairly straight-forward tax system, it will certainly arise in any of the more sophisticated income tax or income-based consumption tax systems currently under discussion. I do not mean to suggest that simplification efforts are futile. Rather, I would caution that the impulse to effect radical changes to the current tax system in the name of simplification may, like the proverbial fourth marriage, reflect a triumph of hope over experience.

Why Are Law Professors So Unhappy? -- Part Three

My post last Friday on Why Are Law Professors So Unhappy? -- Part Two has attracted a lot of commentary in the law prof blogosphere:

• Stephen Bainbridge (UCLA), Are Law Professors Unhappy? And, If So, Why? (Business Associations Blog)
• Peter Black (Queensland), Are Legal Academics Miserable? (Peter Black's Freedom to Differ)
• Eric Fink (Elon), Taking Stock, and Finding a Bull Market (Debris)
• Dave Hoffman (Temple), Bainbridge on Law Professor Well-Being (Concurring Opinions)
• Brian Leiter (Texas):  Are Law Professors Unhappy? (Leiter's Law School Reports)
• Glenn Reynolds (Tennessee), Are Law Professors Unhappy?  Not This One! (InstaPundit)
• Tom Smith (San Diego),  Why Are Law Professors (and Everybody Else) Unhappy? (The Right Coast)
• Ilya Somin (George Mason), Are Law Professors Miserable, and If So Why? (The Volokh Conspiracy)
• Ilya Somin (George Mason), Some Evidence on Law Professors' Relative Job Satisfaction (The Volokh Conspiracy)

Much of the commentary argues that law professors have a great job and that most are happy with their jobs.  I agree with both points -- my modest question is that, given how great this job is, why are some law professors so unhappy?

One possibility is that some may expect too much out of their jobs.  Just as we can make idols out of our spouses, children, friends, fitness, houses, investment and retirement accounts, etc., pinning our happiness on our jobs is doomed to fail.  My men's group recently read this great book on the proper place of work in our lives.

Another possibility is that this commenter is right:

Law professors blogging about their misery. Even your mother thinks you are a whiny little baby. Face it. Nobody cares. Suck it up. Life is tough. Wear a cup, and STFU.

And check out Andy Grewal's tax perspective.

Update:

• Kent's Imperative:  The Miserable Professoriat
• Ilya Somin (George Mason), The Volokh Conspiracy:  Law Professor Misery Roundup
• Jeff Yates (Georgia), Voir Dire:  Caron's Roundup on Why Professors Are So Unhappy

Waitress Gets $50,000 & Car (But No Income) From Dead Customer

Michael Vinson (Golden Gate) passes along another great real-life illustration for teaching the income tax exclusion for gifts and bequests:  Man Leaves $50,000, Car to Waitress (AP):

For nearly seven years Melina Salazar did her best to put on a smile and tend to the every need of her most loyal and cantankerous customer. She made sure his food was as hot as he wanted, even if it meant he burned his mouth. And she smiled through his demands and curses. The 89-year-old Walter "Buck" Swords obviously appreciated it, leaving the waitress $50,000 and a 2000 Buick when he died.

Becker & Posner Debate "The Liberal Skew in Higher Education"

Richard Posner and Gary Becker discuss the recent paper by Neal Gross (Harvard University, Department of Sociology) & Solon Simmons (George Mason University, Department of Sociology), The Social and Political Views of American Professors:

Posner:

44 percent of professors are liberal, 46 percent moderate or centrist, and only 9 percent conservative. (These are self-descriptions.) The corresponding figures for the American population as a whole, according to public opinion polls, are 18 percent, 49 percent, and 33 percent, suggesting that professors are on average more than twice as liberal, and only half as conservative, as the average American. ...

Liberal-arts colleges and elite universities are even more liberal than other types of institution of higher education. In liberal-arts colleges, the percentages liberal, conservative, and moderate are 62 percent, 4 percent, and 35 percent, respectively; and in elite universities the figures are 44 percent, 4 percent, and 52 percent. ...

The survey results raise two questions: What is the explanation for the results? And what are the consequences? I address only the first question. ...

One explanatory factor may be that colleges and universities select for people who are comfortable in a quasi-socialistic working environment. Virtually all colleges and universities in the United States are either public or nonprofit, there is usually salary compression within fields, tenure shields professors from the rigors of labor-market competition, and professorial compensation substitutes fringe benefits (such as tenure), leisure, and other nonpecuniary income for high salaries. The ablest academics generally have the highest opportunity costs--the brilliant chemist could get a high-paying job in the private sector, the brilliant law professor could make a lot of money as a practicing lawyer, and so forth--which suggests that the ablest academics attach especially great value to nonpecuniary relative to pecuniary income and hence are likely to feel especially alienated from a capitalist economy. ...

Another factor that may explain the liberal skew in the academy is political discrimination. Academics pick their colleagues, so once a department or school is dominated by liberals, it may discriminate against conservatives and thus increase the percentage of liberals. There is a good deal of anecdotal evidence of such discrimination, but the best test (though hard to "grade" in soft fields) would be whether conservative academics are abler on average than liberal ones. If conservatives are disfavored, they need to be better than liberals to be hired. Political discrimination is less likely to be prevalent in fields in which there are objective performance criteria, which may be why there is a smaller preponderance of liberals in scientific and technical fields.

Becker:

I will try to add to Posner's valuable discussion by concentrating on the effects on academic political attitudes of events in the world, and of their fields of specialization. I also consider whether college teachers have long-lasting influences on the views of their students. ...

Given the indisputable evidence that professors are liberal, how much influence does that have on the long run attitudes of college students? This is especially relevant since some of the most liberal academic disciplines, like the social sciences and English, have close contact with younger undergraduates. The evidence strongly indicates that whatever the short-term effects of college teachers on the opinions of their students, the long run influence appears to be modest. For example, college graduates, like the rest of the voting population, split their voting evenly between Bush and Kerry. The influence of high incomes (college graduates earn on average much more than others), the more conservative family backgrounds of the typical college student (but less conservative for students at elite colleges), and other life experiences far dominate the mainly forgotten influence of their college teachers.

This evidence does not mean that the liberal bias of professors is of no concern, but rather that professors are much less important in influencing opinions than they like to believe, or then is apparently believed by the many critics on the right of the liberality of professors.

ALI Names 18 New Law Prof Members

The American Law Institue has announced that Tax Prof Nancy A. McLaughlin (Utah) and seventeen other law professors are among its 47 new members:

• Ronald G. Aronovsky (Southwestern)
• Susan Bisom-Rapp (Thomas Jefferson)
• Robert Mims Chesney (Wake Forest)
• Sarah H. Cleveland (Columbia)
• Darby Dickerson (Stetson)
• Catherine L. Fisk (Duke)
• William Funk (Lewis & Clark)
• Heather Gerken (Yale)
• Jennifer J. Johnson (Lewis & Clark)
• Craig N. Johnston (Lewis & Clark)
• Christine Jolls (Yale)
• Glenn S. Koppel (Western State)
• Alexandra Natapoff (Loyola-L.A.)
• Kermit Roosevelt (Pennsylvania)
• Lionel D. Smith (McGill)
• Maxwell L. Stearns (Maryland)
• Simon J. Whittaker (Oxford)

ALI's total membership is now 4,098 (2,718 active and 1,380 life, honorary, and ex officio members).  As Brian Leiter (Texas) notes, ALI membership is "a traditional badge of distinction in the legal academy" (but Brian has stopped factoring ALI membership in his law school rankings for the reasons he explains here). For a list of the 69 Tax Prof members of ALI, see below the fold:

• Howard E. Abrams (Emory)
• Alice G. Abreu (Temple)
• Thomas B. Allington (Indiana-Indianapolis)
• William D. Andrews (Harvard)
• Ellen P. Aprill (Loyola-L.A.)
• Loretta C. Argrett (Howard)
• Mark L. Ascher (Teas)
• Hugh J. Ault (Boston College)
• Carter G. Bishop (Suffolk)
• Ira Mark Bloom (Albany)
• Thomas G. Bost (Pepperdine)
• David A. Brennen (Georgia)
• Evelyn Brody (Chicago-Kent)
• Karen B. Brown (George Washington)
• Lawrence R. Brown (Lewis & Clark)
• Karen C. Burke (San Diego)
• Patricia A. Cain (Santa Clara)
• C. Ronald Chester (New England)
• Alan L. Feld (Boston University)
• Mary Louise Fellows (Minnesota)
• J. Clifton Fleming (BYU)
• Martin L. Fried (Syracuse)
• Thomas P. Gallanis (Minnesota)
• Deborah A. Geier (Cleveland State)
• Mark P. Gergen (Texas)
• Wendy C. Gerzog (Baltimore)
• Martin D. Ginsburg (Georgetown)
• Michael J. Graetz (Yale)
• Edward C. Halbach (UC-Berkeley)
• Daniel I. Halperin (Harvard)
• Christopher H. Hanna (SMU)
• Walter Hellerstein (Georgia)
• Frances R. Hill (Miami)
• Erik M. Jensen (Case Western)
• Carolyn C. Jones (Iowa)
• Herbert I. Lazerow (San Diego)
• Ray D. Madoff (Boston College)
• Elliott Manning (Miami)
• Leo P. Martinez (UC-Hastings)
• Guy B. Maxfield (NYU)
• Edward McCaffery (USC)
• Grayson M. P. McCouch (San Diego)
• Nancy A. McLaughlin (Utah)
• Martin J. McMahon (Florida)
• John K. McNulty (UC-Berkeley)
• Beverly I. Moran (Vanderbilt)
• Joel S. Newman (Wake Forest)
• William W. Park (Boston University)
• Jeffrey N. Pennell (Emory)
• William D. Popkin (Indiana-Bloomington)
• Richard C. Pugh (San Diego)
• Eric Rakowski (UC-Berkeley)
• Deborah H. Schenk (NYU)
• David Schizer (Columbia)
• Richard Schmalbeck (Duke)
• Jeffrey Alan Schoenblum (Vanderbilt)
• Ferdinand P. Schoettle (Minnesota)
• Virginia V. Shue (San Diego)
• Daniel L. Simmons (UC-Davis)
• Karla W. Simon (Catholic)
• Theodore S. Sims (Boston University)
• Robert H. Sitkoff (Harvard)
• Paul B. Stephan III (Virginia)
• William P. Streng (Houston)
• Samuel C. Thompson (Penn State)
• Stephen Utz (Connecticut)
• Lawrence W. Waggoner (Michigan)
• Alvin C. Warren (Harvard)
• Bruce A. Wolk (UC-Davis)
• Eric M. Zolt (UCLA)

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.  [329 Downloads]  Federal Tax Update: Important Developments in Federal Income, Estate & Gift Taxation Affecting Individuals (Aug. 2006 - Aug. 2007), by Samuel A. Donaldson (Washington)  [blogged here]

2.  [328 Downloads]  Tax Myopia, or Mamas Don't Let Your Babies Grow Up to Be Tax Lawyers, by Paul L. Caron (Cincinnati)  [blogged here]

3.  [166 Downloads]  Principles of Efficient Tax Law: Apocrypha, by Terrance O'Reilly (Willamette)  [blogged here]

4.  [111 Downloads]  The Carried Interest Controversy: Let's Not Get Carried Away, by Noel B. Cunningham (NYU) & Mitchell L. Engler (Cardozo)  [blogged here]

5.  [83 Downloads]  Whistleblowers and Qui Tam for Tax, by Dennis J. Ventry (American)  [blogged here]

SMU Law Review Survey of Texas Tax and Trsusts & Estates Law

The SMU Law Review has published its annual Survey of Texas Law, 60 SMU L. Rev. 669-1406 (2007), with, among other articles:

• Gerry W. Beyer, Wills and Trusts, 60 SMU L. Rev. 1363 (2007)
• Cynthia M. Ohlenforst, Jeff W. Dorrill, Sam Megally & Steven E. Bartz, Taxation, 60 SMU L. Rev. 1311 (2007)

Millar on Sources of Conflict in Cross-Border Services Rules for VAT

Rebecca Millar (University of Sydney Law School) has posted Sources of Conflict in Cross-Border Services Rules for VAT on SSRN.  Here is the abstract:

Inconsistencies in the design of cross-border jurisdictional rules in different VAT models have come under increasing scrutiny in recent years. The rules for services have attracted particular attention because of the rapid growth in the volumes of cross-border services transactions. Just as competing jurisdictional principles make it difficult for businesses to understand their obligations, revenue administrators also face significant obstacles to collecting VAT on cross-border services. This paper outlines the legal design principles underlying the two main models of VAT, The European VAT Directive and the New Zealand GST, notes some of the variations on those models, and explains how and why cross-border conflicts can arise. A simple example illustrates the complexities that can arise even when applying what appear to be commonly agreed VAT rules to what should be a comparatively simple transaction: the supply of real estate agent's services in relation to a sale of land.

Malani & Posner on The Case for For-Profit Charities

Anup Malani (Chicago) & Eric A. Posner (Chicago) have published The Case for For-Profit Charities, 93 Va. L. Rev. 2017 (2007).  Here is the abstract:

Nonprofit firms may earn profits, but they may not distribute them to any affiliated persons. If a nonprofit firm has a “charitable” purpose under § 501(c)(3) of the tax code, the firm receives numerous tax advantages. For example, donors may deduct their donations to the firm from their taxable personal income. For-profit firms may distribute profits to affiliated persons, but receives no tax advantages for engaging in “charitable” activities. We argue that the law should not link tax benefits to corporate form in this way. There may be good arguments for recognizing the nonprofit form and good arguments for providing tax subsidies to charitable firms, but there is no good argument for making those tax subsidies available only to charities that adopt the nonprofit form. Indeed, there are reasons to think the ability to distribute profits to affiliates may both increase and improve charitable activities. Moreover, the extensive charitable activities of many for-profit commercial firms suggest that in the absence of discriminatory tax treatment for-profit charities would flourish. Therefore, the current tax benefits offered to charitable nonprofits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.

Corporate Income Tax Accounting

Michael J. Donohue (Gardere Wynne Sewell, Dallas), Mark R. Martin (Gardere Wynne Sewell, Houston), E. Daniel Leightman (Gardere Wynne Sewell, Houston), Cym Lowell (Gardere Wynne Sewell, Dallas) & Christopher H. Hanna (SMU) have published Corporate Income Tax Accounting (Warren, Gorham & Lamont, 2007):

The overlap between the disciplines of financial accounting and taxation has become a critical intersection that continues to revolutionize the nature in which companies take into account tax positions, as well how the accounting for such positions is reviewed and how tax advice is rendered. Corporate Income Tax Accounting articulates the reality of financial accounting and tax compliance in light of the new landscape faced by companies and sets out a means by which companies can structure their tax planning and financial reporting in a manner to efficiently meet all applicable requirements.

Corporate Income Tax Accounting offers coverage of:

• FASB Statement 109, Accounting for Income Taxes
• FIN 48 Uncertain Tax Positions
• Relationship to Other Financial Accounting Matters
• Sarbanes-Oxley – Auditor Independence: Impact on Tax Services
• Management Assessment and Auditor Attestation of Internal Controls
• Documentation
• Specific Situations
• Attorney-Client and Related Privileges
• Tax Opinion Preparation
• Negotiating with the Auditor
• Preparing for IRS Examination

This new guide also includes forms such as sample FIN 48 tax opinions, sample internal control procedures for the tax department function, and a sample records retention policy.

Brown Posts Several Tax Articles on SSRN

Fred B. Brown (Baltimore) has posted several tax papers on SSRN:

• Federal Income Taxation of U.S. Branches of Foreign Corporations:  Separate Entity or Separate Rules?, 49 Tax L. Rev. 133 (1993)
• Proposal to Reform the Like Kind and Involuntary Conversion Rules in Light of Fundamental Tax Policies: A Simpler, More Rational, and More Unified Approach, 67 Mo. L. Rev. 705 (2002)
• Reforming the Branch Profits Tax to Advance Neutrality, 25 Va. Tax Rev. 1219 (2006)
• Whiter FIRPTA?, 57 Tax Law. 295 (2004)

Bartlett on Why the FairTax Won't Work

Bruce Bartlett has published Why the FairTax Won't Work, 117 Tax Notes 1241 (Dec. 24, 2007).  Here is the abstract:

In this article, he criticizes the FairTax, a tax reform proposal supported by former Arkansas Gov. Mike Huckabee, a candidate for the Republican presidential nomination. The proposal alleges that a 23 percent national retail sales tax collected by the states would be sufficient to replace all federal taxes. That would allow for abolition of the IRS and other benefits, supporters claim.

Bartlett argues that the FairTax is deeply flawed and has been systematically misrepresented by its supporters. Quite apart from the fact that there is zero chance that Congress would ever enact it, it is clear, writes Bartlett, that the FairTax simply would not work at all if it were tried, which is why no country has ever attempted to collect all its revenue from a retail sales tax.

LePree on The Application of the Section 514 Debt-Financed Rules to Leveraged Hedge Funds and Derivatives

Summer Ayers LePree (Holland & Knight, Miami) has posted Taxation of US Tax-Exempt Entities' Offshore Hedge Fund Investments- Application of the Section 514 Debt-Financed Rules to Leveraged Hedge Funds and Derivatives and the Case for Equalization, 60 Tax Law. ___ (2008), on SSRN.  Here is the abstract:

Several tax issues involving hedge funds have been receiving substantial attention, both in the media and in Congress. One of these issues involves the immense amounts being invested in offshore hedge funds by tax-exempt entities such as university endowments and pension trusts. These investments are made offshore, in sunny spots like the Cayman Islands, to enable these tax-exempt investors to avoid tax liability. If the same investments were made domestically, the tax-exempt investors would be subject to tax at a rate of 35% on some portion of their investment income. This paper examines this disparate tax treatment and the history and policy behind the rules that give rise to it, and then considers several potential means of equalization.

Todres on Tax Malpractice Damages

Jacob L. Todres (St. John's) has posted Tax Malpractice Damages: A Comprehensive Review of the Elements and the Issues, 61 Tax Law. ___ (2008), on SSRN.  Here is the abstract:

Suits to redress instances of tax malpractice may be framed either in tort or in contract. While some ancillary aspects of the litigation may differ, a professional must exercise reasonable competence and diligence to avoid malpractice liability under either approach. The same basic standards apply to attorneys and accountants. Typically the tort of negligence will be the key to any recovery, though other causes of action are also encountered.

Damages are normally recoverable for all injuries proximately caused by the malpractice, consequential as well as direct. The measure of damages is expectancy damages. The injured party may recover the loss of any expected benefit that competent performance would have yielded.

The basic direct or "core" damages typically involve four types of injuries: additional taxes, interest paid the taxing authority, penalties and corrective costs. Three different views have developed concerning the recoverability of interest. The other core damages are normally recoverable, except for additional taxes in New York.

Non-core, or consequential, damages are also recoverable. As is true for all damages, but is especially relevant here, such damages must not be speculative. Recovery for emotional distress is generally not permitted in such situations since only economic wrongs are involved, though a number of exceptions exist for particularly egregious situations. Suicide is not a foreseeable result of tax malpractice, and no recovery is available for it. Punitive or exemplary damages may be recovered, in accordance with the jurisdiction's normal rules. Attorney fees incurred in bringing the malpractice action are not recoverable under the "American rule," though the amount paid the professional for the engagement which was negligently performed may be recovered in some jurisdictions. Other consequential damages also may be recovered.

Other damage issues examined include the recoverability of audit damages (probably not recoverable), whether different criteria should be applied when the tax benefit involved is a timing benefit rather than a permanent benefit, whether damages may be reduced when a plaintiff realizes a tax benefit from the injury and whether damages awarded ought to be grossed-up if the receipt of the damages is, or may be, taxable.

Although the same framework of damages applies also in estate planning and estate and gift tax situations, the structure of these taxes differs from the income tax and determining the amount of extra taxes caused by the negligence may require special focus and consideration.

Symposium: Frontiers of Estate Planning: Changing Laws for Changing Times

The Ohio Northern University Law Review has published its Thirtieth Annual Symposium:  Frontiers of Estate Planning: Changing Laws for Changing Times, 33 Ohio N.U. L. Rev. 755-1012 (2007):

• Ira Mark Bloom, Powers of Appointment Under the Restatement (Third) of Property, 33 Ohio N.U. L. Rev. 755 (2007)
• Charles M. Bennett, Frontiers in Ethics: The Estate Lawyer's Duty of Loyalty and Confidentiality to the Fiduciary Client: Examining the Past to Make Wise Choices Now and in the Future, 33 Ohio N.U. L. Rev. 807 (2007)
• Gerry M. Beyer & Claire G. Hargrove. Digital Wills: Has the Time Come for Wills to Join the Digital Revolution?, 33 Ohio N.U. . Rev. 865 (2007)
• Jeffrey A. Cooper, Speak Clearly and Listen Well: Negating the Duty to Diversify Trust Investments, 33 Ohio N.U. L. Rev. 903 (2007)
• Charles D. Fox IV, How "Revocable" Is "Irrevocable"? Obtaining Flexibility in Irrevocable Trusts, 33 Ohio N.U. L. Rev. 943 (2007)
• Anne-Marie Rhodes, Consequences of Heirs' Misconduct: Moving from Rules to Discretion, 33 Ohio N.U. L. Rev. 975 (2007).
• Lawrence W. Waggoner, Class Gifts Under the Restatement (Third) of Property, 33 Ohio N.U. L. Rev. 993 (2007).

Galle on "The Tax Law Made Me Crazy" Defense Approved by the 9th Circuit in Cohen

Brian Galle (Florida State) shares his thoughts on the Ninth Circuit's decision on Wednesday in United States v. Cohen, No. CR-04-00119 (9th Cir. 12/26/07), granting a new trial on criminal charges against Lawrence Cohen, whom the opinion describes as an "acolyte" of "well-known recidivist tax protestor Irwin Schiff":

Jim Maule's comment (on the TaxProf listserv) that "'The tax law made me crazy' might become the standard and unavoidable defense to every criminal tax fraud prosecution from this day forward" sounds like a good joke, but it might not be that far from a good description of the jurisprudential result of Cohen.  The Cohen opinion reversed the conviction of Larry Cohen, a flunky and co-defendant of Erwin Schiff, the famed tax "protester," on the ground that the district court improperly excluded psychiatric testimony that Cohen averred would have tended to show he was not capable of knowing that his conduct was illegal. Although ignorance is usually no excuse for breaking the law, "willfulness" -- knowledge that one's acts are contrary to controlling law -- is an element of most tax offenses. See Cheek v. United States, 498 U.S. 192 (1991).

The good news for the government was that, while Cohen will be entitled to a new trial, the Court (in a separate unpublished opinion) upheld the convictions and lengthy sentences of Schiff and another co-defendant, Cynthia Neun.

That's not to say I'd rest on my laurels if I were the Government. (Disclaimer: I litigated this appeal at its early stages (writing the briefs opposing bail pending appeal) on behalf of DOJ before departing for FSU.)  For those who haven't read it, the Ninth Circuit's opinion holds that psychological testimony that a defendant was "unusually rigid" in his thinking should have been admitted to negate evidence of willfulness. In effect, according to the Court, evidence that someone was resistant to accepting views contrary to their own is probative of whether that person knew of the existence of those contrary views. This holding followed closely from a similar, earlier 9th Circuit ruling in a fraud case.

To my mind, evidence that an individual is, in effect, exceptionally stubborn or close-minded is at most an explanation for why that person maintains her beliefs, not proof that the person does not know of the alternatives. No matter how many times I watch Bill O'Reilly, he still won't convince me, but that is not to say that I am unaware of O'Reilly's views. Similarly, even though here Cohen refused (perhaps pathologically) to accept the correctness of the views of the IRS and various federal courts, that refusal does not prove -- indeed, it tends to disprove -- his ignorance of those views. And in order to win acquittal Cohen must show his ignorance of what the law holds, not his disagreement with it.

Thus, if I were the Government, I might seek further review of the Cohen opinion, because its underlying logic is, as Jim points out, all too appealing to tax protesters everywhere. The Cohen logic seemingly could be broadened to all those who refuse to obey the tax laws, each of whom might claim that their belief that the Tax Code *normatively* should be interpreted in conformity to their views implies that they do not "know," in the Cheek sense, that the IRS and courts descriptively do not do so.

Finally, the result here is something of an object lesson in the perils of trial practice. Jim's description is really not that far off. You don't get much sense of it from the Ninth Circuit's opinion, but the expert report at issue really did amount to not much more than, "Boy, you'd have to be crazy to believe this tax protester stuff. I guess this guy is crazy." Unfortunately, trial counsel (not me -- I was appellate counsel) convinced the trial court to exclude it, anyway, leading to this adverse opinion for the Government. If DOJ had made a different strategic decision, they might have simply let the evidence in, knowing it was exceedingly unlikely to sway a jury. But, on the other hand, there's no appealing a not-guilty verdict, so it's hard to fault for me to fault my colleagues at the trial level for being risk averse.

Why Are Law Professors So Unhappy? -- Part Two

I previously blogged Tax Prof Michael Livingston's answer to the question Why Are Law Professors So Edgy?:

A friend of mine has come up with a novel explanation as to why law professors, who would seem to have a pretty privileged life, are so persistently uneasy. ... [T]he professoriate ... is one of the few activities that is (a) very competitive, (b) primarily personal (that is, noncooperative) in nature, and (c) almost entirely devoid of objective standards that might be used to measure success or failure.

A new book by Patrick Lencioni, The Three Signs of a Miserable Job (2007), supports this analysis:

The first sign of a miserable job is anonymity, which is the feeling that employees get when they realize that their manager has little interest in them a human being and that they know little about their lives, their aspirations and their interests.

The second sign is irrelevance, which takes root when employees cannot see how their job makes a difference in the lives of others. Every employee needs to know that the work they do impacts someone’s life--a customer, a co-worker, even a supervisor--in one way or another.

The third sign is something I call "immeasurement," which is the inability of employees to assess for themselves their contribution or success. Employees who have no means of measuring how well they are doing on a given day or in a given week, must rely on the subjective opinions of others, usually their managers’, to gauge their progress or contribution.

Camp on the Tax Court's Baltic CDP Decision

Bryan Camp (Texas Tech) offers his thoughts on yesterday's unanimous Tax Court decision in Baltic v. Commissioner, 129 T.C. No. 19 (12/27/07):

The well-written Baltic opinion makes the right call in balancing the need to collect properly assessed taxes and the need to allow taxpayers to demonstrate error. Traditionally, the assessment has been the culmination of the tax determination process. The idea has been that the assessment acts in the nature of a judgment which cannot be reviewed by courts until and unless the taxpayer pays it off. Unfortunately, one deleterious effect of the Collection Due Process provisions enacted by Congress in 1998 is to weaken that aspect of the assessment. So, for example, you now see decisions like United States v. Maloney, 2007 TNT 241-16 (S.D. Fla, 11/16/07), where the IRS sued to reduce an assessment to judgment and the district court decided that the taxpayers would be permitted to challenge the underlying liability itself in a trial, without having to pay first. Such a fundamental misunderstanding of the nature and purpose of the assessment is more likely because of the confusion created by CDP.

Fortunately, the lucid opinion in Baltic helps correct such misunderstandings by reaffirming the importance of the assessment as a step in tax administration. In Baltic, the taxpayers had received a notice of deficiency for the tax years in question and did not challenge the deficiency determination in Tax Court. When the collection actions started, the taxpayers asked for a CDP hearing during which they submitted an Offer In Compromise (OIC) and asked for an audit reconsideration. The taxpayers asked for the OIC not because they did not have the ability to pay off the $100k plus liability, but because they thought that if they did pay it off and then sued for a refund, there was a good likelihood they would win the refund suit. Similarly, they asked for an audit reconsideration because they believed that the IRS had made a substantive mistake in the assessment.

The taxpayers may have been right. And the CDP hearing officer sent their OIC and audit reconsideration requests to the proper offices for review. But the CDP hearing officer allowed the IRS collection function to continue collecting the assessed tax in the meantime. The taxpayers thought that was an abuse of discretion and asked the Tax Court to so say.

The Tax Court rejected the idea that a CDP hearing officer must stop all collection pending a taxpayer's challenge to the merits of a properly assessed tax liability when the taxpayer had already had an opportunity before. The problem here is one of delay. The way CDP has worked out is that only taxpayers who have not yet had a chance to contest the merits of an assessment before pay. Here, the taxpayers did have such a chance. It might be that these taxpayers had some good reason why their tax assessment was not accurate, but that is true for many taxpayers who must nonetheless fully pay before filing a claim for refund. To allow taxpayers to throw the CDP delay switch simply by asserting a doubt as to liability, when they have already had the chance to raise that issue, would truly make CDP even more of a "Collection Delay Process" than it already is. The Tax Court made the right call and so preserved the vitality of the assessment as the functional equivalent of a judgment about a taxpayer's liability.

McLaughlin on Conservation Easements: Perpetuity and Beyond

Nancy A. McLaughlin (Utah) has posted Conservation Easements: Perpetuity and Beyond, 34 Ecology L.Q. 673 (2007), on SSRN.  Here is the abstract:

Perpetual conservation easements are intended to protect the particular land they encumber for the conservation purposes specified in the deed of conveyance in perpetuity, or at least until circumstances have changed so profoundly that continued protection of the land for those purposes is no longer feasible. To protect the public interest and investment in perpetual conservation easements, and, at the same time, permit adjustments to be made to respond to changing conditions, such easements should be treated like any other form of charitable asset acquired by a government or charitable entity for a particular charitable purpose -i.e., as subject to equitable charitable trust principles. This Article outlines the considerable support for applying charitable trust principles to perpetual conservation easements, including uniform laws, the Restatement of Property, federal tax law, and judicial activity on this issue to date. This Article cautions that perpetual land protection is not appropriate in all circumstances and recommends a more considered use of perpetual conservation easements as a land protection tool. This article also explores the possible use of a number of nonperpetual conservation easements to accomplish land protection goals.

Tax Filing Season to Open Feb. 11 for Those Affected by AMT Patch Legislation

Following President Bush's signing yesterday of the one-year AMT patch bill, the IRS announced today (IR-2007-209 and here) that the 13.5 million taxpayers needing to file the five forms affected by the AMT will not be able to file their returns until February 11.

Lawsky on The Tax Consequences of Commitment Contracts

From the Winter 2008 issue of the Yale Economic Review:

Yale Law Professor Ian Ayres and Economics Professor Dean Karlan harness the power of economic incentives to revolutionize the way people make resolutions. StickK.com ... [provides] "commitment contracts" that let individuals set a goal, choose consequences for failing to comply, and decide how to verify their progress. With the options of choosing to lose money every time they fail and designating third-party verifiers to check their success, users will face powerful incentives to meet their goals. In an interview with YER, Ayres and Karlan explain how and why stickK works.

I originally had this post in the queue to run on January 1 with the title, Making Your New Year's Resolution "Stickk."  Sarah Lawsky (George Washington) raises interesting questions about the tax consequences of such commitment contracts:

Ian Ayres (Yale Law School) and Barry Nalebuff (Yale School of Management) have proposed something they call "Commitment Contracts."  Say you want to lose a certain amount of weight.  You give them some amount of money.  If you lose the weight, you get your money back, plus interest.  If you don't, they donate your money to a charity.  Tim Harford of Slate has entered into such a contract with Ayres (and two others): he has given them $1000, and for each week that he does not do 200 sit-ups and 200 push-ups, they will send $100 to a charity of his choice (a 501(c)(3), as it happens).  If Harford does the sit-ups and push-ups, he gets the money back (with interest, presumably, though he doesn't say).   Ayres et al. are also starting a company, Stickk, that will offer similar contracts to the general public.

I'm sure there are plenty of interesting non-tax issues related to commitment contracts and Stickk, but I am (of course) more interested in the tax questions this sort of plan raises.  For example:

(1)  How should Stickk treat the money it receives?  As loans?  If so, is this sort of loan best treated as contingent debt?  Or is Stickk acting more like an escrow agent?  Alternately, does Stickk's treatment of the money it receives depend on what the person is committing to do?  If someone commits to lose 50 pounds and keep it off for 5 years, should Stickk treat the money it receives from him as income, given the extremely low likelihood that a person who loses a large amount of weight will succeed in keeping the weight off?  Should it matter if Stickk can present a study that shows that commitment contracts increase the likelihood that the person will keep the weight off?  Should Stickk have to analyze the likelihood of a payout for each type of commitment? 

(2)  How should Harford and others who sign contracts with Stickk treat their payments?  Should Harford get a bad debt deduction if he doesn't get his money back?  Should that depend on what he has committed to do (i.e., how likely he is to succeed and thus to get his money back--in other words, on the level of risk involved)?  What if his payment is not a loan?  Depending on what he commits to do, could he treat it as a payment for health care?  Can he seek reimbursement from, say, his Flexible Spending Account?

(3)  If Harford does not keep the weight off and the money goes to charity, should anyone get a charitable deduction?  Presumably Harford does not want the money to go to the charity; he would prefer to lose the weight.  Does that affect whether a deduction is available?  Harford in fact chose a charity he refers to as "hugely deserving," but what if Harford had chosen a charity he hated, a charity he really did not want to support, in order to increase his incentive to lose weight?  Would that affect the deduction?

Marty Ginsburg: "The Funniest [Tax] Law Professor in America"?

In my pre-tenure attempt at tax humor (Tax Myopia, or Mamas Don't Let Your Babies Grow Up to be Tax Lawyers, 13 Va. Tax Rev. 517 (1994)), I relied on several items about tax legend Martin Ginsburg.  Dan Solove pointed me (via Peter Lattman) to Marty's wonderful web bio:

Professor Ginsburg attended Cornell University, stood very low in his class and played on the golf team. He graduated magna cum laude from Harvard Law School which, in those years, did not field a golf team.

Professor Ginsburg entered private practice in New York City in 1958. He withdrew from full-time practice when appointed the Beekman Professor of Law at Columbia Law School and moved to Georgetown University in 1980 when his wife obtained a good job in Washington. ...

In 1993, the National Women's Political Caucus gave Professor Ginsburg its "Good Guy" award; history reveals no prior instance of a tax lawyer held to be a "Good Guy," or even a "Decent Sort." ...

Professor Ginsburg's spouse was a lawyer before she found better work. Their older child was a lawyer before she became a schoolteacher. The younger child, when he feels grumpy, threatens to become a lawyer.

One of Marty's students may be right:  "He may actually be the funniest law professor in America."

Tax Court Adds "Clinics & Student Practice" Information on Web Site

The Tax Court announced today that it has added a new Clinics & Student Practice tab on its web site with three documents relating to the requirements for recognition of a tax clinic:

• U.S. Tax Court Requirements for Academic Clinical Programs
• U.S. Tax Court Requirements for Nonacademic Clinical Programs
• U.S. Tax Court Requirements for Office of Chief Counsel Student Practice Program

The tab also outlines the procedures for tax clinics that the Tax Court currently recognizes, as well as those that the Tax Court does not currently recognize:

Clinics Currently Recongized by Tax Court.  Every year in January, the Court will contact clinics currently recognized by the Court to request that, by February 15, the clinic send a letter containing the information specified in paragraph 1(e) of the Requirements for Academic Clinical Programs and paragraph (1)(f) of the Requirements for Nonacademic Clinical Programs. The Requirements include a sample of the letter the clinics are requested to send to the Court. The Court will acknowledge receipt of the information.

Clinics Not Currently Recognized by Tax Court.  The Court invites academic and nonacademic tax clinics which are not currently recognized to review the Court’s requirements for recognition and to consider seeking recognition at anytime. Those clinics should send a letter containing the information specified in the paragraph 1(e) of the Requirements for Academic Clinical Programs or paragraph 1(f) of the Requirements for Nonacademic Clinical Programs, except that academic and nonacademic clinics which are not currently recognized by the Court need not provide the information requested in paragraphs 1(e)(7) and 1(f)(6) of those Requirements, respectively. The Court will acknowledge receipt of the information.

From the press release:

The requirements are in substance the same as, and will replace, the contracts that the Court has relied upon in the past to establish its relationship with tax clinics and student practice programs. The Court expects that publication of the requirements on its Web site and a new procedure for the clinics to provide information to the Court will improve the Court’s communications with tax clinics and simplify the process for recognition of such programs.

Johnson Advances Second Tax Shelf Proposal: Repeal the Tax Exemption for Municipal Bonds

Earlier this month, I blogged the launch (117 Tax Notes 1077 (12/10/07) of the ambitious new Shelf Project by Calvin H. Johnson (Texas) and Tax Analysts, along with the first proposal to Replace the Corporate Tax With a Market Capitalization Tax, 117 Tax Notes 1082 (12/10/07):.  Calvin has now advanced his second proposal:  Repeal Tax Exemption for Municipal Bonds, 117 Tax Notes 1259 (12/24/07):

This proposal would repeal section 103, which now exempts interest paid on state and local bonds. The exemption wastes most of its federal cost. The fraction of the cost delivered to borrowers induces them to undertake projects that would not be rational given the real cost of capital. The exemption would be replaced with a budgeted payment to current borrowers to reduce their debt. Current bonds would be taxable prospectively but with a credit for discount or implicit tax that was of help to the borrower.

New Issue of Atax's eJournal of Tax Research

Volume 5, Issue 1 (December 2007) of the eJournal of Tax Research, published by Atax (Australian Taxation Studies Program), University of New South Wales, Sydney, Australia, and edited by Binh Tran-Nam & Michael Walpole, is available (with a free subscription) on its web site,  The papers are a refereed selection of the papers presented at the Tax and Development Conference held by the OECD/International Network for Tax Research at Michigan (blogged here and here):

• Reuven Avi-Yonah, Binh Tran-Nam & Michael Walpole, Introduction (p. 168)
• Kim Brooks, Tax Treaty Treatment of Royalty Payments from Low-Income Countries: A Comparison of Canada and Australia’s Policies (pp. 169-98)
• Arthur Cockfield, Purism and Contextualism within International Tax Law Analysis: How Traditional Analysis Fails Developing Countries (pp. 199-224)
• Giampaolo Arachi & Alessandro Santoro, Tax Enforcement for SMEs: Lessons from the Italian Experience? (pp. 225-43)
• W. Steven Clark, Tax Policy for Investment (pp. 244-65)

Swift Boat Donor Funds Anti-Huckabee Tax Ads in Iowa

From the Associated Press:  Anti-Tax Group Has Help Against Huckabee, by Jim Kuhnhenn:

A conservative anti-tax group Wednesday expanded its ad campaign against Republican presidential candidate Mike Huckabee, helped by a major GOP donor who bankrolled ads that questioned Democrat John Kerry's war record during the 2004 campaign.

The Club for Growth is spending $175,000 to continue running ads in Iowa that highlight tax increases adopted in Arkansas when Huckabee was governor. During the past three weeks, the group has spent $550,000 to criticize Huckabee's economic policies.

According to Federal Election Commission records, ClubForGrowth.net received $200,000 this month from Bob Perry, a Houston homebuilder who in 2004 pumped nearly $4.5 million into the Swift Boat Veterans For Truth to pay for unsubstantiated ads that questioned Kerry's Vietnam service.

Here is the ad:

Government Wins First Son of BOSS Case to be Tried

The Government won a major victory late Friday afternoon in the first Son of BOSS case to be litigated.  Jade Trading LLC v. United States, No 03-2164T (Fed. Cl. 12/21/07). The court held that the taxpayer's $450,000 investment that generated $40 million in tax losses lacked economic substance:

Poignantly at play here is the tension between technical compliance with the Internal Revenue Code and the longstanding common-law economic substance doctrine which compels courts to disregard transactions which lack economic substance despite their literal compliance with the Code. Plaintiffs characterize the tension differently, arguing that the economic substance doctrine cannot ignore “deliberately adopted rules of law,” ...

Plaintiffs’ theory cannot prevail in light of the Federal Circuit’s decision in Coltec Industries, Inc. v. United States, 454 F.3d 1340, 1352-54 (Fed. Cir. 2006), reaffirming the vitality of the economic substance doctrine. Coltec teaches that the legitimacy of a transaction for tax purposes is not guaranteed merely because a technical interpretation of the Code would support the tax treatment. Rather, Coltec mandates additional scrutiny of the bona fides of a transaction, requiring independently that the transaction pass muster under the objective economic substance test. Further, the Coltec Court clarified the parameters for applying that test holding that the taxpayer has the burden of proving that the transaction which gave rise to the tax benefit objectively had economic substance, i.e., was a real transaction structured in a particular way to provide a tax benefit as opposed to a transaction created for tax avoidance purposes.

Here, several factors compel a conclusion that Plaintiffs have not met their burden of demonstrating that the spread transactions contributed to Jade objectively had economic substance.

Here is the Conclusion:

Plaintiffs’ petition for readjustment of the partnership items of Jade is DENIED. This Court lacks jurisdiction to consider partner-level reasonable cause defenses in this proceeding. The Commissioner’s application of penalties at the partnership-level is affirmed without consideration of the reasonable cause defenses, which may be raised in any partner-level proceedings.

Jade Trading was the first Son of Boss tax shelter case to go to trial. After the trial concluded in December 2005, but before a decision was announced, the Federal Circuit issued its opinion in Coltec. In briefs filed in August 2006, the parties briefed Judge Williams on the application of the Coltec economic substance doctrine to Jade Trading. Although Son of Boss tax shelters were marketed to individuals, the principles underlying the government's victory in the Court of Federal Claims in Jade Trading will apply as well to the tax shelters sold to and used by corporations. (Hat Tip: Eileen O'Connor.)

Update:  Press and blogosphere coverage:

• Chart of Transaction
• Conde Nast Portfolio.com:  Tearing Down a Tax Shelter, by Jeffrey Cane
• New York Times:  Judge Hands I.R.S. Victory in Tax Shelter, by Lynnley Browning
• Reuters:  Court Denies Claim in Tax Refund Case
• Roth & Co.:  Broken Jade, by Joe Kristan
• A Taxing Matter:  Jade Trading Decision: Economic Substance Reinvigorated, by Linda Beale
• Wall Street Journal:  U.S. Prevails in Tax-Shelter Battle; "Son of Boss" Court Ruling Could be Used to Pressure Other Taxpayers to Settle, by Jesse Drucker
• Wall Street Journal Law Blog:  The Feds Prevail in Tax-Shelter Battle, by Peter Lattman

Ninth Circuit Throws Out Tax Protestor's Conviction, Orders New Trial

The Ninth Circuit yesterday issued a decision granting a new trial on criminal charges against Lawrence Cohen, whom the opinion describes as an "acolyte" of "well-known recidivist tax protestor Irwin Schiff." From Howard Bashman:

The basis for the ruling is that the district court wrongly excluded the expert testimony of Cohen's psychiatrist, who would have offered evidence relevant to Cohen's mental state. Today's Ninth Circuit ruling also vacates fifteen criminal contempt convictions that the federal district judge summarily imposed on Schiff based on Schiff's unruly courtroom behavior. Unfortunately for Schiff, the criminal contempt convictions were set aside due to a procedural flaw that the Ninth Circuit is allowing the district court to cure on remand.

President Bush Signs Two Tax Bills

President Bush yesterday signed into law (here and here):

• H.R. 3996, The Tax Increase Prevention Act of 2007 (blogged here), which provides a one-year AMT patch Upon final House passage of H.R. 3996, IRS issued a statement saying it would have revised copies of the 12 tax forms affected by the AMT change posted to its Web site, http://www.irs.gov, within 72 hours after the measure is signed into law
• H.R. 2764, the fiscal year omnibus appropriations bill, which provides $10.89 billion of funding to the IRS, a $295 million increase over fiscal year 2007 but $203 million below President Bush's original request.

WSJ on Tax Whistleblower Lawyers

Two weeks ago, I blogged the first $2 billion tax whistleblower submission to the newly created IRS Whistleblower Office, filed by The Ferraro Law Firm (Miami, FL & Washington, D.C.).  Yesterday's Wall Street Journal picked up the story in two pieces:

• Tom Herman, Tipster Rewards Require Patience; Law Boosts Payouts for IRS Informants in Large Tax Cases
• Peter Lattman, Has Big Law Got You Down? Become an IRS Informant!

Kahn Critiques Buchanan's Dishonest Tax Rhetoric

Over the summer, I blogged the three-part series by Neil Buchanan (George Washington) on Dishonest Tax Rhetoric:

The joys of studying tax policy thus include the joy of confronting shameless political rhetoric. To lighten the summer doldrums, I am posting here my top three list of current tax dishonesties, i.e., constantly repeated bits of rhetoric that substitute for analysis in the great and never-ending U.S. tax debate.

1. "The Death Tax"
2. "The Revenue-Neutral 23% National Retail Sales Tax ('Fair Tax')"
3. "Biggest Tax Increase Ever"

Douglas A. Kahn (Michigan) offers this reponse: 

On August 6 to 8 of 2007, Professor Neil Buchanan posted on Michael Dorf's blog a three-part series on what he deemed to be examples of political use of terminology to describe tax issues in a manner that is likely to mislead the public. Professor Buchanan described this practice as "dishonest tax rhetoric." Professor Buchanan had a first, second and third place prize for the most egregious examples of dishonest rhetoric. To the contrary, I found no objection to the usages which he considered to be the worst two examples. Let us consider his first and second prizes.

"The Death Tax"

His first prize went to the use of the term "death tax" when referring to an estate tax. Professor Buchanan points out that other taxes (such as the income and property taxes) are not described by reference to the date on which they become payable. But the significance of the death of a decedent to the estate tax is quite different from the date of payment of an income or property tax. An income tax is imposed on the earning of income; but to enforce the tax, there has to be a a date for its determination and collection. The payment date is no more than an administrative stage for collection. However, a death tax is not merely payable or determined on the date of death; it is the death itself that is the triggering element. The decedent's death is not merely an administrative step towards collection. To the contrary, it is a crucial element of the creation of the tax liability. No death, no tax. An income tax liability accrues (in a general sense) before its collection date; but an estate tax liability does not accrue prior to the decedent's death.

Moreover, the term "death tax" has been used by estate lawyers for many years -- long before the question of the retention of a federal estate tax became an issue. Indeed, the Internal Revenue Code itself uses the term "death tax" and has employed that term for more than 53 years. Section 2011 of the Internal Revenue Code is titled, "Credit for State Death Taxes." Section 2014 of the Internal Revenue Code is titled, "Credit for Foreign Death Taxes." Section 2015 of the Internal Revenue Code is titled, "Credit for Death Taxes on Remainders." Those three sections were adopted in 1953 as part of the Internal Revenue Code of 1954.

Professor Buchanan treats the term "death tax" as an inappropriate synonym for an estate tax. But, that is not correct. The term "death tax" is broader than an estate tax. An estate tax is merely one type of death tax. The term "death tax" includes: estate taxes, inheritance taxes, legacy taxes, and succession taxes. An inheritance tax is different from an estate tax.

"The Revenue-Neutral 23% National Retail Sales Tax ('Fair Tax')"

The second prize (or silver medal) that Professor Buchanan awarded was for the national sales tax that has been proposed as a substitute for the income tax. Professor Buchanan maintains that the proponents of that tax have calculated the rate of tax in a manner that is designed to mislead the public into thinking that the rate is lower than it actually is. He has other objections to the substitution of a sales tax, but he awarded the prize for the manner in which the rate of tax was determined by the proponents.

The proponents of the tax claim that it could be set at a 23% rate to provide the same revenue that the income tax provides. Professor Buchanan contends that the average member of the public is likely to be mislead by that statement. He gives this example.

X pays $100 to purchase an item and then pays $30 in tax. X has paid a total of $130 to purchase the item of which $30 is the tax. The proponents of the tax describe the rate of tax as 23% since $30 is 23% of the $130 total outlay. In other words, the proponents compute the rate of tax on a tax inclusive method. Professor Buchanan contends that that is misleading. If the tax rate were described on a tax exclusive basis, the rate would be 30% -- i.e., the $30 tax is 30% of the $100 paid for the item exclusive of the tax. Since sales taxes currently, and always have been, described on a tax exclusive basis, he states that the public will construe the 23% rate as meaning that they would pay a tax of $23 on a $100 purchase of an item.

There is a reasonable basis for describing the tax on either a tax inclusive or a tax exclusive basis. The income tax rates are described on a tax inclusive method. One reason for describing the income tax in that manner is that it is easier to calculate that way. Similarly, the sales tax is easier to calculate if the rate is described in a tax exclusive manner, and that is a likely reason that that method is employed for the sales tax. Professor Buchanan himself essentially concedes that the use of the 23% rate is reasonable when he states that it "has at least some basis in reality." However, he believes that the 23% rate was chosen because it is likely to confuse the public. He states, "It is the difference between lying and intent to deceive."

But, would stating that the rate of tax is 30% not also mislead the public? A major purpose of stating the rate of tax is to give the public a means of comparing the proposed sales tax with the income tax that it would replace. But, as noted above, the income tax rates are determined on a tax inclusive basis. If one earns $130 and pays an income tax of $30 to the government, the tax rate is described as a 23% rate -- not as a 30% rate. If the public is to compare the cost of a sales tax to the cost of an income tax that it would replace, they need to have rates determined in a comparable manner. If a taxpayer earns $130, pays $30 in income taxes, and spends the remaining $100 to purchase an item, his tax rate is referred to as 23%. If the income tax were replaced by a sales tax, and if the taxpayer purchased the same item for $100 and paid $30 in sales tax, his tax rate should be considered the same as it was under the income tax regime. If you tell the taxpayer that if a sales tax is adopted, his tax rate will change from 23% to 30%, you would mislead him into thinking that his tax liability would be greater under the sales tax.

The fact is that either method of determining the tax rate has the potential to mislead when the listener does not understand the difference in methods of determination. The method chosen by the proponents of the tax actually seems better to me in that it provides a more accurate figure for comparison. If a taxpayer knows that he is paying income tax at an average rate of 25%, The 23% rate gives him a better figure for comparison than does the 30% rate that a tax exclusive determination would provide. I could not criticize anyone for using either the 23% or 30% rate since each has its merits and its disadvantages. I certainly cannot see how the use of either rate could qualify for an award for dishonesty.

The choice of the 23% rate likely was motivated, at least partly, by advocacy considerations. The use of language for advocacy purposes is a common occurrence and is by no means used exclusively by politicians. For example, lawyers, and even law professors, have been known to indulge in that practice. The preference for using a 30% rate could be seen as driven by political or advocacy considerations to make unfavorable the comparison of the sales tax to the income tax.

Death of Arthur B. White -- A "Quiet Giant of the Tax Law"

Arthur B. White, a former attorney in the IRS's Office of Chief Counsel and Tax Prof at WIlliam & Mary, died on December 13 at the age of 93.  From the obituary in the Washington Post:

Mr. White joined the IRS in Washington in 1940 and worked in the office of the chief counsel until he retired in 1974. From 1941 to 1946, he served in the Army, attaining the rank of major. During his tenure at the IRS, Mr. White served as regional counsel in Boston from 1952 to 1954 and in New York from 1954 to 1956. He also served as director of the interpretive division, interpreting tax law for the office of chief counsel from 1956 to 1960. He did extensive legal research on the definition of charitable organizations and the legislative origins of tax exemptions for charitable organizations. From 1960 through 1974, he was special assistant to the chief counsel. ...

He began his teaching career as an adjunct professor at Georgetown University in 1965 and served as a visiting professor at Southern Methodist University in 1967 and 1968. After retiring from the IRS in 1974, Mr. White became a professor of law at the Marshall-Wythe School of Law at the College of William and Mary in Williamsburg. He retired in 1980 and served as an emeritus professor until 1984.

Update:  From former IRS Commissioner Sheldon Cohen (Farr, Miller & Washington, Washington, D.C.):

We lost a quiet giant of the tax law.  Art knew more about exempt organizations than anyone in the Chief Counsel's office or in private practice. He was such a fine thinker that I gave him a years leave of absence to go off and teach and think though his ideas on how the law regarding exempt orgs should work. He later left the IRS for a career at William & Mary, teaching in that area. He was great.  We will miss him.

Chronicle: Leading Legal Educators Call for a Shakeup in How the Law Is Taught

Interesting article in the Chronicle of Higher Education:  Leading Legal Educators Call for a Shakeup in How the Law Is Taught, by Katherine Mangan:

Years of frustration over a system of legal education that has changed little in more than a century is boiling over in a series of meetings designed to shake up the profession.

Fifty-seven legal educators, including deans, professors, and program administrators, exchanged ideas in November at the University of South Carolina School of Law. This month Stanford Law School held a gathering of deans from 10 law schools that are revamping their programs.

"People who are trying to make changes at different law schools are isolated from each other, and that can result in a lot of inertia. We're trying to bridge that isolation," said Judith Welch Wegner, a former president of the Association of American Law Schools [and editor of our State & Local Government Law Prof Blog], who is one of the authors of a report this year from the Carnegie Foundation for the Advancement of Teaching that recommended sweeping changes in legal education. Ms. Wegner, who is also a professor and former dean of the University of North Carolina School of Law, said she had been asked to speak at several law schools since the report was published.

Edward L. Rubin, dean of Vanderbilt University Law School, a participant in both the South Carolina and Stanford conferences, said he wanted to examine ways that legal education can advance more logically from the first through the third years.

"We're teaching three years of courses at the same level, which leads students to be terrorized in the first year and bored in the third," he told his colleagues at the South Carolina conference.

Mr. Rubin and several other speakers also argued that today's legal-education system does not reflect the modern practice of law, because it focuses too heavily on judicial opinions rather than on the more complex array of transactions, regulations, and statutes that today's lawyers must interpret for their clients.

Law schools have succeeded in teaching students to think like lawyers: "1870s lawyers," Mr. Rubin said.

Mason on Common Markets, Common Tax Problems

Ruth Mason (UConn) has posted Common Markets, Common Tax Problems, 8 Fla Tax Rev. ___ (2007), on SSRN.  Here is the abstract:

Different in more ways than it is possible to easily enumerate, the formation of the United States and the European Union (EU) had a striking similarity of purpose: to increase citizens' welfare by uniting a collection of independent states, each with its own politics, culture, and economy. Of course, the unification of the U.S. states, never as divided culturally, politically, or economically as the countries of Europe, is an achievement largely in the past. In contrast, significant integration in Europe has taken place in our own time. This Essay explores the common tax problems confronting the U.S. and EU common markets. These include horizontal federalism issues, such as state tax discrimination, disharmonies between state tax bases, and interstate tax competition. The Essay also contains a limited discussion of vertical federal questions, including states' competence to tax income of foreign legal entities and to enter into tax treaties with foreign countries. The Essay was delivered at the University of Florida, Levin College of Law's Annual International Tax Symposium in September 2007.

Tax News Roundup

• ataxingmatter:
  • AMT Legislation for 2007, by Linda Beale
  • Taxes, Corporate America, and Sustainable Democracy, by Linda Beale
• Cato Institute:
  • Round Yon Tax Credit, by Adam B. Schaeffer
• Mauled Again:
  • A Holiday "Gift" from the Congress, by Jim Maule
• New York Times:
  • Alternative Tax Folly (editorial)
  • Denmark Feels the Pinch as Young Workers Flee to Lands of Lower Taxes, by Carter Dougherty
  • The Tax Loss as Consolation Prize, by Paul J. Lim
  • Taxes Are Reassessed in Housing Slump, by Jennifer Steinhauer
• NPR:
  • AMT Yields Unintended Consequences, by Anthony Brooks
• San Francisco Chronicle:
  • Those Who Paid AMT Last Year Will Have to Pay It Again, by Kathleen Pender
• Tax Polict Blog:
  • A Merrier Christmas in Oregon, by Joseph Henchman
• Tax Policy Center:
  • Tax Considerations in a Universal Pension System, by Adam Carasso (Research Director, Fiscal Policy Program, New America Foundation) & Jonathan Barry Forman (Oklahoma)
• Wall Street Journal:
  • AMT Fight Previews Tax Showdown, by Nick Timiraos
  • Count All the Taxes When Talking about Income Tax (letter to the editor), by Victor J. Goetz
  • FairTax Facts (op-ed), by Leo Linbeck
  • In Japan, Tax Plan Poses Blow to Already Beaten-Down Stocks, by Yuka Hayashi
  • Some ETF Investors to Feel Tax Bite for '07; Distributions Could Harm Image of Funds as a Shield To Capital-Gains Levies, by Ian Salisbury
  • IRS Deals FedEx a Setback on Classification of Workers, by Corey Dade
  • IRS Stuffs Hospital Stockings, by Theo Francis
  • Taxing E-Shoppers (editorial)
  • Tipster Rewards Require Patience; Law Boosts Payouts For IRS Informants in Large Tax Cases, by Tom Herman

Jorge Marquez: A Fictional Tax Prof Who "Won't Play Nice"

Richard Delgado (Pittsburgh) discusses the case of Jorge Marquez, a fictional Tax Prof at a mid-tier law school, in That New Latino Won’t Play Nice, part of his regular Ask Mom series of advice columns on BlackProf, dealing with the "everyday problems that professors (especially professors of color) face" in the legal academy.

Beale on Tax Shelters and the Tax Minimization Norm: How Does the Patenting of Tax Advice Transform the (Global) Playing Field?

Linda M. Beale (Wayne State) has posted Tax Shelters and the Tax Minimization Norm: How Does the Patenting of Tax Advice Transform the (Global) Playing Field?, 9 J. Law & Soc'y ___ (2008), on SSRN. Here is the abstract:

The U.S. tax administration began a new era of enforcement by focusing on cloned tax shelters that were marketed by ambitious accounting and tax law firms to small groups of customers. That focus led to heightened transparency requirements - new disclosure rules, higher standards for tax reporting, and stiffer penalties. Even the courts, which had seemed reluctant to apply judicial doctrines to stop aggressive tax structuring, have appeared to grow new backbone in this age of stiffer enforcement expectations. Just at the time when it appears that the attention to tax shelter activity may reduce the amount of aggressive planning, the U.S. Patent and Trademark Office has thrown a wrench into the machinery by issuing a series of patents on tax planning strategies, after the State Street decision opened the way for business method patents.

The patenting of tax strategies may have significant effects well beyond the questions of royalties, liabilities for infringement, or difficulties of litigating against validity of a tax patent that are already the subject of discussion among tax practitioners and academics. There are concerns, in particular, that the ability to patent legal processes relating to tax liabilities may make it more difficult for taxpayers to comply with the law. This essay will briefly review the concerns raised by tax strategy patents, including ethical questions confronting practitioners who hold a tax strategy patent, the potential impact of tax patents on the development of the underlying tax minimization norm that this author has noted in earlier papers as a significant factor in tax shelter activity, and the anti-competitive effects of multijurisdictional tax strategy patents.

Free Tax Jobs Website

I have added to the permanent left sidebar resources a link to TaxTalent.com, a job forum for tax professionals, and its companion blog (Tax Professionals Blog):

TaxTalent.com is designed exclusively for the benefit of tax professionals.

TaxTalent.com was founded in 1999 and was launched on February 9, 2001 as a FREE career portal for tax professionals. A place on the Internet where the tax community could find career management information, search for open tax positions, have access to tax training events offered in the U.S. in one convenient, searchable database, as well as access to other career enhancing tools. The TaxTalent.com site was designed with a high sensitivity for security and confidentiality for its members.

TaxTalent.com is a compilation of talent from the Recruiting industry, the Tax profession, computer hardware/software specialists, compensation research specialists and an advisory committee of tax professionals who donate their time and energy to make TaxTalent.com a worthwhile experience for you. The investors and employees have over 30 years combined experience in recruitment in the tax industry, which provides a base upon which to build an effective tool for the tax community.

Gans, Blattmachr & Bramwell on Estate Tax Exemption Portability

Mitchell M. Gans (Hofstra), Jonathan G. Blattmachr (Millbank Tweed) & Austin Bramwell (Millbank Tweed) have published Estate Tax Exemption Portability: What Should the IRS Do? And What Should Planners Do in the Interim?, 42 Real Prop., Prob. & Tr. J. 413 (2007).  Here is the abstract:

The estate tax exemption is not portable. As a result, when one spouse dies without having used the exemption, it disappears and cannot be used by the surviving spouse. While portability legislation has been proposed, Congress has thus far failed to act. This has made estate planning difficult for a significant number of married couples who have what might be described as intermediate-level wealth.

In a series of four private letter rulings, the IRS has responded sympathetically, creating in effect an administrative solution to the portability problem. The difficulty for taxpayers, however, is that, they are unable to rely on such rulings: In the absence of published guidance, the Service may decide to change its position and then apply its new position to taxpayers who have utilized the previously approved drafting blueprint without having secured their own ruling. This is particularly problematic because the Service's analysis in these rulings may well be incorrect. Indeed, if this analysis were incorporated in published guidance, it could undermine the Service's enforcement of the Code in unrelated contexts.

In this article, we suggest a new approach. Under our approach, taxpayers would be able to navigate the portability problem, and the Service would not weaken unrelated Code provisions. After explaining the portability problem, we explore the Service's private letter rulings. We then critique the Service's analysis and present an alternative solution for the portability problem. Finally, we suggest that the Service implement this solution administratively and show how taxpayers can safely employ our approach in the interim.

TaxProf Blog Holiday Weekend Roundup

Saturday:

• Texas Imposes "Pole Tax" on Strip Club Patrons
• Christmas Gifts for that Special Tax Person
• CTJ Publishes Weekly Tax Digest
• Johnson on Why Do Venture Capital Funds Burn R&D Deductions?
• Thomas & Zhang on Tax Expense Surprises and Future Returns

Sunday:

• IRS Issues 70-Page Memo Debunking Tax Protester Arguments
• Top 5 Tax Paper Downloads
• Christmas Gifts for that Special Tax Person
• FairTax Calculator
• Nominee for Law Review Article Title of the Year: Digitus Impudicus: The Middle Finger and the Law
• IRS Selects Ten New Advisory Council Members

Monday:

• 'Twas the Night Before Christmas, Legal Version
• More on the Tax Consequences of Kidney Swaps
• Christmas Gifts for that Special Tax Person
• Welcome to the Blogosphere: Best Practices for Legal Education Blog
• Review of Bryan's Midnight Assassin: A Murder in America’s Heartland
• Tulane & Loyola Fight Perception of Post-Katrina Decline

Tuesday:

• A TaxProf Christmas
• The Role of Taxes in the Birth of Christ
• NY Times Profiles Susan Pace Hamill's Work on the Impact of the Bible on Tax Policy

A TaxProf Christmas

For a Christmas greeting from your favorite Tax Prof bloggers, see here.

The Role of Taxes in the Birth of Christ

And it came to pass in those days, that there went out a decree from Caesar Augustus that all the world should be taxed. (And this taxing was first made when Cyrenius was governor of Syria.) And all went to be taxed, every one into his own city. And Joseph also went up from Galilee, out of the city of Nazareth, into Judaea, unto the city of David, which is called Bethlehem; (because he was of the house and lineage of David:) To be taxed with Mary his espoused wife, being great with child. And so it was, that, while they were there, the days were accomplished that she should be delivered. And she brought forth her firstborn son, and wrapped him in swaddling clothes, and laid him in a manger; because there was no room for them in the inn.

Luke 2:1-7 (KJV).

NY Times Profiles Susan Pace Hamill's Work on the Impact of the Bible on Tax Policy

Interesting article in today's New York Times:  Professor Cites Bible in Faulting Tax Policies, by David Cay Johnston:

At a time when some voters are asking how the religious views of candidates will shape their policies, a professor’s discovery of how little tax the biggest landowners in her state paid to finance the government has prompted some other legal scholars to scour religious texts to explore the moral basis of tax and spending policies.

The professor, Susan Pace Hamill, is an expert at tax avoidance for small businesses and teaches at the University of Alabama Law School. She also holds a degree in divinity from a conservative evangelical seminary, where her master’s thesis explored how Alabama’s tax-and-spend policies comport with the Bible.

Professor Hamill says that since Judeo-Christian ethics “is the moral compass chosen by most Americans” it is vital that these policies be compared with the texts on which they are based. Another professor says she is the first to address this head on, inspiring work by others.

Her findings, embraced by some believers and denounced by others, has also stirred research everywhere from Arizona State to New York University into the connection between religious teachings and government fiscal practices.

Her latest effort is a book, As Certain as Death (Carolina Academic Press, 2007), that seeks to document how the 50 states, in contravention of her view of biblical injunctions, do more to burden the poor and relieve the rich than vice versa.

In lectures and papers, Professor Hamill has expanded on her theme, drawing objections from some critics who say that the religious obligation to care for the poor is a matter of personal morality, not public policy.

Professor Hamill asserted that 18 states seriously violate biblical principles in the way they tax and spend. She calls Alabama, Florida, Louisiana, Nevada, South Dakota, Texas “the sinful six” because they require the poor to pay a much larger share of their income than the rich while doing little to help the poor improve their lot. The worst violator, in her view, is her own state of Alabama, which taxes its poor more than twice as heavily as its rich, while holding a tight rein on education spending. ...

Professor Hamill, by her reading of the New Testament, concludes that at least a mildly progressive tax system is required so that the rich make some sacrifice for the poor. She cites the statement by Jesus that “unto whomsoever much is given, of him shall be much required, and to whom men have committed much, of him they will ask the more.”

Some of her critics, however, say that the tithes described in the Old Testament show that a flat tax, in which everyone pays the same share of their income to government, should be seen as the biblical standard. ...

Some of Professor Hamill’s critics, in letters and e-mail to her and others, argue that she just wants to soak the rich, wrapping what they called her socialistic views in biblical cloth.

Until Professor Hamill focused on fiscal policies in light of Judeo-Christian moral principles, most scholarly work on religion and taxes was largely devoted to the issue of tax evasion. That was prompted, in part, by a 1992 updating of the Catholic catechism that listed tax evasion as a sin and by enforcement actions aimed at pacifists who refused to pay war taxes.

Professor Hamill said her research found that just one state, Minnesota, came within reach of the principles she identified, because its tax system is only slightly regressive and it spends heavily on helping the poor, especially through public education.

(Hat Tip:  Daniel Sokol.)

'Twas the Night Before Christmas, Legal Version

Check out the original and legal versions of the classic poem, 'Twas the Night Before Christmas [click on chart to enlarge]:

(Hat Tip: Ann Murphy.)

Christmas Gifts for that Special Tax Person

From the Treasury Department Historical Association:

Eleven Christmas Tree Tax Ornaments, including my favorite: the 1993 ornament issued on the 80th Anniversary of 16th Amendment:

THA's fifth annual ornament depicts the first Form 1040 as a commemorative of the 80th Anniversary of the authorization to collect tax on income. The ornament measures approximately 3-1/4 by 3-1/2 inches....On January 5, 1914, the Department of the Treasury unveiled the new Form 1040 for tax year 1913. 

IRS Notecards:

THA's Internal Revenue Service Building notecards depict six works of art displayed in the IRS National Office Building, each showing various architectural features of the New Deal-era IRS headquarters. The top-fold cards measure about 4-1/2 by 6 inches and arde packaged 12 to a box, 2 of each of the 6 prints, with envelopes.

Other items include:

• Treasury Postcards
• Treasury Building Lithographs

(Hat Tip: Marie Byrne.)

More on the Tax Consequences of Kidney Swaps

I previously argued that two women who donated their kidneys to each other's husband must report income on the exchange.  Tax Consequences of Kidney Donations (2/25/06). Jim Maule revisits the issue and rightly rejects a practitioner's view that income treatment could be avoided by assigning a nominal $1 value on each kidney.

Welcome to the Blogosphere: Best Practices for Legal Education Blog

Welcome to the legal education blogosphere:  Best Practices for Legal Education Blog:

This site was created with two goals in mind: 1) to create a useful web-based source of information on current reforms in legal education arising from the publication of Roy Stuckey’s Best Practices for Legal Education and the Carnegie Foundation’s Educating Lawyers; and 2) to create a place where those interested in the future of legal education can freely exchange ideas, concerns, and opinions. The blog contributors and editor will attempt to document and record the most recent innovations and academic experiments accompanying the legal education reform movement — and stimulate dialogue between and among all sectors of the legal academy.

Please join us by posting your ideas, comments, and concerns. Tell us what is happening at your law school or from your perspective. We welcome all replies - brief or lengthy. Be excited or skeptical, cautionary or rebellious. It’s all part of the process of dialogue we hope to facilitate

Review of Bryan's Midnight Assassin: A Murder in America’s Heartland

I previously blogged the book by Tax Prof Patricia Bryan (North Carolina) and her husband, Thomas Wolf, Midnight Assassin: A Murder in America’s Heartland (Algonquin Books 2005). Margaret Raymond (Iowa) reviews the book in the current issue of the Journal of Legal Education -- 57 J. Legal Educ. 293 (2007).  Here is the abstract:

Midnight Assassin is a historical study of the murder of John Hossack, a homicide that took place in Iowa at the turn of the twentieth century, and its legal aftermath. Mr. Hossack was killed in his bed as he slept; Mrs. Hossack, who claimed that she was asleep beside him at the time of the attack, was charged with his murder. The book is fascinating in its own right: an analysis of a complex and socially fraught murder case, told through extensive review of original historical documents.

But the Hossack murder has already played an interesting and pivotal role in legal education, through a fictional vehicle: writer Susan Glaspell's short story, A Jury of Her Peers, and her play, Trifles. Glaspell, a journalist, covered the Hossack murder; subsequently she made a career as an author, co-founded the Provincetown Players, and discovered Eugene O'Neill. Her works based on the Hossack case explore the limits of the legal system in addressing the psychological abuse of a woman by her spouse, and raise complex issues, from the need for gender-based perspectives on factual investigation, to the appropriateness of responding outside the law when the law is unjust. These materials, and the feminist perspective they raise, have been widely used in law school courses and facilitate exploration of a wide range of concerns, from the legal treatment of the battered spouse to issues of nullification, access, and community responsibility.

Given the extensive use that has been made of Glaspell's fictional renderings of the Hossack case, my review explores the utility of the "true story" of the Hossack murder. It concludes that, as told from the distinctive editorial perspective of Bryan and Wolf, both the factual and fictional accounts of the murder have distinct value for legal study.

NLJ: Tulane & Loyola Fight Perception of Post-Katrina Decline

Interesting article in next week's National Law Journal:  Tulane, Loyola Law Schools Say, "Save Your Pity"; Both Schools Battle Perception That They're Living in a "Rubble," by Peter Page:

The Tulane and Loyola law schools have more in common than being neighbors on St. Charles Street in the Uptown neighborhood of New Orleans. Seemingly everyone at both schools is fed up with the sympathetic inquiries about their well being when they tell people they live in New Orleans. "There is a perception that the school and city are devastated and it is not," said Elizabeth Nowicki, who left Washington and Lee University School of Law in August to teach corporate law at Tulane University Law School. ...

Both law schools report that by many measures — the number of students applying, their LSAT scores and undergraduate GPA, faculty hires — they are doing as well or better than before the hurricane. They believe all those measures would be better still if not for the perception they are still struggling to recover.