Saturday, May 12, 2007
The SMU Graduate Tax Program began more than 50 years ago and prospered under Dean Charles O. Galvin. Today, U.S. News ranks SMU among the Top 20 law schools in tax and among the Top 10 graduate tax programs. In recent years, the SMU Law Review has published a special tax issue, including
In this five-part series, TaxProf Blog will profile SMU's full-time Graduate Tax Faculy.
- B.S. 1984, Florida
- J.D. 1988, Florida
- LL.M. (Tax) 1989, NYU
My father, a CPA who specializes in taxation, first generated my interest in tax law when I was a college student at Florida. However, when I began law school in the fall of 1985 at Florida, I tried to enter with an open mind as to what area of law I might be interested in concentrating.
Happy 50th birthday to Dan Shaviro (NYU). Those of us approaching the big 5-0 can relate to Dan's thoughts on hitting this milestone:
It's strange to have been young all one's life, strongly conditioning one's self-image, and then increasingly to find that one is no longer so. That being said, I weigh the same and am in better aerobic shape than when I was a college or law student. I also would make short work of my past self if we played, say, racquet sports against each other. But alas, all this requires eating a lot less and exercising a lot more. I also increasingly get all sorts of aches and pains that I didn't know as well back then. Some days you just don't feel that good, once you reach this stage. I now have to do regular exercise and stretching routines for nearly every body part that is potentially injurable in sporting activities. I also need reading glasses unless the print is large and/or the lighting great. And dessert now often inspires something of the same mute horror that I assume mice bring to thinking about cats.
To date, scholarly consensus has assumed that earmarked taxes have a few first-order benefits: they constrain the budget process and provide tax policy information. Without challenging these effects, this article has argued for an expanded and more nuanced view both of the range of earmarked taxes and of the normative benefits that earmarked taxes can potentially provide. The analysis has suggested that earmarked taxes may lend the tax system a greater stability and predictability, help the government raise more revenue, and increase progressivity. As the tax reform debate goes forward, policymakers who seek to strengthen the tax system in any of these basic ways would do well to consider proposals that increase the role of earmarking.
Friday, May 11, 2007
PrawfsBlawg is hosting an open forum on choosing a casebook for the Income Tax course as part of its Course Preparation Project. You can submit comments here. For a list of Income Tax casebooks (albeit a bit dated), see here.
The IRS today (IR-2007-99) reminded churches, charities, and other tax-exempt organizations to seek a telephone excise tax refund by May 15, even if the organization does not normally file an annual return:
Organizations can request the refund by filing Form 990-T, Exempt Organization Business Income Tax Return and attaching Form 8913, Credit for Federal Telephone Excise Tax Paid. Organizations that obtain a credit or refund from their service providers are not eligible to file a refund request with the IRS.
Mihir A. Desai (Harvard Business School) & Dhammika Dharmapala (University of Connecticut, Department of Economics) have posted Taxation and Corporate Governance: An Economic Approach on SSRN. Here is the abstract:
How do the tax system and corporate governance arrangements interact? This chapter begins by reviewing an emerging literature that explores how agency problems create such interactions and provides evidence on their importance. This literature has neglected how taxation can interact with the various mechanisms that have arisen to ameliorate the corporate governance problem, such as concentrated ownership, accounting and information systems, high-powered incentives, financing choices, payout policy, and the market for corporate control. The remainder of the chapter outlines potentially fruitful areas for future research into how these mechanisms may respond to the tax system.
Lawrence A. Zelenak (Duke) has published Of Head Taxes, Income Taxes, and Distributive Justice in American Health Care, 69 Law & Contemp. Probs. 103 (2006). Here is the Conclusion:
Havighurst and Richman have made an important contribution by uncovering hidden ways in which the current system of health care financing, including the income-tax treatment of employer-provided health insurance, has disturbing distributional effects. Their analysis deserves to play a leading role in the national health care financing debate. As stated at the outset, the two caveats offered here are in the nature of friendly amendments. Viewed together with the health care for the uninsured that it finances, the implicit head tax on those with employer-provided insurance may not be regressive, but it is certainly not progressive enough. And although the exclusion for employer-provided basic health insurance would not be objectionable under a new-and-improved version of the income tax, the treatment of health insurance under the current income tax is indeed in need of reform.
A list of Tax Profs with speaking roles today, and their topics, is below the fold.
From the Associated Press: Revenue Collections Hit Record in April:
Federal revenue collections hit an all-time high in April, contributing to a further improvement in the budget deficit for the year. Releasing its monthly budget report, the Treasury Department said Thursday that through the first seven months of this budget year, the deficit totals $80.8 billion, significantly below the $184.1 billion imbalance run up during the first seven months of the 2006 budget year. So far this year, tax revenues total $1.505 trillion, an increase of 11.2% over the same period last year. That figure includes $383.6 billion collected in April, the largest monthly tax collection on record. Tax collections swell in April every year as individuals file their tax returns by the deadline. For the first seven months of this budget year, which began Oct. 1, revenue collections and government spending are at all-time highs.
See also CBO, Monthly Budget Review.
Criticisms of the estate tax have often been contradictory and confusing. On the one hand, critics have argued that the transfer tax raises little revenue, is easily avoided, and has no effect on concentrations of wealth. On the other hand, critics have argued that the transfer tax discourages savings and that payments of the estate tax financially burden family businesses. It is difficult to see how a tax that allegedly raises little revenue, is easily avoided, and has no effect on wealth concentration, can at the same time impose a significant burden on savings and businesses.
This article reviews the arguments for and against the estate and gift tax.
David A. Brennen (Georgia) has published A Diversity Theory of Charitable Tax Exemption: Beyond Efficiency, Through Critical Race Theory, Toward Diversity, 4 Pitt. Tax Rev. 1 (2006). Here is the abstract:
A Diversity Theory of Charitable Tax Exemption is an initial attempt at understanding the charitable tax exemption beyond the borders of the law and economics vision of efficiency. Efficiency is the hallmark of many of the existing theories of charitable tax exemption. This is especially true of theories promulgated prior to 1990 by such notable scholars as Boris Bittker and Henry Hansmann. A Diversity Theory of Charitable Tax Exemption articulates a rationale for the charitable tax exemption which is based, not on efficiency, but on notions of diversity and creativity. This alternate theory is called contextual diversity. Contextual diversity theory posits that the charitable tax exemption is a means of diversifying the market and, thus, allowing for more creative and wealth producing opportunities. Further, the exemption is subject to contextual constraints that act to limit the scope of charitable activity. Thus, the article explains how the law and economics concept of efficiency fails to fully rationalize many aspects of the charitable tax exemption that are not amenable to an efficiency analysis. Using an alternate theory of law termed Law and Market Economy Theory, the article moves beyond efficiency analysis and uses a variety of interpretive frameworks to more fully explain the charitable tax exemption. As an example, the article uses Critical Race Theory as a means for understanding certain aspects of the charitable tax exemption from a different perspective, such as the public policy doctrine. The public policy doctrine prohibits charitable activity which is inconsistent with established public policy. Among the implications of contextual diversity is that the public policy doctrine be eliminated and replaced by a rule that explicitly prohibits invidious racial discrimination by charities while still permitting charities to engage in race-based affirmative action.
Thursday, May 10, 2007
In keeping with tradition, the annual Laurence Neal Woodworth Lecture on Federal Tax Law and Policy will be given today at 5:00 p.m. at the first day of the May Meeting of the ABA Tax Section at the Grand Hyatt in Washington, D.C. John L. Buckley, Democratic Chief Tax Counsel for the House Ways & Means Committee, will deliver the lecture on Tax Changes Since Woodworth's Time: Implications for Future Tax Reform. The lecture will be published in the Ohio Northern Law Review, which has issued a call for papers for other tax articles to publish with the lecture. For a list of prior Woodworth Lectures, with links to the published papers, see below the fold.
Update: Linba Beale blogs the talk here.
The Washington & Lee Law Review is offering a special exclusive expedited review process this summer: if an author submits a manuscript between May 15 and July 31, W&L promises to make its publication decision within two weeks; in return, the author agrees to publish the article in W&L if it is accepted.
Are folks aware of similar processes at other law reviews? In the past, Duke and Georgetown had such a program, but apparently not this summer. (Harvard offers a 10-day exclusive submission period, but it does not review articles from "mid-May through mid-August.")
Richard L. Schmalbeck (Duke) has published The Impact of Tax-Exempt Status: The Supply-Side Subsidies, 69 Law & Contemp. Probs. 121 (2006). Here is part of the Introduction:
This article first provides some background and history of the tax rules governing nonprofit health care institutions, then assesses the significance of the subsidies these tax rules create. Such significance is, in short, negligible: the subsidies do not bring any very impressive forces to bear on the market for health care.
Richard M. Bird, Jack M. Mintz & Thomas A. Wilson (all of the University of Toronto, Rotman School of Management) have published Coordinating Federal and Provincial Sales Taxes: Lessons from the Canadian Experience, 59 Nat'l Tax J. 889 (2006). Here is the abstract
Canada has operated both a federal value–added tax (the GST) and two variants of provincial VATs for the last 15 years. In addition, several provinces have continued to operate retail salestaxes similar to those in most US states. A brief review of experience around the world with "two–level" sales taxes indicates that Canadian experience is the most relevant international experiencefor the US to consider. We conclude that the Canadian case suggests that the introduction of a federal VAT in the US would not create any great technical problems for either the states or business.
4th Circuit Rules for Government in Heilig-Meyers Clear Reflection of Income Case; Taxpayer's "Show Me The Money!" PowerPoint Slide Probably Did Not Help
The Fourth Circuit yesterday issued a 2-1 decision in In re Heilig-Meyers Co., No. 05-1667 (4th Cir. 5/9/07) that a bankruptcy debtor's § 475(b) mark-to-market adjustment to its consumer debt portfolio did not clearly reflect income under § 446(b). I discuss in detail below the fold the mark-to-market and clear reflection of income issues. But my favorite aspect of the case is the pitch documents for the deal (trademarked, no less) mentioned in the Government's brief:
Keith Winchester, debtors' tax manager, recommended adoption of the Mark ItSM strategy. He made a Power Point presentation to debtors' president that included a slide declaring “Show me the MONEY” followed by two slides depicting the anticipated benefits of the Mark ItSM strategy. One depicted benefit was a federal income tax refund of $21,900,000 for the 1997 fiscal year. In recommending adoption of the Mark ItSM strategy, Winchester acknowledged that it was “highly likely” that the IRS would challenge the mark-to-market deduction, given its magnitude. He nevertheless recommended adoption because, even if an IRS challenge was successful, debtors “would roughly be in the same position as [they] would have been had [they] not utilized section 475.” In a letter agreement dated November 15, 1997, debtors adopted the Mark ItSM strategy.
Brief for the Appellee (7/14/06) (citations to appendix omitted), 2006 WL 2050798. Although the Fourth Circuit did not mention this evidence, one hopes it affected the majority's perspective on the case.
The ABA Tax Section's three-day May Meeting kicks off today at the Grand Hyatt in Washington, D.C. Today's highlight is the Laurence Neal Woodworth Lecture on Federal Tax Law and Policy at 5:00 p.m. (I will have more to say about this later today.) A list of Tax Profs with speaking roles today, and their topics, is below the fold.
The Senate Finance Committee holds a hearing today on Can the Middle Class Make Ends Meet? Economic Issues for America’s Working Families. Here are the witnesses scheduled to testify:
- Gary Burtless (John C. & Nancy D. Whitehead Chair in Economic Studies, Brookings Institution)
- Elizabeth Warren (Leo Gottlieb Professor of Law, Harvard Law School)
- Sarah Blackburn (Social Worker, Billings Clinic, Billings, MT)
- Scott Hodge (President, Tax Foundation)
The hearing takes place at 10:00 a.m. in 215 Dirksen Senate Office Building. To view a webcast of the hearing, see here.
What would happen to a full time (40 hour a week) employee who shirks much of the job and actually expends only about 20 hours a week on job related activities? The employee shows up at the office a couple of days each week, and (implicitly) claims to be working at home the rest of the time, but has little to show for it.
In just about every job in America, an employee with these work habits would be fired. But not law professors with tenure. As long as they show up to teach their classes, they can't be touched, at least not without a nasty battle that Deans rarely undertake. Schools may try to wring more productivity out of these minimal perfomers with committee assignments, but that's about it. Desperate schools have resorted to offering lucrative buyouts to entice these professors to leave, but the job is so easy that they have little reason to accept. Year after year, these professors take home their $150,000-plus for working about 20-25 hours a week, 28 weeks a year. It's a great gig! And everyone else at the school pays (especially students footing the bill).
I raise this unpleasant subject because the American Law Deans Association is apparently pushing a proposal [blogged here] to get the American Bar Association to stop imposing tenure requirements on law schools (from Instapundit). The proposal focuses on tenure requirements (or their equivalent) for clinical professors, but its implications are broader. No doubt this effort will raise an outcry of protest from many in the legal academy in the name of preserving academic freedom.
For more, see:
- David Bernstein, The Volokh Conspiracy
- Bryan Caplan, EconLog
- Jeff Harrison, MoneyLaw
- Brian Leiter, Leiter's Law School Reports
- Steven Levitt, Freakonomics
- Greg Mankiw, Greg Mankiw's Blog
- Ilya Somin, The Volokh Conspiracy
Wednesday, May 9, 2007
I am off to the ABA Tax Section's three-day May Meeting, which begins tomorrow at the Grand Hyatt in Washington, D.C. I will file periodic updates from D.C. If you are a regular reader of this blog and will be at the meeting, I hope you will say hello if our paths cross in the hallways at the Hyatt.
Julie Roin (Chicago) has posted Can the Income Tax Be Saved?: The Promise and Pitfalls of Unitary Formulary Apportionment on SSRN. Here is the abstract:
Most developed nations raise a substantial portion of their revenues through the imposition of corporate and individual income taxes. But recent economic developments, and particularly the increasing globalization of capital markets, has made enforcement of national income taxes increasingly difficult. A primary cause of these difficulties lies in countries' failure to devise effective methods of taxing the domestic income of foreign corporations. All too often, such income ends up taxed no where. Not surprisingly and all too successfully, taxpayers strive to arrange their affairs so that their income becomes such no where income. It is hard to see how the corporate, and perhaps even the individual income tax can survive as an effective revenue raising device unless and until countries devise an effective method of taxing the domestic income of foreign corporations.
- April Revenue Shower (editorial):
Here's the "surge" you aren't reading about: the continuing flood of tax revenue into the federal Treasury. Tax receipts for April were $70 billion above the same month in 2006, and April 24 marked the single biggest day of tax collections in U.S. history, at $48.7 billion, according to the latest Treasury report. ... his revenue boom certainly casts doubt on the political wails about tax loopholes for the rich. ...
Still, you'd think this dramatic fiscal turnaround would cheer up Capitol Hill. Instead, Congressional Democrats seem to live in a parallel universe -- one that they claim is starved for revenues, with a runaway deficit, and is dominated by the rich who pay no taxes at all. The reality is that the wealthy are financing Democratic spending ambitions, and the deficit could easily vanish within a year or two if Congress has the good sense to leave current tax policy in place.
The IRS is stepping up efforts to prevent taxpayers from deducting losses on activities that aren't genuine businesses run to make a profit. The problem: It's not so easy to tell a budding business from a hobby. Officials say new research shows taxpayer errors in this area are costing the government billions of dollars a year in unpaid taxes. Thus, auditors are "on the lookout" for people trying to deduct losses from hobbies, an IRS spokesman says. To underscore the agency's concern, the IRS recently issued a fact sheet the spokesman says is aimed at "making sure that taxpayers know and abide by the rules." ...This revenue boom certainly casts doubt on the political wails about tax loopholes for the rich
However, the IRS's interpretation doesn't always prevail, as a recent court case illustrates. In a decision that is attracting close attention among lawyers and accountants, the U.S. Tax Court recently ruled in favor of Tracey L. Topping, a Florida woman who deducted net losses from her equestrian activities, which she said were part of her plan to develop a profitable interior-design business. [Topping v. Commissioner, T.C. Mmo. 2007-92 (4/17/07).]
- Senator's Two Slip-Ups Show Difficulty of Closing Tax Gap, by Brody Mullins:
Max Baucus, the Senate Finance Committee chairman, is trying to get Americans to pay more of the taxes they owe on time. But the Montana Democrat himself may be Exhibit A for why that goal is so elusive. Twice in recent years, Mr. Baucus has made mistakes on local property taxes that led to late payments and fines. The senator's tax history shows just how difficult it is to narrow the so-called tax gap -- the estimated $290 billion a year taxpayers owe the federal government but haven't paid -- because even taxpayers who say they intend to pay in full sometimes make mistakes. ...
For Mr. Baucus, it was local property taxes in Washington, D.C., and Montana that tripped him up. He underpaid his tax bill on his $1.4 million Georgetown house from 2003 to 2005 because of a computer error by city tax collectors, according to property records. Tax assessors incorrectly gave Mr. Baucus a credit on his property-tax bill that should only apply to those who claim their property as their primary residence. Mr. Baucus's main residence is in Montana. When the city realized the error, Mr. Baucus was given 30 days to pay $5,625.72 in back taxes, according to tax officials. Mr. Baucus paid -- but not until a few weeks after the deadline. That cost $538.86 in penalties and interest.
In Helena, Mont., Mr. Baucus paid a small penalty in 2002 for paying his property-tax bill a few weeks late due to a misunderstanding involving his brother. Mr. Baucus bought the house he grew up in from his brother in 2002, and the two agreed to split the tax payments, according to the senator's spokesman.
- Canberra Proposes Tax Cuts; Conservatives Hope to Woo Middle Class with Budget Plans, by Barbara Adam & James Glynn
- Living Abroad and Filing U.S. Taxes, by Tom Herman
Interesting article in the May/June 2007 issue of American.com, The Upside of Income Inequality, by two titans of economics, Gary S. Becker & Kevin M. Murphy
This brings us to our punch line. Should an increase in earnings inequality due primarily to higher rates of return on education and other skills be considered a favorable rather than an unfavorable development? We think so. Higher rates of return on capital are a sign of greater productivity in the economy, and that inference is fully applicable to human capital as well as to physical capital. The initial impact of higher returns to human capital is wider inequality in earnings (the same as the initial effect of higher returns on physical capital), but that impact becomes more muted and may be reversed over time as young men and women invest more in their human capital....
For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.
(Hat Tip: Greg Mankiw.)
The Chronicle of Higher Education reports that New Survey Finds Widespread Belief in God on University Faculties, by Thomas Bartlett:
Maybe professors aren’t so godless after all. A new survey by the Institute for Jewish & Community Research has found that 65% of faculty members say they believe in God. In addition, it found that 46% say they have a “personal relationship with God.” ... That finding echoes a study of 1,500 professors last year by two sociologists.
Mark V. Pauly (University of Pennsylvania, Wharton School of Business) has published The Tax Subsidy to Employment-Based Health Insurance and the Distribution of Well-Being, 69 Law & Contemp. Probs. 83 (2006). Here is the Conclusion:
The tax subsidy to employment-based group insurance does harm lower-income, lower-productivity workers, even though those workers have incomes low enough that the direct effect of the presence or absence of the subsidy is minimal. It does so not by redistributing the financial cost of care or insurance, but rather by imposing higher and more rapidly growing costs for both on lower-income people. Even if abolition or limitation of the subsidy did not affect the distribution of the tax burden across income strata, lower-income people would benefit because they would experience lower-cost health care, lower-cost insurance (paid explicitly out of after-tax income and implicitly out of wages), and a lower rate of long-term growth in both. The net gain would be smaller than the reduction in financial burden, because the more attractive care and the more lavish insurance would be worth something, but the savings would more than offset this loss.
The Joint Committee on Taxation has released Comparison of the United States Model Income Tax Convention of September 20, 1996 with the United States Model Income Tax Convention of November 15, 2006 (JCX-27-07)
This pamphlet, prepared by the staff of the Joint Committee on Taxation, compares the Model Income Tax Convention of September 20, 1996 with the Model Income Tax Convention of November 15, 2006. Part I of the pamphlet provides a side-by-side summary of certain differences on an article-by-article basis. Part II provides a fuller explanation of the differences with respect to articles that were significantly modified in November 2006.
Andrew Strelka (American) has posted Taxing the Disabled: The IRS, the Insurance Industry, and the Disability Waiver of Premium Rider, 10 Richmond J. L. & Pub. Int. 53 (2007), on SSRN. Here is the abstract:
This article discusses the current tax methods being applied to the disability waiver of premium rider, an optional addition to life insurance policies that waives subsequent annual premiums in the event the insured becomes disabled. The article shows that the seminal case regarding the taxation of disability waiver of premium riders, Estate of Wong Wing Non v. Commissioner, has been misconstrued by both the IRS and the insurance industry. This has allowed for the existence of two scenarios where a disabled policyholder is subjected to an unexpected tax liability that would have been avoided but for the onset of disability. The correct holding from Wong Wing Non is analyzed and constructed: waived premiums constitute a constructively received disability benefit that should be excluded from taxation under subsection 104 of the Code. Model legislation is also proposed as an alternative to a subsequent judicial challenge to Wong Wing Non.
Tuesday, May 8, 2007
The Department of Defense on Monday issued proposed regulations describing how it will determine if a college violates the Solomon amendment, the 1994 law that allows the government to withhold federal funds from colleges that bar or limit military recruiting on their campuses. For more, see the Chronicle of Higher Education.
The Ninth Circuit yesterday, in Hansen v. Department of Treasury, No. 05-16091 (9th Cir. 5/7/07), affirmed the district court's dismissal of a complaint by a Mormon father and son who requested a blanket exemption from social security taxes, as well as an exemption from having a social security number, on religious grounds.
In an interview with Reuters, Mr. Hansen continued to insist that paying social security tax is contrary to his Morman faith:
"I don't believe in it, I don't like it, I think it is Satanic. ... I belong to a religion that will take care of me. I don't need the Social Security system and I don't want it. It violates my religious beliefs and it violates the teachings of my church as I interpret them."
In rejecting Mr. Hansen's complaint about being assigned a social security number, the Ninth Circuit noted in a footnote:
To the extent Hansen’s claim is simply an objection to being assigned an SSN, his challenge is foreclosed by Bowen v. Roy, 476 U.S. 693 (1986). In Bowen, the Supreme Court rejected a father’s attempt to prevent the government from assigning his daughter an SSN, reasoning that "[t]he Free Exercise Clause simply cannot be understood to require the Government to conduct its own internal affairs in ways that comport with the religious beliefs of particular citizens," and concluding that the father "may no more prevail on his religious objection to the Government’s use of a Social Security number for his daughter than he could on a sincere religious objection to the size or color of the Government’s filing cabinets." Id. at 699-700.
For more, see Howard Friedman.
Ruth Mason (UConn) presents In Search of Internal Consistency: Tax Discrimination in the EU today at Queen Mary College, University of London. Here is the abstract:
The European Union was created to bind the countries of Europe together economically to prevent future wars. Rigorous enforcement of EU nationals' fundamental economic freedoms before the European Court of Justice (ECJ) has furthered economic integration. The fundamental freedoms prohibit tax discrimination—harsher tax treatment of cross-border economic activities than purely internal activities. Critics of the ECJ argue that the Court's broad interpretation of the EC freedoms causes it to find tax discrimination where there is none. This tendency encroaches upon the sovereignty of EU member states and hampers their ability to pursue economic policy goals. In contrast, based upon a survey of all the ECJ's tax discrimination decisions, this Article offers a more nuanced critique that shows the ECJ's errors in tax discrimination cases go in both directions. In addition to finding discrimination where there is none, the Court also sometimes fails to recognize discrimination. The Court's failure to recognize tax discrimination undermines the economic integration of Europe and abridges EU nationals' personal rights.
Major Duties: As Director for Individual Taxation, the incumbent of this position is the Department of the Treasurys top economist in the field of individual taxation and directs the work of the Individual Taxation Division in the Office of Tax Analysis. The Director for Individual Taxation works closely with the Director of the Office of Tax Analysis (OTA Director), Deputy Assistant Secretary (Tax Analysis), Assistant Secretary (Tax Policy), and other top Treasury officials in formulating comprehensive individual taxation policies, methodologies, and practices. The Director for Individual Taxation has supervisory responsibility for developing and producing economic studies and analyses relating to individual taxation and the Administrations proposals for revisions to or reform of statutory and regulatory provisions relating to Federal individual taxation. These studies and analyses are used to evaluate such proposals and to assist in the determination of Administration policy positions regarding such proposals.
Application Deadline: May 22, 2007.
Salary: $111,676 - $154,600.
For more information or to apply, see here.
Jack Estill, Benjamin Powell & Edward Stringham (all of San Jose State University, Department of Economics) have published Taxing Development: The Law and Economics of Traffic Impact Fees, 16 B.U. Pub. Int. L.J. 1 (2006). Here is the Conclusion:
Development fees are not as close to the ideal corrective device as many people assume. One could imagine impact fees being set according to the marginal impact development has on a community, but despite the legal requirement in places like California that impact fees are supposed to approximate marginal impact, in practice they do not. Each individual development has a different impact. For there to be a true nexus between a fee and a development's marginal impact, planners would have to individually evaluate each development for a unique charge. Governments are unable to calculate specific, or even average, marginal impacts of developments, so they assess fees in myriad questionable ways. Development impact fees vary greatly between jurisdictions with many imposing fees that are difficult to justify. Many governments simply come up with a wish list of public projects and then try to get them financed by developers. In these cases, the impact fees are nothing more than a general tax on development. Eliminating impact fees will encourage development and make real estate more affordable.
The elimination of development impact fees need not burden existing residents with any spill over costs of new development. Private resources have provided new roads and other “public goods,” which impact fees currently finance. Reforms should move these goods back to the private sector while simultaneously eliminating impact fees to ensure a more efficient level, mix, and dispersion of development.
Interesting article in Bloomberg: Hedge-Fund Technique by Harvard, Stanford Gets Senate Scrutiny, by Ryan J. Donmoyer:
Senate aides, looking for new sources of revenue, are studying how Harvard, Yale and Stanford are using offshore hedge funds to avoid tax bills. Staff of the Finance Committee discussed the matter yesterday with experts on taxes and hedge funds at a closed-door meeting on Capitol Hill [blogged here], according to four congressional aides who were present. The discussion was part of a broader review of the tax treatment of hedge funds and private-equity firms that the committee staff is conducting as lawmakers search for revenue to offset the costs of tax and budget priorities. ...
Universities, pension funds, and foundations don't owe tax on most investment proceeds, though they are required to pay ``unrelated business income tax'' when they receive profits from debt-financed investing. Hedge funds set up ``blocker'' companies in tax havens such as the Cayman Islands that convert such profit into dividends, which aren't taxed. Congressional aides who attended the meeting said the inquiry has established that the endowments of many universities, including Harvard, Yale and Stanford, use this technique.
The Organization for Economic Cooperation and Development has released a public discussion draft on the Application and Interpretation Article 24 (the nondiscrimination article of the model tax convention). Comments on the draft are due by July 31, 2007.
Interesting article in Inside Higher Ed: Battle Lines on "U.S. News," by Scott Jaschik:
After years of complaints and months of talk about challenging the role of U.S. News & World Report in ranking colleges, 12 college presidents have come forward with a call to arms. In a letter being sent to hundreds of liberal arts college presidents, the 12 call for their colleagues to stop filling out the survey of institutional reputations that makes up 25% of scores in the rankings — the largest single factor in the formula. The presidents also call for colleagues to pledge not to use U.S. News rankings in promotional materials.
Prior TaxProf Blog coverage:
- Just Say No to U.S. News? Canadian Universities Band Together to Bypass Rankings and Post Data Directly on Web (4/2/07)
- Just Say No: 26 Canadian Universities Opt Out of Rankings (11/6/06)
- Opting Out of the U.S. News Rankings (10/12/05)
The Subcommittee on Income Security and Family Support and Subcommittee on Select Revenue Measures of the House Ways & Means Committee hold a joint hearing today on The Effects of Misclassifying Workers as Independent Contractors. From the hearing announcement:
Chairman McDermott: "When workers are wrongly classified as independent contractors, they lose access to vital benefits, employers who play by the rules are unfairly disadvantaged, and State and Federal programs are starved of resources. We need a fair standard that is fairly enforced."
Chairman Neal: "Employers and the IRS need an easily understood set of rules in order to classify workers. I am concerned that workers may be disadvantaged by the current situation, and hopefully this hearing can shed some light on what can be done."
The hearing begins at 9:30 a.m. in 1100 Longworth House Office Building.
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Relating to Worker Classification for Federal Tax Purposes (JCX-26-07).
Edward A. Morse (Creighton) has posted two tax papers on SSRN:
- Income Averaging: Significant Planning Options for Eligible Taxpayers, 22 J. Tax'n Inv. 303 (2005)
- Taxing Plaintiffs: A Look at Tax Accounting for Attorney's Fees and Litigation Costs, 107 Dickinson L. Rev. 405 (2003)
Monday, May 7, 2007
Douglas A. Kahn (Michigan) has posted a number of his tax papers on SSRN:
- Mandatory Buy-Out Agreements for Stock of Closely Held Corporations, 68 Mich. L. Rev. 1 (1969)
- A Definition of "Liabilities" in Internal Revenue Code Sections 357 and 358(d), 73 Mich. L. Rev. 461 (1975) (with Dale A. Oesterle (Ohio State))
- Federal Taxation of the Assignment of Life Insurance, 1977 Duke L.J. 941 (1977) (with Lawrence W. Waggoner (Michigan))
- Accelerated Depreciation - Tax Expenditure or Proper Allowance for Measuring Net Income?, 78 Mich. L. Rev. 1 (1979)
- The Supreme Court's Misconstruction of a Procedural Statute - A Critique of the Court's Decision in Badaracco, 82 Mich. L. Rev. 461 (1983)
- Compensatory and Punitive Damages for a Personal Injury: To Tax or Not to Tax?, 2 Fla. Tax Rev. 327 (1995)
- The Constitutionality of Taxing Compensatory Damages for Mental Distress When There Was No Accompanying Physical Injury, 4 Fla. Tax Rev. 128 (1999)
- Tax Consequences of Assigning Life Insurance - Time for Another Look, 4 Fla. Tax Rev. 381 (1999) (with Lawrence W. Waggoner (Michigan))
- Guaranteed Payments Made in Kind By a Partnership, 6 Fla. Tax Rev. 405 (2004) (with Faith Cuenin)
IBA Hosts Transfer Pricing Conference in Conjunction with ABA Tax Section May Meeting in Washington, D.C.
For those attending the May Meeting of the ABA Tax Section this week in Washington, D.C.: the International Bar Association is holding a one-day conference this Thursday on Transfer Pricing, Tax Shelters, Unwinding Transactions:
This one-day conference ... will examine the management of document production in transfer pricing audits and litigation, and tax planning relating to unwinding or modifying a transaction. A special luncheon programme will feature the Honorable Eileen J O’Connor, Assistant Attorney General for the Tax Division of the United States Department of Justice. ... Ms O’Connor will speak about the Justice Department’s results in litigation related to tax shelters. The luncheon programme will also feature Ted Setzer, Special Counsel to the Deputy Associate Chief Counsel (International) for Strategic International Programs. Mr Setzer will speak on US governmental and inter-governmental efforts to identify and address international tax shelter cases.
Covington & Burling will subsidize half the cost for any Tax Profs who would like to attend the conference. To take advantage of this offer, email Birlie Serena Lau. (Hat Tip: Robin Westbrook.)
In 1995, the Danish National Tax Court, in the course of denying a deduction, said some uncomplimentary things about the island of Crete. The decision was reversed, both by the Danish courts, and by the European Court of Justice. Perhaps the Danish National Tax Court feels somewhat embarrassed by its public act of dissplacement. This essay searches for other instances of dissplacement in judicial opinions, whether by the parties, the lawyers, or, most importantly, by the judges themselves. Plenty of examples are found. Accordingly, if indeed the Danish National Tax Court feels embarrassed, at least it need not feel so alone.
- Baucus Says Hedge-Fund Tax Bill Is "Nowhere Close," by Ryan J. Donmoyer:
Senate Finance Committee Chairman Max Baucus said his panel is "looking at the general question" of how hedge funds and private-equity firms are taxed, though Congress is "nowhere close" to drafting a bill. "I'm not close to having legislation, not yet, but I may," Baucus, a Montana Democrat, said today at the National Press Club in Washington. "My view is, first I want the facts. I want to know what's going on here." ...
The staff of the Finance Committee is holding a closed-door meeting today with experts on the subject, including University of Colorado law professor Victor Fleischer, who has written a study of the tax implications of hedge-fund managers' pay. ... "My own personal view is that what fund managers do is something in between ordinary income and investment income," Fleischer said in an interview. He said he would advise committee aides to adopt a new policy that imposes a "blended rate" on fund managers.
- IRS Sues Former State District Judge to Recover More Than $1 Million, by Andres Martinez:
The federal government has sued former state District Court Judge Hector Villarreal to recover more than $1 million in taxes it says he has not paid since 1993. "The IRS is like an ex-wife. They never leave you alone," Villarreal said. "They have no factual basis for what they are alleging." The civil action against Villarreal, now a top defense attorney in the area, was filed in U.S. District Court in December. ...Villarreal said he was disgusted by the inclusion of his wife in the lawsuit. Garza, whom he married eight years ago, unsuccessfully ran against local District Attorney Rene Guerra for office last year. "The fact that they have brought my wife into this lawsuit is a grave tragedy," he said. "We have a prenuptial agreement that says she is not liable for anything I do."
Wall Street Journal
- Protecting Your Children's Inheritance, by Diana Ransom:
If you have kids and you're getting ready to say "I do" for the second time, it's also time to rethink how your assets will be apportioned in the event of your death.
- Taxes Filing for Americans Working Abroad, by Tom Herman:
Suppose an American lives abroad and has income generated only from non-U.S. companies. Is he or she required to file a U.S. tax return, and is that person still subject to U.S. income taxes?
- A Taxing Query For Answer Man, by John Kelly:
A ll the news recently about the World Bank got me thinking. The articles say that Shaha Riza earns nearly $200,000 a year, tax-free. How come? Is she a U.S. citizen? Is Paul Wolfowitz's salary tax-free? Of the 7,000 employees of the World Bank that work in Washington, who can take advantage of this tax-free status?
- Answering to An IRS Audit, and Other Inside Advice, by Michelle Singletary
Should you fear the Internal Revenue Service? Not if you know your rights as a taxpayer and you respond to the first notice you get from the IRS, says Scott M. Estill, a tax attorney. That's part of the nonconfrontational advice Estill offers in Tax This! An Insider's Guide to Standing Up to the IRS (Self-Counsel Press, 2007). "No tax situation is hopeless," writes Estill, who is a former senior trial attorney for the IRS.
Staff of the House Ways & Means Committee, Joint Committee on Taxation, and Senate Finance Committee are holding a closed-door meeting today on the taxation of private equity fund managers. Among the academics and practitioner invited to attend is Victor Fleischer (Illinois), author of Two and Twenty: Taxing Partnership Profits in Private Equity Funds, 83 NYU L. Rev. ___ (2008).
Today's Wall Street Journal editorializes against raising the tax rate on carried interest from 15% to 35%: Assault on the Investor Class:
Can anyone be surprised that the Congressional tax committees have set their sights on the private equity market as a source for new tax revenues? This week Senators Max Baucus and Charles Grassley, the chairman and ranking minority member of the Finance Committee, will hold "informal meetings" to ponder a 133% tax hike on private equity firms. There's no good rationale for this beyond the fact that Congress wants money and private equity funds have lots of it. ...
[F]und managers also typically lay claim to a 20% slice of the fund's future profits. That return is called "carried interest" and is taxed at the long-term capital gain rate of 15%. Congress is considering reclassifying that income as labor compensation and taxing it at the 35% income tax rate. That's bad tax policy for a lot of reasons.
"Carried interest" is long-term, risk-based investment income derived from future profits. Those profits are anything but a sure thing. Private equity managers get nothing from their equity holding until investors get all of their money back plus a negotiated return -- which is a lot different than an upfront fee or a guaranteed wage or salary that comes as a paycheck every two weeks. Far from being a clever tax dodge, carried interest plays a central role in the performance of private equity funds: It establishes an incentive structure which aligns the financial interests of the managers and investors
Overturning this tax doctrine would have negative effects on a wide spectrum of other investment funds which use "carried interest" incentive structures, including real estate and oil and gas partnerships, and venture capital firms. Doubling the tax rate on public equity will hurt them for sure, but the lower after-tax returns will undoubtedly mean fewer deals, which will do collateral damage to investors and entrepreneurs who depend on this capital for financial sustenance. Last year a record amount of private equity investment went into the coffers of family-owned businesses -- not multibillion dollar firms.
For more, see:
- Conglomerate: Taxing Private Equity: Do the Right Thing
- The Deal Blogs: Taxing PE
- Reuters: US Senator Weighs Tax Treatment of Private Equity
Prior TaxProf Blog coverage:
- Senate Considers Taxing Hedge Fund Managers at Ordinary Income Rates (5/1/07)
- NY Times: Taxing Private Equity (4/2/07)
A former IRS district director, pleaded guilty today to conspiring to defraud the United States through his involvement in a tax fraud scheme promoted by the Topeka, Kansas-based “Renaissance, The Tax People, Inc. ... Jesse Ayala Cota admitted defrauding the U.S. Treasury of more than $1.3 million and to earning more than $300,000 from his participation in the scheme.
Cota, 65, of Vista, Calif., admitted in his plea agreement that from 1997 though April 2002, the conspirators, through Renaissance, operated a scheme to defraud the government and individuals by marketing a program designed to sell illegal tax deductions through false and misleading representations. ... Cota also admitted that he and his co-conspirators falsely assured their clients and others that Renaissance’s tax system was legal. Cota acknowledged that on Oct.16, 2000, a co-conspirator sent an e-mail message to customers falsely asserting that there existed written endorsements from “over 2,000 tax attorneys, enrolled agents and CPAs (certified public accountants) that every strategy contained in the Tax Relief System is absolutely sound, unassailable and proven over the past 40 years.” The e-mail also falsely claimed that “[t]he training offered by Renaissance, the Tax People, through the Tax Relief System . . . was approved for continuing education credit for CPAs in all 50 states.”
- Valerie Braithwaite, Responsive Regulation and Taxation: Introduction, 29 Law & Pol'y 3-10 (2007).
- Sol Picciotto, Constructing Compliance: Game Playing, Tax Law, and the Regulatory State, 29 Law & Pol'y 11-30 (2007).
- Michael Wenzel, The Multiplicity of Taxpayer Identities and Their Implications for Tax Ethics, 29 Law & Pol'y 31-50 (2007).
- Gregory Rawlings, Taxes and Transnational Treaties: Responsive Regulation and the Reassertion of Offshore Sovereignty, 29 Law & Pol'y 51-66 (2007).
- Vivienne Waller, The Challenge of Institutional Integrity in Responsive Regulation: Field Inspections by the Australian Taxation Office, 29 Law & Pol'y 67-83 (2007).
- Jenny Job, Andrew Stout & Rachael Smith, Culture Change in Three Taxation Administrations: From Command-and-Control to Responsive Regulation, 29 Law & Pol'y 84-101 (2007).
- Lars P. Feld & Bruno S. Frey, Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation, 29 Law & Pol'y 102-120 (2007).
- Eliza Ahmed & Valerie Braithwaite, Higher Education Loans and Tax Evasion: A Response to Perceived Unfairness, 29 Law & Pol'y 121-136 (2007).
- Valerie Braithwaite, Kristina Murphy & Monika Reinhart, Taxation Threat, Motivational Postures, and Responsive Regulation, 29 Law & Pol'y 137-158 (2007).
As regular readers of this blog know, I often provide links to tax reports by the Center on Budget and Policy Priorities. In recognition of the liberal think tank's 25-year anniversary this year, the Washington Post ran a wonderful profile recently: A Powerhouse for the Poor, by Steven Pearlstein:
For the past 25 years -- starting with the Reagan budget cuts of the 1980s, through the Republican takeover of Congress in the 1990s and continuing through the Bush tax cuts and entitlement reforms -- [Bob] Greenstein & Co. have been there for every hearing, every amendment and every budget reconciliation, ensuring that the interests of the poor and working class are considered.
Their weapons in these battles are reliable data, sound analysis and an ability to deliver it when needed. They know when and how to cut and deal. And thanks largely to the center's work, programs like food stamps, nutrition for mothers and children, and the earned income tax credit have grown despite decades of cuts in domestic programs. ...
It hasn't just survived, it has thrived. The center has grown into a $13 million-a-year operation with a staff of more than 80, affiliated organizations in 21 states and a small but growing international division. Its money comes from some of the country's blue-chip foundations, luding Ford, Rockefeller, MacArthur, Casey, Packard and Mott.
In celebration of its anniversary, the Center has produced this 13-minute video narrated by former NBC anchor Tom Brokaw.
Sunday, May 6, 2007
- Tax Prof Profile: Regis Campfield
- Northwestern Hosts Conference Today on The Thunder of History: Taxation in Comparative and Historical Perspective
- NY Times: Do Lower-Income Taxpayers Cheat More on Capital Gains Than the Rich?
- Tax Havens: Myth Versus Reality
- Richards on The Supreme Court and "Boring" Cases
- Call for Tax Papers: Conglomerate Junior Scholars Workshop
- WaPo: Tax Consequences of Sub-Prime Mortgage Loan Workouts
- CTJ Analyzes Bush, Cheney Tax Returns
- DOJ Busts Author of Cracking the Code
- Top 5 Tax Paper Downloads
Conglomerate is hosting its Third Annual Junior Scholars Workshop:
If you are finishing up a scholarly article this summer on a topic that may be interesting to Conglomerate’s readers – such as corporate law, securities, contracts, business tax, finance, antitrust or law and economics – we would like to link to your paper and provide a forum for you to receive feedback on your paper before you publish it or present it at a job talk.
To participate as either a paper presenter or commentator, email Christine Hurt by May 21, 2007. Last year's workshop included a tax paper (Susan Morse, The How and Why of the New Public Corporate Tax Compliance Norm) and three tax commentators (Mike Guttentag, Kristin Hickman, Claire Hill).