January 31, 2008
Wesley Snipes' Jury Concludes Second Day of Deliberations Without Reaching Verdict; YouTube Video Undercuts Star Prosecution Witness
- Associated Press: Jury Goes Home Without Reaching Verdict in Snipes Tax Trial
- Ocala.com: Judge in Snipes Trial Answers Jury's Question
- WFTV.com: YouTube Video Casts Doubt On Snipes Trial Witness
Hassett Presents Taxes and Wages Today at NYU
Kevin Hassett (American Enterprise Institute) presents Taxes and Wages at NYU today as part of its Colloquium Series on Tax Policy and Public Finance. Here is the abstract:
Using panel data for 72 countries and 22 years, we explore the link between taxes and manufacturing wages. We find, controlling for macroeconomic variables that have been found in the literature to influence wages, statistically significant evidence that wage rates are not responsive to median or average income tax rates. We find that wages are significantly responsive to corporate taxation, and that the responsiveness of wages to corporate taxation is larger in smaller countries. We also find that tax and wage characteristics of neighboring countries, whether geographic or economic, have a significant effect on domestic wages. These results are consistent with the frequently employed assumptions in the public finance literature that capital is highly mobile, but labor is not. Under these conditions labor will bear the burden of labor taxes, and bear or share the burden of capital taxes.
For a discussion of Kevin's paper, see Jane G. Gravelle & Thomas L. Hungerford, Corporate Tax Reform: Issues for Congress (Congressional Research Service Report No. RL34229) (Oct. 31, 2007):
The analysis in this report suggests that many of the concerns expressed about the corporate tax are not supported by empirical data. Claims that behavioral responses could cause revenues to rise if rates were cut do not hold up on either a theoretical basis or an empirical basis. Studies that purport to show a revenue maximizing corporate tax rate of 30% (a rate lower than the current statutory tax rate) contain econometric errors that lead to biased and inconsistent results; when those problems are corrected the results disappear. Cross-country studies to provide direct evidence showing that the burden of the corporate tax actually falls on labor yield unreasonable results and prove to suffer from econometric flaws that also lead to a disappearance of the results when corrected. Similarly, claims that high U.S. tax rates will create problems for the United States in a global economy suffer from a misrepresentation of the U.S. tax rate compared to other countries and are less important when capital is imperfectly mobile, as it appears to be.
While these new arguments appear to rely on questionable methods, the traditional concerns about the corporate tax appear valid. While an argument may be made that the tax is still needed as a backstop to individual tax collections, it does result in some economic distortions. These economic distortions, however, have declined substantially over time as corporate rates and shares of output have fallen. Moreover, it is difficult to lower the corporate tax without creating a way of sheltering individual income given the low rates of tax on dividends and capital gains.
A number of revenue-neutral changes are available that could reduce these distortions, allow for a lower corporate statutory tax rate, and lead to a more efficient corporate tax system. These changes include base broadening, reducing the benefits of debt finance through inflation indexing, and reducing the tax at the firm level offset by an increase at the individual level.
Tax Miscreant Roundup: Wesley Snipes & Stephen Yagman
- Associated Press:
- The Daily Dish: Jurors Urged to Acquit "Crazy" Snipes
- E! Online: Snipes Jury Taxed with Deliberations, by Gina Serpe
- New York Times:
- Jury to Start Deliberations in Wesley Snipes Tax Case, by David Cay Johnston
- Wesley Snipes’s Anti-Tax Manifesto, by Mike Nizza
- Ocala Star-Banner, by Rick Cundiff:
- Roth & Co. CPA, by Joe Kristan:
- Taxable Talk: In the Hands of the Jury, by Russ Fox
- Wonkette: Wesley Snipes has Intriguing Views on Tax Law, by Ken Layne
- L.A. Weekly: Yagman to Feds: No Surrender, by Patrick Range McDonald
- National Law Journal: Yagman Delays Prison Sentence Again, by Amanda Bronstad
Weisbach Presents Optimal Tax Theory and Individuals with Disabilities Today at Stanford
This paper uses the tools of optimal tax theory to examine policy toward individuals with disabilities from a welfarist perspective. Policy toward the disabled depends on how a given disability affects welfare. Under reasonable assumptions, redistribution toward individuals with disabilities is desirable, but the extent and form depends on a variety of factors. If disabilities are observable, adjustments to the income tax schedule should be preferred. If disabilities are not observable, commodity taxes or in‐kind provision of certain goods (such as accommodations) may be desirable to solve screening problems. In this case, inefficient over‐supply of these goods is likely to be optimal. Finally, to the extent needs of the disabled are public goods, supply of such goods may be desirable (even if disabilities are observable).
American Hosts Panel on Tax Law and Cultural Property
American University Washington College of law hosts a panel today on Tax Law and Cultural Property:
This program focuses on how the Art Advisory Panel, comprised of members of the art market, academic, and non‐profit sectors, functions within the IRS and the statutory scheme of the tax code. Established in 1968, this group evaluates appraisals in excess of $20,000 that are produced for art, antiquities, and objects of cultural heritage being donated to charitable organizations and for which the donor seeks a tax benefit.
- Karen Carolan, Chair of the Commissioner’s Art Advisory Panel at the IRS, and WCL student Jillianne Arguello, will talk about the Art Advisory Panel’s duties and objectives, its composition and the selection of its members, and its criteria and procedures for decision making. In addition, these panelists will explore the nexus between the work of the Art Advisory Panel and the trade in antiquities and objects of ultural heritage.
- Andrew Potts, a partner at Nixon Peabody, and Paul Edmondson, Vice President and General Counsel of the National Trust for Historic Preservation, look at how Federal and State historic preservation tax incentives function as tools for the restoration of historic propertie, and how historic preservation affects the generation of revenue. Mr. Potts will use recent examples of his work involving the use of credits under § 47 and Mr. Edmondson will talk about incentives to further the preservation of the historic, built environment, such as historic preservation easements and the proposed Historic Homeowners Assistance Act.
The panel takes place from 4:00 p.m. – 6 p.m. at American University Washington College of Law, 4801 Massachusetts Avenue, NW, Room 603, Washington, D.C.
Yale Presents Investment Risk and The Tax Benefit of Deferred Compensation Today at Florida State
Deferred compensation is thought to generate considerable tax savings compared to current compensation in certain circumstances. The standard model used to support this conclusion does not consider investment risk and therefore overstates the tax benefit of deferred compensation significantly. This paper describes three alternative, risk-neutral approaches to measuring the tax benefit of deferred compensation. Each of these approaches avoids misclassifying increases in expected value attributable to increases in investment risk as a tax preference.
Brian Galle (Florida State) is the host.
McCluskey on Economic Inequality, Gender and Marriage Tax Reform
Martha T. McCluskey (SUNY-Buffalo) has posted Razing the Citizen: Economic Inequality, Gender and Marriage Tax Reform on SSRN. Here is the abstract:
This chapter links the failure of U.S. social citizenship ideals to a broader weakness in U.S. ideas citizenship. To better advance policies of economic equality, U.S. law and politics needs a stronger vision not just of economic equality, but of gender equality and of democracy in general. Feminist scholars have analyzed how ideas about gender help shape the common assumption that the costs of raising and sustaining capable, productive citizens are largely private family responsibilities. But ideas about gender also help to undermine egalitarian economic policy by subtly shaping a vision where civic virtue ironically includes the project of razing citizens: turning democratic citizens into pre-modern subordinates dependent on private power. I use the example of recent tax policy reforms focused on reducing the so-called marriage penalty to show how problematic ideas of gender, anti-citizenship, and economic inequality have become entangled and how these must be reconsidered together to promote a meaningful vision of equal citizenship.
Same-Sex Couples Can File Joint Returns in Five States & D.C.
Interesting article on Kiplinger: Tax Savings for Domestic Partners: Five States and the District of Columbia Now Allow Same-Sex Couples to File Joint Returns, by Kevin McCormally:
In the be-careful-what-you-ask-for realm, many gay and lesbian couples around the country may be kicking themselves for their efforts to win the right to file joint state income tax returns with their partners.
Now that tax season is upon us, more and more couples are discovering what a mess it can be when the federal government and the states have starkly different rules. Here’s help to guide you through the latest tax maze.
In Massachusetts (where same-sex couples can marry) and in California, Connecticut, the District of Columbia, New Jersey and Vermont (which recognize civil unions or registered domestic partners), qualifying couples can file joint state income tax returns. That's still verboten at the federal level. ...
For an idea of the kinds of mine fields you might have to traverse, consider:
- Capital gains and losses. ...
- Real estate losses. ...
- Mortgage interest deduction. ...
- Miscellaneous expenses. ...
- Roth IRA. ...
DOJ Tax Division Seeks to Hire Civil Tax Litigators
The DOJ's Tax Division has asked me to post this:
The Tax Division of the U.S. Department of Justice has openings for civil litigators to represent the United States in a broad array of tax and tax-related matters in courts across the country. Tax Division trial attorneys are given a significant amount of responsibility and work in a collegial professional environment with the support of experienced litigators. We seek candidates who share a passion for litigation, are able to work both collaboratively and independently, and are willing to travel. For more information, please see our vacancy announcement.
Today Is EITC Awareness Day
Treasury Secretary Henry M. Paulson, Jr., U.S. Treasurer Anna Escobedo Cabral, Acting IRS Commissioner Linda Stiff, Senator Max Baucus, and Senator Charles Grassley are marking EITC Awareness Day today with this joint press conference. For more information, see:
- Invitation to IRS EITC Partners
- EITC Awareness Day Media Package:
- Statement of Treasury Secretary Paulson (hp-791)
- EITC Awareness Kicks Off Today; Free Tax Help Available (IR-2008-13)
- IRS Partners Host Free Tax Help for Low-Income, Elderly Taxpayers (IR-2008-12)
- EITC Awareness Day Partner Highlights
- Fact Sheet 2008-11, Eligibility Rules Outlined for EITC
- Publication 596, Earned Income Credit (EIC)
Christian Legal Scholarship
David A. Skee, Jr. (Penn) has posted two papers on Christian legal scholarship on SSRN:
The history of twentieth century Christian legal scholarship -- really, the absence of Christian legal scholarship in America's elite law schools -- can be told as a tale of two emblematic clashes: the first an intriguing historical footnote, the second a brief, explosive war of words. In the first, a tort action in Nebraska circa 1890, William Jennings Bryan and Roscoe Pound served as opposing counsel; the second was a war of words in the 1940s between a group of neo-Thomist scholars and defenders of Oliver Wendell Holmes. Using these two incidents to frame as a starting point, this essay briefly chronicles the disappearance of Christian legal scholarship from the elite law reviews for much of the twentieth century. In the past few years, however, there have been signs of a possible renaissance. The second half of the essay focuses on the signs of renewal. To organize the discussion, I address three very basic questions: What?, Who?, and How? - What are the most promising directions for Christian legal scholarship? Who is a Christian legal scholar? And how can Christian legal scholarship best be facilitated?
The Unbearable Lightness of Christian Legal Scholarship, 57 Emory L.J. ___ (2008):
When the ascendancy of a new movement leaves a visible a mark on American politics and law, its footprints ordinarily can be traced through the pages of America's law reviews. But the influence of evangelicals and other theologically conservative Christians has been quite different. Surveying the law review literature in the 1976, the year Newsweek proclaimed as the year of the evangelical, one would not find a single scholarly legal article outlining a Christian perspective on law or any particular legal issue. Even in the 1980s and 1990s, the literature remained remarkably thin. By the 1990s, distinctively Christian scholarship had finally begun to emerge in a few areas. But even today, the scope of Christian legal scholarship is shockingly narrow for so nationally influential a movement.
This Article argues that the strange trajectory of Christian legal scholarship can only be understood against the backdrop of the fraught relationship between religion and American higher education starting in the late nineteenth century. As the nation's modern research universities emerged in 1870s, leading reformers began to promote nonsectarian, scientific approaches to scholarship. These developments increasingly excluded religious perspectives. But the disdain did not run in one direction only. For much of the twentieth century, American evangelicals absented themselves from American public life. Theologically conservative Christians who remained in legal academia operated under cover, a stance reflected in the absence of Christian legal scholarship except on church-state issues, in the Catholic natural law tradition, and in a handful of other areas.
The first half of the Article is devoted to this historical exegesis and to a survey of current Christian legal scholarship. The Article then shifts from a critical to a more constructive mode, from telling to showing, as I attempt to illustrate what a normative, and then a descriptive, Christian legal scholarship might look like.
- Christianity Today: Hope for Christian Legal Scholarship, by Ted Olsen
- Mirror of Justice: Skeel (Again) on Christian Legal Scholarship, by Rob Vischer
I have blogged the robust tax scholarship in recent years incorporating Judeo-Christian themes:
- Adam Chodorow, God’s Income Tax: Maaser Kesafim and Income Definition, 8 Fla. Tax Rev. 153 (2007).
- Adam Chodorow, Tax Reform: What Would God Do?, 108 Tax Notes 1167 (2007).
- Dan Filler, Tax Scholar: Bush Is An Atheist
- Susan Pace Hamill, An Evaluation of Federal Tax Policy Based on Judeo-Christian Ethics, 25 Va. Tax Rev. 671 (2006).
- Susan Pace Hamill, A Moral Perspective on "Big Business" Fair Share of America's Tax Burden, 1 Univ. St. Thomas L.J. 857 (2004).
- Martin J. McMahon, Jr., The Matthew Effect and Federal Taxation, 45 B.C. L. Rev. 993 (2004)
- Deborah H. Schenk, The Luke Effect and Federal Taxation, 45 B.C. L. Rev. 993 (2004)
- E. Frank Stephenson, An Argument for Tax Reform Based on Judeo-Christian Ethics: A Rejoinder, 36 Cumb. L. Rev. 103 (2006).
January 30, 2008
Graetz Presents A Simple, Fair, and Competitive Tax Plan Today at Toronto
Michael J. Graetz (Yale) presents 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States (Yale Univ. Press, 2007) at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series. Here is the publisher's description:
To most Americans, the United States tax code has become a vast and confounding puzzle. In 1940, the instructions to the form 1040 were about four pages long. Today they have ballooned to more than a hundred pages, and the form itself contains more than ten schedules and twenty worksheets. The complete tax code totals about 2.8 million words—about four times the length of War and Peace. In this intriguing book, Michael Graetz maintains that our tax code has become a tangle of loopholes, paperwork, and inconsistencies—a massive social program that fails tests of simplicity and fairness. More important, our tax system has failed to keep pace with the changing economy, creating burdens and wastes of resources that weigh our nation down.
Graetz offers a solution. Imagine a world in which most Americans pay no income tax at all, and those who do enjoy a far simpler tax process—all this without decreasing government revenues or removing key incentives for employer-sponsored health care plans and pensions. As Graetz adeptly and clearly describes, this world is within our grasp.
Gerzog on The Strict Rules of Charitable Split Interest Gifts
Wendy Gerzog (Baltimore) has posted The Strict Rules of Charitable Split Interest Gifts, 118 Tax Notes 541 (1/28/08), on SSRN. Here is the abstract:
When giving both to your family and to your charity, you must follow the rules carefully to qualify for a charitable deduction. The article discusses the recent Tamulis case [Estate of Tamulis v. Commissioner, 509 F.3d 343 (7th Cir. 2007), aff’g T.C. Memo. 2006-183], other split interest charitable deduction cases, and the doctrine of substantial compliance.
Reaman Leaves IRS for Nixon Peabody
Susan P. Reaman, a thirty-year IRS veteran and most recently Branch Chief, Incentives Branch, IRS Office of Associate Chief Counsel, Passthroughs and Special Industries, has joined the Washington, D.C. office of Nixon Peabody as Counsel in the Syndication Group. From the press release:
A recipient of numerous awards during her tenure at the IRS, Ms. Reaman has also testified before Congress on low-income housing tax credits. Ms. Reaman is a graduate of t he John Marshall Law School. She received her LL.M (Taxation) from Georgetown University Law Center and she earned a B.A. degree from the University of Detroit.
Newman Posts Tax Papers on SSRN
Joel S. Newman (Wake Forest) has posted several tax papers on SSRN:
- Baseball Autographs, 116 Tax Notes 1078 (2007)
- CHAMP: How the Tax Court Finessed a Bad Statute, 116 Tax Notes 887 (2007)
- Gilmore v. United States: The Divorce, 116 Tax Notes 493 (2007)
- Slinking Away from Twinkie Taxes, 113 Tax Notes 1155 (2006)
- Islamic and Jewish Perspectives on Interest, 89 Tax Notes 1311 (2000)
- Pay Now, Die Later, 80 Tax Notes 711 (1998)
- Ex-Lux, 55 Tax Notes 253 (1992)
- The Audit Lottery: Don't Ask, Don't Tell?, 40 Tax Notes 1438 (1988)
- Waiter, There's an IRS Agent in My Soup, 40 Tax Notes 861 (1988)
- Life Is a Beech, 38 Tax Notes 501 (1988)
- Cops and Robbers (Which Are Which?), 36 Tax Notes 813 (1987)
- Fly Me, Fly My Mother, 35 Tax Notes 291 (1987)
Law School Cannibalism
Robbing each other's hen-roosts is facilitated by the graduation in the salary scale from school to school and by these annual opportunities for getting acquainted. We can know a man by his larynx without waiting for the fruits from his fingers. Whatever the reason, most of our law schools now feed frequently on each other.
Such cannibalism is not of great importance to legal education as a whole. ... I hear of frequent attempted larcenies that have been frustrated notwithstanding the allurement of higher salaries. This competition of school with school may be bad for university budgets, but this has its brighter side....
On the whole it seems to me a good thing for legal education that teachers are not tethered too tightly....The school that loses a man it longs to keep is apt to take steps to make its post more attractive to others. Our law schools have grown in merit as their sister schools have grown in merit. The secure and satisfied school is in danger of stagnation.
Tax Profs Debate Proper Tax Treatment of Furniture Giveaway to Red Sox Fans: Income or Purchase Price Reduction?
On Monday, I blogged the IRS's recent ruling concluding that customers who purchased furniture last spring and had their entire purchase price refunded after the Red Sox won the 2007 World Series did not have income and instead received a nontaxable reduction in the purchase price of the furniture.
Joel S. Newman:
I think the IRS letter ruling is crazy.
- Surely it’s not a gift. No detached and disinterested generosity. The store was doing it for the PR.
- I agree that, when a store puts an item on sale, the bargain element is not income. Often, the price was reduced because the item wasn’t selling at the higher price. Therefore, there is no bargain; it’s just a readjustment of fair market value. But a 100% discount? Come on.
- Here’s what I think happened. Buy one, get one free. For every item of furniture you buy, you get a “lottery ticket.” Let’s say that, during the period in question, if you had bet on Boston winning the World Series, a bookie would have been willing to pay out 10-1. So, for every $100 of furniture you buy, you get a $10 “lottery ticket.” Then, when the Sox win the Series, you can cash in your $10 ticket for $100equal to the full amount of the purchase price of the furniture. Analyzed this way, there is no income when you buy the furniture, but there is income when your lottery ticket pays off.
Has Red Sox nation infiltrated IRS?
The 100% discount only looks big ex post. Ex ante, the expected value of the discount was 100% times the probability of Red Sox victory (which, as a Yankee fan, I would until 2004 have been pleased to predict as 0%). So, at the time the promotion was offered, from the perspective of the store, it was no different than, say, a 10%-off sale.
Of course, this leaves us with the question whether the ex ante perspective ought to be relevant. As a purely normative matter, I would say it at least might be relevant. Since I’m mainly concerned with ability to pay (for complicated reasons I leave for exposition elsewhere), I would only tax bargain sales where failure to tax would create neutrality problems, as with 83(a) or Old Colony Trust.
Taxing the discount in this case might create, rather than remove, distortions. The sure 10% bargain and uncertain 100% bargain are almost certainly economically equivalent for the vendor. As the store in fact did here, any sensible vendor would insure against the big loss in order to smooth incomes and outflows; at actuarially fair insurance rates insurance against the 100% bargain costs the same as a 10% discount. So any differential taxation on consumers likely wouldn’t be neutral, at least to the extent that it translated back into pricing decisions by the vendors.
On the other hand, it’s a bit hard to figure out what consumers will do. Consumers are more difficult because they are unlikely to be able to insure and may have varying risk preferences (for instance, depending on the consumer’s existing wealth, the relative spread between the certain and uncertain bargains may have larger or smaller significance). We might think some of these risk preferences are irrational (Zarin, anyone?), and perhaps ought to be corrected by the tax system. But then, that may cause some second-order distortions – for example, encouraging consumers to rely on government to correct their misperceptions rather than working to do so themselves.
So, in short like most of the taxation of risk problems, I think this is a hard one.
The Two Sides of Law School
Check out this video on The Two Sides of Law School from a Utah law student:
The Case For Raising Taxes On Canada's Rich
The Canadian Centre for Policy Alternatives haspublished Why Charity Isn't Enough: The Case For Raising Taxes On Canada's Rich. From the press release:
Canada should raise federal personal income tax rates on the rich to close the growing income gap and to bring them more in line with those in the U.S., says a study released today by the Alternative Federal Budget project of the Canadian Centre for Policy Alternatives. The study, by economist Andrew Jackson, points out that Canada's top federal tax rate is considerably lower than the U.S.: The top U.S. tax rate is 35% on incomes over $326,000 and 33% on incomes over $150,000; Canada's top federal income tax rate is 29% on incomes of over $116,000.
January 29, 2008
Kleinbard Presents Inside the JCT Revenue Estimating Process Today at NYSBA Annual Meeting
Edward Kleinbard, Chief of Staff of the Joint Committee on Taxation, presented Inside the JCT Revenue Estimating Process today at the New York State Bar Association Annual Meeting. For a list of the panels, see the program.
Other recent Joint Committee on Taxation publications:
- JCX-10-08: Distributional Effects of a Proposal to Provide Tax Credits for Individual Taxpayers as Contained in the "Economic Stimulus Act of 2008," Scheduled for Markup by the Committee on Finance on January 30, 2008
- JCX-9-08: Estimated Budget Effects of the "Economic Stimulus Act of 2008," Scheduled for Markup by the Committee on Finance on January 30, 2008
- JCX-8-08: Description of the "Economic Stimulus Act of 2008"
- JCX-7-08: Distributional Effects of a Proposal to Provide Tax Credits for Individual Taxpayers as Contained in H.R. 5140, the "Recovery Rebates and Economic Stimulus for the American People Act of 2008"
- JCX-6-08: Estimated Budget Effects of the Revenue Provisions Contained in H.R. 5140, the "Recovery Rebates and Economic Stimulus for the American People Act of 2008"
- JCX-5-08: Technical Explanation of the Revenue Provisions of H.R. 5140, the "Recovery Rebates and Economic Stimulus for the American People Act of 2008"
- JCX-4-08: Overview of Past Tax Legislation Providing Fiscal Stimulus and Issues in Designing and Delivering a Cash Rebate to Individuals
NYSBA Issues Tax Reports
The New York State Bar Association Tax Section has issued several tax reports:
- Report Recent and Proposed Statutory Changes to Tax Return Preparer Penalty Rules of Internal Revenue Code Section 6694 and Related Issues (No. 1146)
- Nexus Requirements for Imposition of Business Activity Taxes (No.1145)
- Report Final Dual Consolidated Loss Regulations (No. 1144)
- Tax Equity for Domestic Partner and Health Beneficiaries Act (S.1556); Tax Equity for Health Plan Beneficiaries Act of 2007 (H.R. 1820) (No. 1143)
What Would It Take For You To Go To Arizona State (#51) Rather Than Georgetown (#14)? 57% Say $100,000
- 3.4% Nothing (4 votes)
- 3.4% Half tuition scholarship (4)
- 12.6% Full tuition scholarship (15)
- 12.6% Full tuition plus room and board (15)
- 10.9% Full tuition plus room and board plus $20,000 stipend (13)
- 10.9% Full tuition plus room and board plus $50,000 "study grant" (13)
- 16.8% Full tuition plus room and board plus $100,000 "study grant" (20)
- 29.4% More than all of the above (35)
Bird & Zolt on Technology and Taxation in Developing Countries
Richard M. Bird (Toronto) & Eric M. Zolt (UCLA) have posted Technology and Taxation in Developing Countries: From Hand to Mouse on SSRN. Here is the abstract:
Tax systems in developing countries, like those in more developed countries, face both new challenges and new possibilities as a result of technological change. In developing countries, taxpayers and tax administrations must cope with more difficult environments with fewer resources. Some issues (such as privacy, the benefits and costs of public/private partnerships, and corruption) are common to both developing and developed countries, but differ in relative importance in particular countries. Other issues (such as how new technology may or should influence the way a country's tax system or particular taxes are designed and administered) may be more important in developing countries. This paper examines the issues facing developing countries from technological changes and provides some promising examples of technological innovation and application in tax administration and tax policy.
Senate Holds Hearing Today on Shulman's Nomination to be IRS Commissioner
The Senate Finance Committee held a hearing at 10:00 a.m. this morning on Douglas H. Shulman's Nomination to Become the Commissioner of Internal Revenue:
For prior TaxProf Blog coverage, see:
- President Bush Signs Bill Establishing 5-Year Term for IRS Commissioner (1/6/08)
- President Bush Nominates Douglas Shulman to be New IRS Commissioner (11/21/07)
- A Taxing Matter: Private Debt Collection of Federal Taxes: Letter from Senators in Advance of Shulman Confirmation Hearing
Becker & Posner on Why Are Tax Burdens So Different in Different Developed Countries?
There are striking differences in tax burdens across nations, as explained in a recent report by the Organisation for Economic Co-Operation and Development. Measuring the tax burden in 2006 as the percentage of gross domestic product that is collected in taxes, the report arrays 20 countries from top to bottom. At the top is Sweden, with a tax burden of 50.1 percent; at the bottom is South Korea, with a tax burden of 26.8 percent. The United States is near the bottom, with 28.2 percent, and between it and South Korea are Greece and Japan, each with 27.4 percent. Next below Sweden is Denmark, with 49 percent, France,with 44.5 percent, and Norway, with 43.6 percent. The middle range is illustrated by Britain with 37.4 percent, Spain with 36.7 percent, and Germany with 35.7 percent. ...
The curious thing about the OECD data is that prosperity, economic growth, and other measures of economic well-being do not seem closely correlated with the tax burden. The variance across countries in tax burden is very great, yet one finds troubled economies, such as those of Japan and Greece, near the bottom of the tax-burden distribution--of course Japan is a very wealthy country, as Greece is not, but Japan's economic performance has been disappointing in recent decades. And one finds some high-performing economies, such as those of Sweden, Norway, and Finland at the top of the distribution, or (as in the case of the Netherlands, Spain, and the United Kingdom) in the middle. However, there is some negative correlation between economic performance and the tax burden; for Ireland, Switzerland, and the United States are low on the distribution, while typically low-performing Western European countries cluster in the upper half.
The burden of taxes to a country depends not only on the fraction of its gross domestic product GDP that are collected as tax revenue -- the data shown in Posner's chart -- but on many other factors as well. Since my comment is brief I will confine my discussion to the link between tax burdens, the level of government spending, and the structure and incidence of taxes. ...
Since studies confirm that in the long run owners of capital get about the same rate of return that they would have without any taxes on capital, who then pays the capital tax in the long run? The answer is not capital but labor because wages and earnings are lower when workers have less capital to work with. Owners of capital continue to send in the checks to pay a capital tax, but the negative response of investments to a capital tax shifts the burden of a capital tax away from capital to labor. That eventually labor pays a tax on capital even though it is placed on capital explains why economists generally oppose long-term taxes on capital even though in the short run capital taxes have many desirable properties. Investment tax credits, accelerated depreciation, and low taxes on capital gains are some of the ways that the effective long run tax on capital is reduced toward zero.
(Hat Tip: Sagit Leviner.)
Selling Shares in Tax Profs?
Interesting article in Slate: Bullpen Market: A Minor-League Pitcher Named Randy Newsom Is Selling Shares of His Future Earnings, by Josh Levin:
Yesterday, I bought a professional baseball player. It only took a minute. I surfed over to Real Sports Investments, clicked the "Buy Now" button, and purchased six shares of Randy Newsom. Along with my Slate colleagues John Swansburg and Dan Engber, I am now the proud owner of 0.0096 percent of a minor-league pitcher's future major-league earnings. Mr. Newsom, I wish you a long and prosperous career—emphasis on prosperous. If Newsom makes $1,000,000 over the course of his major-league career, the Slate investment group will take a loss, earning a piddling $96 on an initial investment of $143.82. If he makes $10 million, we'll get $960. And if he makes Barry Zito money? I won't be retiring early, but I'll be able to watch my baseball-playing property on some nice plasma TVs.
The idea of buying shares in athletes isn't new. Football Players Funds Management, a Portugal-based hedge fund, helps pro soccer teams buy the contracts of promising youngsters in exchange for a percentage of the players' future transfer fees. Top poker pros are often staked for tournaments by investors, and a golfer might get his start on tour with backing from a consortium of investors. There's already a popular fantasy site, ProTrade, where fans can buy and sell virtual shares in their favorite players. And last May, Michael Lewis wrote a convincing piece for Portfolio arguing that it won't be long before Americans will be able to invest in their favorite athletes. ...
Shareholders will be paid from after-tax earnings but before agent fees and other expenses. ...
Newsom ... see[s] his $50,000 windfall as a way to level the playing field against guys who don't have to worry about finances. He told me that he wants to invest the money he gets from investors back into his career by enrolling at Athletes' Performance, a training facility in Arizona.
The tax consquences of the structure are explained on the RSI website:
Real Sports Investments LLC, is engaged in contracts with all of the professional athletes you will see on the websites: realsportscards.com or realsportsinvestments.com. RSI athletes will pay RSI an agreed upon amount equating to a percentage of the athlete’s future net major league earnings. When the athlete receives payment, RSI will receive payment. At that point, RSI will then pay the owners of that particular athlete’s shares. The owners will receive payment in the form of an increase to their RSI member’s account, or in the form of a check. Members agree and understand that this payment is considered taxable income, and will be taxed at the appropriate level for each individual owner. Owners understand and agree that they will receive gross payment in the form of gross dollars. Taxes will be taken out through federal tax withholdings, and it is up to the owner to understand their own tax situation as it applies to them. Owners also understand that capital gains taxes will apply to any shares that they sell for a higher price than they paid. Owners are responsible for documenting and paying their own capital gains tax.
Comments are open for a further discussion of the tax issues of this structure. (Hat Tip: Samuel Hans & Robert Nassau.)
Tax Portions of President Bush's State of the Union Address Last Night
Tax provisions in last night's State of the Union Address by President Bush:
In the long run, Americans can be confident about our economic growth. But in the short run, we can all see that growth is slowing. So last week, my Administration reached agreement with Speaker Pelosi and Republican Leader Boehner on a robust growth package that includes tax relief for individuals and families and incentives for business investment. The temptation will be to load up the bill. That would delay it or derail it, and neither option is acceptable. This is a good agreement that will keep our economy growing and our people working. And this Congress must pass it as soon as possible.
We have other work to do on taxes. Unless the Congress acts, most of the tax relief we have delivered over the past 7 years will be taken away. Some in Washington argue that letting tax relief expire is not a tax increase. Try explaining that to 116 million American taxpayers who would see their taxes rise by an average of $1,800. Others have said they would personally be happy to pay higher taxes. I welcome their enthusiasm, and I am pleased to report that the IRS accepts both checks and money orders.
Most Americans think their taxes are high enough. With all the other pressures on their finances, American families should not have to worry about the Federal Government taking a bigger bite out of their paychecks. There is only one way to eliminate this uncertainty: make the tax relief permanent. And Members of Congress should know: If any bill raising taxes reaches my desk, I will veto it.
Just as we trust Americans with their own money, we need to earn their trust by spending their tax dollars wisely. Next week, I will send you a budget that terminates or substantially reduces 151 wasteful or bloated programs totaling more than $18 billion. And this budget will keep America on track for a surplus in 2012. American families have to balance their budgets, and so should their Government. ...
On housing, we must trust Americans with the responsibility of homeownership and empower them to weather turbulent times in the housing market. My Administration brought together the HOPE NOW alliance, which is helping many struggling homeowners avoid foreclosure. The Congress can help even more. Tonight I ask you to pass legislation to reform Fannie Mae and Freddie Mac, modernize the Federal Housing Administration, and allow State housing agencies to issue tax-free bonds to help homeowners refinance their mortgages. These are difficult times for many American families, and by taking these steps, we can help more of them keep their homes.
To build a future of quality health care, we must trust patients and doctors to make medical decisions and empower them with better information and better options. We share a common goal: making health care more affordable and accessible for all Americans. The best way to achieve that goal is by expanding consumer choice, not government control. So I have proposed ending the bias in the tax code against those who do not get their health insurance through their employer. This one reform would put private coverage within reach for millions, and I call on the Congress to pass it this year. The Congress must also expand health savings accounts, create Association Health Plans for small businesses, promote health information technology, and confront the epidemic of junk medical lawsuits. With all these steps, we will help ensure that decisions about your medical care are made in the privacy of your doctor's office -- not in the halls of Congress.
See also this accompanying White House briefing document.
Joint Tax Committee Unveils Upgraded Website
We have redesigned this site to offer more convenient access to our information, materials, and resources. Many new pages have been added to afford different paths and ways to logically access the material we offer on our web site. Comments are welcome (see Contact Us page).
Note that many of the older Committee documents on this site are old PDF images, and are therefore not currently full-text searchable. We will be converting these documents to full-text PDF files over a period of time. For the time being, only the titles of these old documents are indexed for search.
The Committee also announced JCT Expands Team of Top-Flight Tax Lawyers:
We are very pleased to announce that the Staff of the Joint Committee on Taxation will be augmented by the arrival of four top-flight lawyers at the beginning of 2008.
Emily McMahon will join the JCT Staff's two existing Deputy Chiefs of Staff, Tom Barthold and Bernard Schmitt, as the JCT Staff's Deputy Chief of Staff - Law. Emily graduated from Yale Law School in 1985 and served as an Attorney Advisor in the US Treasury's office of the International Tax Counsel in the early 1990's, before joining Sullivan and Cromwell in 1993. Emily has been a partner there since 1997, and is resident in the firm's DC office. ... Emily will start on February 4th.
Michael Hauswirth also will join the JCT Staff on February 4th. Michael currently is a partner in the DC office of Kirkland and Ellis.
The JCT Staff has been fortunate to obtain two detailees from the Internal Revenue Service, Marjorie Hoffman and Bethany Anne Ingwalson. Both started on January 3rd.
Marjorie has worked on employee benefits matters at the IRS Office of Chief Counsel since 1981. She has had a long and distinguished career there, and most recently was Special Counsel to the Deputy Div. Counsel/Associate Chief Counsel (Employee Benefits). ...
Bethany is a 1995 graduate of Georgetown Law (magna cum laude). Following graduation, Bethany worked at the law firm of Simpson Thacher & Bartlett for several years, before joining the IRS in 1999. Most recently, she served as Senior Counsel in the Office of Chief Counsel.
NY Times Returns to the Use of Clickers in Class
Regular readers of this blog know that I have taken a middle position in the classroom laptop wars, arguing that professors should neither allow untrammeled student use of laptops nor attempt to ban them. Instead, I argue in Taking Back the Law School Classroom: Using Technology to Foster Active Student Learning, 54 J. Legal Educ. 551 (2004), that faculty should use technology in the form of clickers to re-engage their students.
Four years ago, the New York Times reported on my use of the clickers: In Class, the Audience Weighs In, NY Times, Apr. 29, 2004. The Times returned to the story yesterday in the high school and elementary school contexts in Students Click, and a Quiz Becomes a Game, by Winnie Hu:
The clickers are part of an increasingly popular technology known as an audience response system, which has been used for everything from surveying game show audiences to polling registered voters. That technology is now spreading to public and private schools across the country. ...
In a typical system, the clickers record data from individuals, and transmit that information, through wireless technology, to a computer program. The program can instantly display the results, tally them and present them in elaborate spreadsheets and eye-catching graphics like spaceships or “Jeopardy!”-style boards. It can track the percentage of correct answers received for each question as well as the participation rate among all users. ...
[A high school physics teacher] said that he was sold on the clickers because he could check on the progress of every student, not just the ones who frequently raised their hands and tended to dominate the discussions.
January 28, 2008
Tax Deductible Girl Scout Cookies
From the Girl Scouts web site:
Q: Is the purchase of Girl Scout Cookies tax-deductible?
A: No and Yes.
No, if the customer keeps the cookies. Individuals who buy Girl Scout Cookies and take the cookies home, or consume them, have purchased a product at a fair market value. For this reason, no part of the price of a box of Girl Scout Cookies used in this way is tax-deductible.
Yes, if the customer leaves the cookies with Girl Scouts. Many Girl Scouts ask customers to pay for one or more boxes of cookies for use in their community service project, for example, collecting for a food pantry. The customers not receiving any Girl Scout Cookies do not benefit directly from paying for them. Those individuals may treat the purchase price of the donated cookies as a charitable contribution.
(Hat Tip: Don't Mess with Taxes.)
Babe Ruth's Nephew Convicted in IRS Tax Scam
George Herman Ruth, 54, the nephew and namesake of baseball Hall-of-Famer Babe Ruth, was convicted by a federal district court jury in New Jersey of scheming to defraud the IRS of $360,000 by preparing fictitious tax returns while already serving a prison sentence. The jury found that Ruth and his co-defendant prepared false tax returns in their and others' names, including those of other inmates, used third parties to deposit the refunds into various bank accounts, and transferred the funds into their prison commissary accounts.
Update: As several commenters and subsequent media reports pointed out, the initial media reports above accepted Mr. Ruth's claims that he was the nephew of Babe Ruth. In fact, he is not.
61st Annual USC Law Tax Institute Begins Today in L.A.
The three-day 61st Annual USC Law Tax Institute kicks off today in Los Angeles. Harry L. “Hank” Gutman, director of KMPG’s Tax Governance Institute, delivers the keynote address today on Legislative Preview: Looking Ahead at Corporate Taxation in 2009-10. Tax Prof speakers include:
- Ellen P. Aprill (Loyola-L.A.), Key Tax Issues Across the Private Equity Lifecycle (Monday, 10:50 a.m.)
- Jeffrey N. Pennell (Emory), Current Developments in Estate Planning (Wednesday, 9:00 a.m.)
For a list of all of the speakers and their topics, see the brochure.
Tax News Roundup
- Associated Press:
- Center on Budget & Policy Priorities:
- An Analysis of the Rebate Proposal in the Announced Stimulus Deal, by Aviva Aron-Dine
- Dispelling Confusion on Food Stamps, Tax Rebates, and the Stimulus Package, by Robert Greenstein
- Citizens for Tax Justice:
- Government Accountability Office:
- Greg Mankiw's Blog:
- Mauled Again: Something Better Than a Tax Rebate?, by Jim Maule
- Tax Foundation's Tax Policy Blog:
- AARP Complains Not Enough of Stimulus Goes to Seniors, by Gerald Prante
- A Taxing Matter: Economic Stimulus Package:
- New York Times:
- Don’t Dismiss the Psychology of the Tax Refund, by Phyllis Korkki
- Wall Street Journal:
- Economists Question Effectiveness of Business Break in Stimulus Bill, by Jesse Drucker & Timothy Aeppel
- Tax-Happy Brazil Hits the Wall (op-ed), by Mary Anastasia O'Grady
The Most Overrated Law Schools: A Student Perspective
A Pre-Law Discussion Board poll of the Most Overrated Law School Among the Top 14 in U.S. News & World Report (259 respondents):
- Penn: 19.3% (50 votes) (#6 in U.S. News)
- Cornell: 14.3% (37) (#13)
- Georgetown: 13.9% (36) (#14)
- Duke: 8.9% (23) (#10)
- Michigan: 8.5% (22) (#8)
- NYU: 7.7% (20) (#4)
- Harvard: 5.4% (14) (#2)
- Yale: 4.6% (12) (#1)
- Northwestern: 4.6% (12) (#12)
- UC-Berkeley: 4.2% (11) (#8)
- Chicago: 3.1% (8) (#6)
- Virginia: 2.7% (7) (#10)
- Columbia: 1.9% (5) (#5)
- Stanford: 0.8% (2) (#2)
- Harvard (249,256 all-time downloads) (#1 in U.S. News)
- Chicago (208,371) (#6)
- Columbia (174,887) (#5)
- George Washington (174,468) (#22)
- Stanford (153,238) (#2)
- Texas (145,347) (#18)
- UCLA (141,274) (#15)
- Yale (129,622) (#1)
- Georgetown (129,622) (#14)
- Illinois (101,983) (#25)
- UC-Berkeley (96,714) (#8)
- USC (94,494) (#16)
- NYU (88,502) (#4)
- Vanderbilt (84,247) (#16)
- Penn (82,790) (#6)
- Minnesota (81,608) (#20)
- Duke (60,109) (#10)
- Michigan (57,392) (#8)
- George Mason (54,809) (#34)
- San Diego (53,409) (#85)
- Virginia (50,522) (#10)
- Northwestern (45,421) (#12)
- Boston University (44,319) (#20)
- Fordham (41,294) (#25)
- Florida State (40,983) (#53)
- Ohio State (40,411) (#31)
- Cardozo (37,709) (#52)
- Cornell (34,956) (#13)
Here are the U.S. News Top 14 law schools that are most overvalued in comparison to SSRN:
- Cornell: +15 (#13 in U.S. News, #28 in SSRN)
- Virginia: +11 (#10, #21)
- Michigan: +10 (#8, #18)
- Northwestern: +10 (#12, #22)
- Penn: +9 (#6, #15)
- NYU: +9 (#4, #13)
- Duke: +7 (#10, #17)
- Yale: +7 (#1, #8)
For more, including a chart on the 12 Most Overvalued and Undervalued Law Schools by U.S. News, see our article, Ranking Law Schools: Using SSRN to Measure Scholarly Performance, 81 Ind. L.J. 83, 124 (2006).
IRS: Furniture Giveaway to Red Sox Fans Tied to World Series Victory Treated as Purchase Price Reduction, Not Income
I previously blogged (here and here) the tax consequences of the latest example of refunds tied to a local sports team's success: Jordan's Furniture in Boston ran a "Monster" promotion promising that customers who purchased furniture between March 7 and April 16 would have their entire purchase price refunded if the Red Sox went on to win the 2007 World Series. Jordan's initially took the position that any refund would be taxable to its customers:
Per IRS regulations, Rebate Claim Forms valued at $600 and above will be issued a 2007 1099 Form from Jordan’s Furniture and will be reported to the Internal Revenue Service.
But the Boston Globe later reported that Jordan's and its tax lawyers were trying to find a way to treat the refund as a purchase price rebate rather than as income, and the company changed its FAQ accordingly:
Is my rebate taxable? You are responsible for any federal, state and local taxes relating to your rebate. The Internal Revenue Service has ruled that rebates paid to retail customers generally are not included in gross income for federal income tax purposes, but instead reduce the tax basis of the property purchased. Because everyone’s tax situation is different, if you have any questions concerning your tax responsibilities, you should contact your personal tax advisor.
Will I get a Form 1099 concerning my rebate? Jordan’s does not intend to file Forms 1099 with respect to rebate payments unless it is required to do so by the Internal Revenue Service.
In a letter to its customers dated January 18, 2008, Jordan's announced that it has obtained a ruling from the IRS holding that the payments are to be treated as purchase price adjustments and not as income to customers:
As you may recall when you submitted your rebate form, we asked for your social security number in the event that Jordan's was required to issue an IRS Form 1099 for tax year 2007 reflecting the amount of your Monster Deal rebate. In order to clarify our reporting obligations, Jordan's requested and has now obtained a private letter ruling from the Internal Revenue Service. We are very pleased to announce that the IRS has agreed with Jordan's position that Monster Deal rebates represent a reduction in the purchase price for Monster Deal merchandise, and has ruled that Jordan's in not required to report Monster Deal rebates on Forms 1099. Since each Monster Deal rebate is treated as a purchase price reduction, the ruling also indicates that a rebate generally will not be includible in a customer's gross income for federal income tax purposes except to the extent that the customer has been entitled to a tax deduction or other tax benefit in connection with the Monster deal merchandise.
(Hat Tip: Eli Bortman.)
The Role of Tax Blogs in Tax Administration
Interesting article in this week's Tax Notes, Tax Press Plays Crucial Role in IRS Communications Strategy, Korb Says, by Kristen A. Parillo, 118 Tax Notes 478 (1/28/08):
The tax press has played an increasingly important role in the IRS's communications strategy as the number and form of media outlets have proliferated over the last 25 to 35 years, IRS Chief Counsel Donald Korb said at a January 18 session of the American Bar Association Section of Taxation midyear meeting in Lake Las Vegas, Nev. Korb spoke at a panel on the role of blogging in the tax world [blogged here].
He asked the audience to think back to what it was like 35 years ago, when there was no Tax Notes and the Daily Tax Report was a different type of publication than it is today. "The tax press is really an important part of our business in a way that it wasn't, and what I've tried to do is take advantage of that in terms of tax administration," Korb said. "It's a very effective way for us to get our message out and get our spin on things." ...
Tax bloggers have gone a step beyond what traditional media can do and have "democratized" the way tax news and other information reach people who may not have had access to such information before the Internet age, Korb said. People no longer have to have subscriptions to tax law publications or be in Washington to get that information, he said. Tax blogs such as TaxProf Blog, which is run by Paul Caron, a University of Cincinnati College of Law professor, "are a great tool to get information out to a particular group," he said.
Korb wondered whether difficult tax policy problems that were being debated 25 to 35 years ago could have been resolved faster if tax blogs and other such forums had been around. Only certain people were aware of the issues at that time, Korb said, so there wasn't a broad public discussion as there is now. Korb also wondered to what extent judges read tax blogs and whether that affects their thinking.
The Effects of Taxes and Transfers on Income and Poverty in the U.S.
The U.S. Census Bureau has released The Effects of Taxes and Transfers on Income and Poverty in the United States: 2006. Here is the abstract:
These estimates of income and poverty for various demographic groups use a series of alternative income definitions that take into account government taxes and transfers. These estimates show how income distributions change when the definition of income is varied to reflect the inclusion or exclusion of different components.
(Hat Tip: Jon Forman.)
TaxProf Blog Weekend Roundup
- Bad Student Evaluations in Tax Courses
- Newman on Baseball Autographs and the Tax Law
- Forman Posts Two Papers on SSRN
- Top 5 Tax Paper Downloads
- Tax Court Accepts Doctor's Expert Testimony That Taxpayer Was "Pathological Gambler" in Face of IRS Objection Based on Wikipedia
- Lipman Posts Three Tax Papers
- OSJCL Amici: Views from the Field
January 27, 2008
Top 5 Tax Paper Downloads
There is a lot of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new #1 paper and new papers debuting on the list at #3, #4, and #5:
1. [169 Downloads] The Carried Interest Controversy: Let's Not Get Carried Away, by Noel B. Cunningham (NYU) & Mitchell L. Engler (Cardozo) [blogged here]
2. [138 Downloads] 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, by Summer Ayers LePree (Holland & Knight, Miami) [blogged here]
3. [97 Downloads] Income Effectively Connected with U.S. Trade or Business: A Survey and Appraisal, by Lawrence Lokken (Florida) [blogged here]
Tax Court Accepts Doctor's Expert Testimony That Taxpayer Was "Pathological Gambler" in Face of IRS Objection Based on Wikipedia
The Tax Court last week found that a taxpayer had adequately substantiated $2.5 million in casino gambling losses over a three-year period. Gagliardi v. Commissioner, T.C. Memo. 2008-10 (1/24/08). The case is remarkable both for the sad picture it paints of a person addicted to gambling as well as for the Tax Court's acceptance of expert testimony that the taxpayer was a "pathological gambler," which the Service attempted to disprove via Wikipedia:
Mr. Gagliardi did not graduate from high school. ... In 1989, Mr. Gagliardi purchased an 18-wheel truck and thereafter ran his own trucking business, called American Redball, as a sole proprietorship. ...
In 1991, Mr. Gagliardi won approximately $26,660,000 from the California lottery. Mr. Gagliardi elected to receive payment of the lottery proceeds in 20 annual payments of approximately $1,333,000 each ... At the time he won the lottery proceeds, Mr. Gagliardi was 29 years old, was married, and had two children. Since winning the lottery proceeds, Mr. Gagliardi has not been employed. ...
During 1994, Mr. Gagliardi and his wife divorced. Pursuant to the property settlement in the divorce decree, Mr. Gagliardi and his ex-wife evenly split the original annual lottery payment. Accordingly, after the divorce, Mr. Gagliardi's gross annual lottery payment was $666,500. After Mr. Gagliardi divorced, his two children lived with his ex-wife in Marin County, California. ...
In or around 1996, Mr. Gagliardi had a friend who was dying of cancer. In 1996, Mr. Gagliardi's friend asked Mr. Gagliardi to be his companion on a trip to one of the casinos owned and operated by California Indian tribes in San Diego County. Mr. Gagliardi gambled infrequently before winning the lottery. After the trip with his friend, Mr. Gagliardi started playing the slot machines at the casinos frequently and became a "pathological gambler". Since becoming a pathological gambler, Mr. Gagliardi has liquidated most of his investments and savings to gamble. ...
Mr. Gagliardi spent most of his waking hours at the casinos. He had no outside interests, and generally if he was not at the casinos he was at home. A typical day for Mr. Gagliardi generally consisted of waking up, showering, going to a 7-Eleven, getting coffee, going to the casinos, gambling, returning home, sleeping, waking up, and returning to the casino immediately thereafter. [Fn.4: On the day of trial, Mr. Gagliardi was gambling at one of the casinos until 5 a.m. (trial started at approximately 9:30 a.m.) and in his testimony implied that he would return to the casinos to gamble after the trial was over.] Occasionally, Mr. Gagliardi spent up to 48 hours continuously in the casinos before returning home. Mr. Gagliardi spent an average of 20 days per month at the casinos (at least 209 days, 260 days, and 257 days during 1999, 2000, and 2001, respectively).
On those days when he was at the casinos, Mr. Gagliardi spent 8 to 48 hours continuously in the casinos, averaging approximately 10 hours per day. While at the casinos, Mr. Gagliardi exclusively wagered on slot machines, including a game called "Wildfire". After Mr. Gagliardi put cash into a slot machine, he never cashed out; he would always "play it off". While playing a slot machine, Mr. Gagliardi would place at a minimum four or five bets per minute. His average wager at a slot machine at a minimum was $9. A significant number of Mr. Gagliardi's wagers were $16 per slot machine spin, and some wagers cost $100 or $200 per slot machine spin.
The money that Mr. Gagliardi used to gamble at the casinos came from (1) cash from his prior trips to the casinos, (2) an automatic teller machine (ATM) at a 7-Eleven on his way to the casinos, (3) an ATM inside the casinos, (4) checks written at the casinos, (5) credit cards, and/or (6) any winnings from slot machine play that day. [Fn.9: Mr. Gagliardi opined that he "could wallpaper my bathrooms with just the ATM receipts for millions of dollars."] On the rare occasions when he left the casino with any money, Mr. Gagliardi would bring the money back to the casino the following day, and he would then gamble with, and eventually lose (either the next day or shortly thereafter), that money. On numerous days, Mr. Gagliardi would make multiple, sporadic cash withdrawals, rather than large cash withdrawals, at the casinos to fund his slot machine play. He took the money out in smaller sums, rather than large sums, because he did not plan on losing as much money as he eventually withdrew. ...
Mr. Gagliardi won jackpots ($1,200 or more) that were reported on the Forms W-2G.10 When Mr. Gagliardi won a jackpot, the slot machine he was playing would "lock up" (the slot machine could not be wagered on) while a casino cashier would come to the machine, get a ticket out of the machine, get a Form W-2G, get Mr. Gagliardi's signature, and give Mr. Gagliardi the jackpot in cash. The time from when the slot machine locked up until Mr. Gagliardi could wager on that machine again could be anywhere from 5 minutes to an hour. When a slot machine locked up because he won a jackpot, Mr. Gagliardi often would go to an ATM to withdraw cash so that he could gamble on a different slot machine until the casino cashier delivered the jackpot money. The casinos paid Mr. Gagliardi any jackpot winnings of $1,200 or more in cash. Often, Mr. Gagliardi lost $1,200 or more on a different slot machine by the time the Form W-2G was prepared and he received the jackpot money. Mr. Gagliardi did not enjoy winning jackpots because the machine locked up and he had to spend time waiting for money to gamble (either from the casino or by having to go get money from an ATM). ...
Mr. Gagliardi did not take any vacations during the years in issue. [Fn.11: At one point during the years in issue, however, Mr. Gagliardi and Ms. Serum were going to go to Las Vegas, Nevada. While driving to Las Vegas, Mr. Gagliardi told Ms. Serum that he had to go to the bathroom and they could stop at one of the casinos so he could use the bathroom. Ms. Serum objected, but they stopped at one of the casinos approximately 90 miles from San Diego. Mr. Gagliardi quickly lost $10,000. After losing the $10,000, and without using the bathroom, Mr. Gagliardi got back in the car and he and Ms. Serum drove home.] Mr. Gagliardi did not have time for or live a lavish lifestyle as his life was playing slot machines at the casinos. Mr. Gagliardi had his home foreclosed upon on at least two occasions because he was too preoccupied gambling to make the necessary mortgage payments to the bank. Mr. Gagliardi's children would fly down from Marin County "every couple weeks" to stay with Mr. Gagliardi. Mr. Gagliardi continued to gamble, even for long periods, while his children came to visit him. ...
The Tax Court accepted expert testimony that Mr. Gagliardi was a "pathological gambler," which the Service attempted to disprove via Wikipedia:
Pursuant to a clinical interview and mental assessment of Mr. Gagliardi, including the use of two widely accepted assessment procedures ... Dr. Pike concluded that Mr. Gagliardi suffered from a pathological gambling disorder during the tax years at issue. ... Dr. Pike concluded that Mr. Gagliardi suffered "from the almost delusional belief that if he gambled long enough, he'd win everything back or break even."
Respondent attempted to discredit Dr. Pike by claiming her definition of "gambler's fallacy" was incorrect. Respondent relies on a definition of "gambler's fallacy" he obtained from Wikipedia. Respondent did not call any witness, or expert witness, to counter Dr. Pike's conclusions. Respondent's reliance on a definition of "gambler's fallacy" found in Wikipedia [Fn.18: Although we conclude that the information respondent obtained from Wikipedia was not wholly reliable and not persuasive in the instant case, we make no findings regarding the reliability, persuasiveness, or use of Wikipedia in general.] is not persuasive. Dr. Pike and Mr. Nicely, a second expert witness whose testimony and opinions are discussed in greater detail infra, credibly explained that there is a difference in the definition of "gambler's fallacy" depending on the field of study -- e.g., psychology versus mathematics. We find Dr. Pike to be credible and rely on her expert opinion.
The Tax Court concluded that Mr. Gagliardi had adequately substantiated $2.5 million in casino gambling losses over the three-year period:
The voluminous contemporaneous and other documentary evidence, the corroborating testimonial evidence of an eyewitness to petitioner's gambling and daily activities during the years in issue and of petitioner's return preparer, and the testimonial evidence of two experts in addition to petitioner's testimony substantiate and establish that petitioner incurred the disallowed gambling losses.
For more, see:
Lipman Posts Three Tax Papers
Francine J. Lipman (Chapman) has posted three tax papers on SSRN:
- Improving the Principal Residence Disaster Relief Provisions, 66 Tax Notes 859 (1995)
- Recent Proposals to Redesign the EITC: A Reply to an Economist's Response, 62 Tax Notes 1175 (1994) (with James E. Williamson (San Diego State University, College of Business Administration)
- The New Earned Income Tax Credit: Too Complex for the Targeted Taxpayers?, 57 Tax Notes 789 (1992) (with James E. Williamson (San Diego State University, College of Business Administration)
OSJCL Amici: Views from the Field
My friend Doug Berman (Ohio State) of our hugely successful Sentencing Law & Policy Blog has launched a new website in conjunction with the Ohio State Journal of Criminal Law, OSJCL Amici: Views from the Field:
[Views from the Field aspires to] help bridge divide between the academy and the practicing community by creating a venue for leading practitioners to engage [though short commentaries] with academics, students, the public, and others in the criminal law field.
For more details, see here.
January 26, 2008
Bad Student Evaluations in Tax Courses
The following student evaluation at the University of Georgia has sparked a lot of commentary:
[Professor X] is a complete asshole. I hope he chokes on a dick, gets AIDS and dies. To hell with all gay teachers who are terrible with their jobs and try to fail students!"
- The Daily Pennsylvanian: Anonymity Guaranteed. Sort of. Not Really, by Lauren Friedman
- New York Times: Anonymity Breach, by Randy Cohen
- RedandBlack.com: Student Cited for Survey Remarks, by Paul Ruddle
- Volokh Conspiracy: Breach of Promised Anonymity and Student Free Speech Violation?, by Eugene Volokh
The commentary has mainly concerned the appropriateness of the university's actions in sanctioning the student for, among other things, harassment in light of the professor's sexual orientation. Dave Hoffman has taken a different tack and opened a Bad Student Evaluation Hall of Fame:
Now the first-amendment and privacy law implications of disciplining the student are outside of my area of expertise. ... But the post does prompt me to put up a project I've been thinking about for a while: a hall of fame for bad student evaluations. The idea is for you folks (commentators!) to give examples of the most ridiculous, funny, and insightful negative evaluations you've gotten in courses you've taught.
Let's try a tax version -- the comments are open for you to share "the most ridiculous, funny, and insightful negative evaluations you've gotten" in your tax courses.
Newman on Baseball Autographs and the Tax Law
The story of the major league baseball players who allegedly failed to report income from the sale of their autographs to the IRS. Players include Duke Snider, Willie McCovey, Darryl Strawberry, Mickey Mantle, Pete Rose, Barry Bonds, and most of the 1994 New York Mets. Joe DiMaggio was apparently meticulous about reporting autograph income, but not so careful about reporting income from other celebrity perks. The article addresses who earned how much income, who got caught, and what happened to them. It concludes with some speculation about the relevance of celebrity status to tax law enforcement.
Forman Posts Two Papers on SSRN
Jonathan Barry Forman (Oklahoma) has posted two papers on SSRN:
- Making Our Work Work, 42 Suffolk U.L. Rev. ___ (2008).
- Managing the Beast: How Government Can Reduce Wealth Inequality, 15 Geo. J. on Poverty L. & Pol'y ___ (2008)
January 25, 2008
Happy 175th Birthday, University of Cincinnati College of Law
Happy 175th birthday to my school, the University of Cincinnati College of Law -- the fourth oldest continuously operating law school in the United States. We are celebrating tonight with a gala dinner featuring John Grisham and Cris Collinsworth (Class of 1991) (see press report). For more about the school, check out:
Update: The local paper reports on the wonderful gala here.
NLJ: A Tale of Two [Law School] Tiers
Tying together several recent posts (here, here, and here): the National law Journal has released advance copies of two articles from next Monday's issue that highlight very different law school worlds:
Top law schools are reporting record-breaking donations that are helping to cover tuition costs, hire faculty and promote public interest programs. But in the world of fundraising, apparently it's never enough. Last year alone, Harvard brought in $48 million in cash. NYU raised about $42 million and Columbia raked in almost $24 million. ...
A look at some of the nation's elite law schools during the past five years shows huge amounts of money that they have wooed from alums and businesses. Rocketing costs, competition for top faculty and additional pressures to train practice-ready graduates will take every penny, according to most deans. But others question whether there is too much fat in the system. "Money is like fuel," said Columbia Dean [and Tax Prof] David Schizer. "A school can go higher and higher with more fuel." ...
In general, those schools and others have increased the numbers of specialized faculty, especially scholars with an international focus, and have boosted the number of scholarships available. They also have established legal clinics to provide students with practical experience and to help poor people in their communities who need legal help. In addition, more money has sparked a talent war among elite schools, with renowned professors hopscotching from Columbia to NYU to Harvard to Yale and back again, sometimes with attractive relocation packages.
All that money also likely has enabled those schools to remain at the top of the U.S. News & World Report rankings, the annual publication both revered and reviled by law schools.
Three of Florida's four public law schools, facing a massive $1 billion shortfall in the state budget, are planning on requesting 10% tuition hikes next year — the maximum amount allowed by law. Those tuition hikes are on top of increases this past year of between 5% and 10%. Only the new dean of 500-student Florida A&M University College of Law said he so far does not plan to seek a tuition increase. ...
"Like a lot of law schools, we're trying to avoid damage to the program by increasing tuition and fees where we can," said Donald J. Weidner, dean of 850-student Florida State. "I've been dean since 1991 and this is clearly the worst I've seen." ...
Florida public law schools are not alone in raising tuition. ... According to statistics from the ABA, tuition for public law schools rose an average of 8% in 2006, to an average amount of $13,107. ...
With the state and university finances starting to go south last year, Weidner made the decision to increase tuition by 10% this past year for entering students and by 5% for existing students. Even with the increases, the school faced a cut of $562,000 and had to slash part-time positions, cease printing brochures and ban faculty travel. ...
University of Florida, possibly the most established law school, which has a rich donor base and was able to sell naming rights to its school, has been able to "hold even," said dean Robert Jerry. University of Florida raised tuition by 10% across the board this year and plans to do so next year, too, he said. Jerry emphasized that even with these tuition hikes, Florida law schools are among the lowest in the nation. Tuition at the Florida law schools is roughly $10,000 a year for in-state students and $30,000 a year for nonresidents.
See also Local Lawyers Build Irvine Law School's Endowment, by Amanda Bronstad:
The University of California, Irvine Donald Bren School of Law has raised $23.5 million from individual donors, which include many local lawyers and law firms. UCI's law school plans to open its doors by fall 2009.
Two dozen donors have given financially to UC Irvine as of Jan. 15. The largest gift, at $20 million, came from billionaire and local philanthropist Donald Bren, the namesake of the school. ... Among the 13 donors that gave $100,000, all but one were lawyers or law firms.
Tax Court Judge Wherry Speaks Today at Florida
IRS Releases Guidance on Adequate Disclosure
The IRS today released an advance copy of Rev. Proc. 2008-14, 2008-7 I.R.B. ___ (2/19/08), which defines what constitutes adequate disclosure on a tax return to avoid the § 6662(d) substantial understatement of income penalty and the § 6694(a) preparer penalty appplicable to unreasonable positions.
Tax News Roundup
- New York Times:
- Strains on the IRS Could Delay Rebate Checks for Months, by David Cay Johnston
- Wall Street Journal:
- Bush's Economic Surrender (op-ed), by Kimberly A. Strassel
- Citigroup and Morgan Stanley Embrace Taxman's Loophole, by Jesse Drucker
- The Giuliani Tax Cut, by Steve Forbes
- Indexing Taxes: Why Stop at Capital Gains?
- Re-Election Simulus (editorial)
- The Tax Threat to Prosperity (op-ed), by Arthur B. Laffer
- Taxman Could Slow Stimulus Plan; IRS Can't Mail Rebates Until at Least June, by Sarah Lueck
- There's More to Indexing Capital Gains Tax Than You May Think
- Trust-Fees Ruling Causes Pain; Justices Decision Limits Deductions For Tax Purposes, by Tom Herman