April 30, 2008
Arkansas Con Law Prof Sues His Students for Defamation, Claiming They Twisted His Anti-Affirmative Action Views to Accuse Him of Racism
Richard J. Peltz is suing two students who are involved in the university’s chapter of the Black Law Student Association, the association itself, and another individual who is affiliated with a black lawyers’ group. Peltz charges them with defamation, saying that his comments about affirmative action were used unfairly to accuse him of racism in a way that tarnished his reputation....
The dispute over Peltz concerns his opposition to affirmative action — and how he expressed it. .... In a memo sent to Charles Goldner, dean of the law school, the students accuse Peltz of engaging in a “rant” about affirmative action, of saying that affirmative action helps “unqualified black people,” of displaying a satirical article from The Onion about the death of Rosa Parks, of allowing a student to give “incorrect facts” about a key affirmative action case, of passing out a form on which he asked for students’ name and race and linking this form to grades, and of denigrating black students in a debate about affirmative action, among other charges.
The student memo said that the organization had “no problem with the difference of opinion about affirmative action,” but that Peltz’s actions were “hateful and inciting speech” and were used “to attack and demean the black students in class.” The black student group demanded that Peltz be “openly reprimanded,” that he be barred from teaching constitutional law “or any other required course where black students would be forced to have him as a professor,” that the university mention in his personnel file that he is unable “to deal fairly with black students,” and that he be required to attend diversity training.
For more, see:
Tax Angle in Deception
In the new movie Deception, the hero is tax accountant Jonathan McQuarry (played by Ewan McGregor). At one point in the movie, the accountant says to a friend, Wyatt Bose (played by Hugh Jackman), that he once called an adult-themed telephone hotline and ended up talking to the woman at the other end about how section 179 applied to her Escalade. The friend replies, "You started talking to her about gift tax?" The accountant laughs and nods. Of course, section 179 has nothing to do with the gift tax.
Zelenak: The Civic Virtues of a Tax Return Filing Requirement
Lawrence A. Zelenak (Duke) has published Justice Holmes, Ralph Kramden, and the Civic Virtues of a Tax Return Filing Requirement, 61 Tax L. Rev. 53 (2007). Here is the Conclusion:
Given the overwhelming complexity of the income tax return preparation process today, it is difficult to imagine (or remember) that a tax filing obligation might have civic virtues. A system of inexact withholding and return-based reconciliation can serve as an attractive compromise between small government proponents who would like to make the taxpaying process as visible and painful as possible, and big *88 government proponents who would like to make the process invisible and painless. And if the tax system is not so complicated as to make return preparation a miserable experience (in terms of the taxpayer's own time and effort, money paid to a preparer, or both), the return preparation and filing process can serve as civic ceremony of equal dignity and importance to voting. All these benefits would be lost under a national sales tax or value-added tax, or under an income tax with exact withholding and no return filing. Although the President's Panel did not explain its implicit rejection of a return-free system, in the context of its simplification proposals it was right to retain a filing requirement. On the other hand, the preparation of tentative tax returns by a governmental agency (as in the case of California's ReadyReturn) is not really a return-free system. Such a system, made available to taxpayers in simple income tax circumstances, would be consistent with--and might even enhance--the civic virtues of a tax return filing requirement.
Al Franken Throws His Accountant Under the Bus
Following up on Saturday's post on Al Franken's tax troubles: press reports say that the Minnesota democratic senatorial candidate will be paying over $70,000 in taxes to several states to clear up the matter and blames his accountant for the problem:
"We paid taxes on every cent of income we ever had," Franken told AP. "What happened is our accountant made a mistake, and all of these are repercussions of that same mistake. His mistake was not understanding the law, the obligation to pay these state taxes." Following his accountant's advice, he said, he and his wife, Franni, paid their entire income tax bill to the city and state where they were living at the time.
- Associated Press
- The Atlantic
- Minneapolis Star Tribune
- New York Times
- Outside the Beltway
- Roth & Co.
- Taxable Talk
- USA Today
Keinan: Federal Taxation of Derivatives
Yoram Keinan (Michigan) has published United States Federal Taxation of Derivatives: One Way or Many?, 61 Tax Law. 81 (2007). Here is the Introduction:
While derivatives have been utilized for almost a century, the use of derivatives has been exploding in the last two decades. The development of the tax rules, however, could not keep pace with the development of derivatives in the markets. While the use of derivatives have become common in many countries, except for the United States, only a handful of countries, including England, Australia, Canada, and New Zealand, have developed comprehensive sets of rules for taxation of financial instruments.
Congress and the Treasury have “devoted considerable energy to developing specific rules for taxing [derivative financial instruments].” Today, the taxation rules for derivative instruments in the United States do not follow a consistent pattern. The current tax regime for derivatives consists of a “cubbyhole approach” and is determined in accordance with various factors including: (1) the identity of the derivative, the underlying property, and the associated cash flows; (2) the identity of the taxpayer; (3) the purpose for which the transaction is entered into by the particular taxpayer; and (4) any applicable anti-abuse rules. Ideally, the tax treatment of a particular instrument should be determined by considering all four elements. Nevertheless, as a practical matter, it is very hard to apply all elements at the same time.
Specifically, while some rules emphasize the identity of the instrument (e.g., notional principal contracts regulation and section 1256), other rules emphasize the identity of the taxpayer (for example, section 475). In addition, some rules focus on the purpose of the transactions (for example, hedging rules). Furthermore, several statutory anti-abuse rules for transactions in securities, including derivatives, mandate a particular treatment. Finally, some current regimes apply more than one approach to some extent but incoherently.
This article discusses the three key tax issues involved with any type of transaction including derivative instruments: (1) timing; (2) character; and (3) source. For each of these three tax issues, the United States has developed several variations of rules pertaining to derivatives.
- BB&T Loses Tax Shelter Case in Second IRS Victory This Month (Bloomberg), by Ryan J. Donmoyer
- Wachovia Corp Sees 2Q Charge $800 Million-$1 Billion On Tax Ruling (Wall Street Journal)
- Wachovia May Face $1 billion Charge After Court Ruling (Reuters), by Jonathan Stempel
- Wachovia Responds to Tax Ruling in Leveraged Lease Transactions (press release)
Tax Court Denies $1.34m Loss Deduction on WorldCom Stock
The Tax Court yesterday denied a former employee of WorldCom a $1.34 million loss deduction on WorldCom stock. Taghadoss v. Commissioner, T.C. Summ. Op. 2008-44 (4/29/08):
Petitioner was employed by the WorldCom for 17 years. During the course of petitioner's employment, he received options to purchase shares of WorldCom stock that he exercised on October 31, 2001, for a "hold". Petitioner also acquired shares of WorldCom stock on the open market, through WorldCom's section 401(k) retirement plan, and through WorldCom's employee stock purchase plan (ESPP). Unfortunately for the shareholders of WorldCom, it filed a chapter 11 bankruptcy petition on July 21, 2002. Fraudulent accounting practices by certain WorldCom officials contributed to WorldCom's bankruptcy filing. Bernard Ebbers, WorldCom's chief executive officer, was convicted of violating the securities laws for fraud, conspiracy, and filing false financial statements with the SEC. Two other WorldCom officials pleaded guilty to fraud and conspiracy.
The bankruptcy filing and the fraudulent accounting practices caused the value of WorldCom securities to significantly decline. Because the value of petitioner's securities had severely declined, he claimed a $1,344,863 deduction for a casualty or theft loss on his 2003 Form 1040.
The Tax Court denied the $1.34 million deduction on the casualty loss and theft loss grounds claimed by the taxpayer and, on its own motion, considered and rejected the possibility that the taxpayer's losses on the WorldCom stock were deductible as worthless securities:
A. Casualty Loss
In Furer v. Commissioner, T.C. Memo. 1993-165, affd. without published opinion 33 F.3d 58 (9th Cir. 1994), the taxpayers claimed a casualty loss on account of their securities' decline in value that was attributable to a stock market crash. The Court disallowed the loss stating: "In order for a loss to qualify as a casualty loss it ordinarily must be the result of physical damage to the taxpayer's property."
Similar to Furer, there is no physical damage to petitioner's securities. Rather, petitioner's losses arise from the misconduct of certain WorldCom officials, WorldCom's bankruptcy filings, and the liquidation of his securities pursuant to WorldCom's plan of reorganization. Therefore, petitioner did not sustain a casualty loss within the meaning of § 165(c)(3).
B. Theft Loss
Although certain WorldCom officials caused the publication of fraudulent financial statements and filed the statements with the SEC, the Court finds that petitioner has failed to prove that he suffered a theft under Virginia law. There is no evidence in the record establishing that WorldCom officials wrongfully took petitioner's money or property (i.e., the value of his securities) with the requisite intent to deprive him permanently thereof. Moreover, petitioner did not purchase his securities from the WorldCom officials; rather, his acquisitions were conducted through brokers on the open market, through WorldCom's section 401(k) retirement plan, and through WorldCom's ESPP. The WorldCom officials had no direct dealings with petitioner. ...
To the extent that petitioner is attempting to claim a deduction for the corporation's theft loss rather than his own theft loss, he cannot do so. It is well settled that a corporation is a taxable entity separate from its shareholders. ... Consequently, shareholders generally cannot claim a deduction for a theft loss where the corporation itself was the victim of the theft. ... Although the Court sympathizes with petitioner's circumstances, the Court concludes that § 165(c)(3) does not support the allowance of his claimed theft loss deduction. Accordingly, respondent's determination denying a $1,344,863 theft loss deduction is sustained
Although the issue was not raised by the parties, the Tax Court also considered considered and rejected the possibility that the taxpayer's losses on the WorldCom stock were deductible as worthless securities:
In order to have deductible losses, petitioner must show that his securities had value at the end of 2002 and prove some identifiable event that establishes the subsequent losses in 2003. ... Petitioner has failed to establish both elements.
There is no evidence as to the value of petitioner's securities in 2002. Moreover, petitioner's evidence, the account statement [which placed a value of 21 cents per share on 31,083 shares], indicates that his securities had retained some value in 2004. The record does contain countervailing facts: (1) WorldCom was insolvent in 2001 and filed for bankruptcy in 2002; (2) the plan of reorganization provided for the cancellation of petitioner's securities; (3) petitioner "abandoned" his securities in 2003; and (4) WorldCom closed their transfer books in 2004. But it was petitioner's burden to show that his securities had no value in 2003. ... Therefore, the Court concludes that petitioner's losses are not deductible as worthless securities in 2003.[Fn.2]
Fn.2: Even if the Court were to find that petitioner sustained a casualty or theft loss or that his securities were "wholly" worthless in 2003, the Court would nevertheless disallow the losses because petitioner failed to establish that there was no reasonable prospect of recovering his losses. See secs. 1.165-1(c)(4), (d)(2)(I), 1.165-8(a)(2), Income Tax Regs. Compare 15 U.S.C. secs. 77k, 77l(a)(2), 77o, 78j(b), 78t(a) (2000) and Rule 10b-5 (17 C.F.R. sec. 240.10b-5 (2007)) thereunder (provisions relating to securities law violations and liability therefor), with 15 U.S.C. sec. 7246 (2000) (discussing a disgorgement fund for the benefit of the victims of violations of certain securities laws).
Structuring a Tax Policy Workshop Series -- Columbia
We've just started a tax policy colloquium at Columbia, so our experience is limited to one year. Both students and faculty participate. To give students some basic understanding of what's about to come, we spend the first two classes lecturing on key tax policy concepts. We also assign a fair bit of "Taxing Ourselves" by Slemrod & Bakija (now in 4th edition). After that, it's a different presenter every week, with students writing short response papers and getting a final grade based on these papers and on their participation in the discussion. It took a considerable effort to convince students to ask questions, but we managed to succeed after two or three sessions. We kept separate queues for students and professors, and alternated between the two queues. This way students were certain to ask their questions, but could also listen how the discussion unfolded among academics. We thought about arranging papers thematically, but it was just too hard given the presenters' timing preferences. We also didn't give systematic feedback to the students, but responded to informal inquiries about the quality of their response papers and in-class questions. I would say that our format is really a faculty workshop with student participation. As long as students understand what they are signing up for (we made sure they did), they end up pretty satisfied with the experience.
Tax Court Denies Attorney's Deduction for Cell Phone Expenses
The Tax Court yesterday denied a deduction for various business expenses claimed by an Illinois real estate attorney, including cell phone expenses. Tash v. Commissioner, T.C. Memo. 2008-120 (4/29/08):
The record did not indicate whether petitioner used his cellular telephone for business and/or personal calls. Petitioner has not demonstrated that his checks paid expenses that were "normal, usual, or customary" for a real estate attorney. See Deputy v. du Pont, [308 U.S. 488, 495-96 (1940)].
The record provides no satisfactory basis for estimating petitioner's legal and professional service expenses. Petitioner has failed to adequately substantiate the business purpose behind the 21 miscellaneous checks. Although the checks provide a guide as to the amount of petitioner's expenditures in 2003, the Court cannot guess as to the character of those expenditures when confronted with an inadequate record.[Fn. 6] Vanicek v. Commissioner, [85 T.C. 731, 742-743 (1985)]. Consequently, we will not apply the Cohan rule [Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930)] to estimate the amount of petitioner's legal and professional service expenses.
Fn.6: Expenses of a cellular telephone must be substantiated pursuant to sec. 274(d). The Court cannot estimate those expenses. Secs. 274(d)(4), 280F(d)(4)(v); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Chicago-Kent Hosts 27th Annual Federal Tax Institute Today
The two-day 27th Annual Federal Tax Institute kicks off today at Chicago-Kent. The Institute Co-Chairs are André LeDuc (Skadden, Chicago) and Todd Maynes (Kirkland & Ellis, Chicago). The keynote speaker is Edward D. Kleinbard, Chief of Staff of the Joint Committee on Taxation. For a list of the speakers and their topics, see the program.
ABA Tax Section Offers Teleconference & Webcast Today on New Return Preparer Standards and Proposed Regs
The ABA Tax Section offers a teleconference and webcast today on You May Be a Tax Return Preparer and Not Know It: The Latest on the New Return Preparer Standards and Proposed Regulations from 1:00 - 2:30 p.m. EST:
Under new § 6694, effective for federal tax returns prepared after May 25, 2007, a tax advisor or return preparer may face penalties if he or she does not have a reasonable belief that an undisclosed position that he or she advised or placed on the return is "more likely than not to be sustained on its merits." The legislation imposes a return preparer standard for disclosed positions of “reasonable basis with adequate disclosure.” The new preparer standards apply to all federal tax returns, not just income tax returns (e.g., excise tax returns, gift and estate and generation-skipping tax returns, employment tax returns, and tax returns for tax-exempt organizations, etc.) whether the return is original, amended, or a claim for refund. Failure to satisfy the new return preparer standard may lead to the imposition of significant penalties on a “signing” or “non-signing” return preparer and his or her firm.
On December 31, 2007, the Treasury and the IRS issued a second set of transitional guidance rules (“Interim Guidance”) implementing the May 25, 2007 legislative changes and announced a planned overhaul of the preparer penalty regulations expected to be completed later this year. The Interim Guidance (particularly Notice 2008-13) clarifies, modifies, and in part reverses aspects of the original transition relief provided under § 6694 in Notice 2007-54. The interim rules will be in effect until the overhaul of the current return preparer penalty regulations is complete.
Treasury has promised to finalize the regulations this year and is widely expected to release new proposed regulations in the coming weeks under § 6694 and related penalty provisions in §§ 6662, 6664, and 7701, clarifying, coordinating, and implementing these provisions.
The program will review the proposed regulations if then released and/or published comments, including consideration of how the regulatory tests and operating rules are different from the earlier interim guidance. Additionally, the panelists will discuss how the new standards work, steps you need to take to comply with the standards in different contexts, and the relationship of new § 6694 to Circular 230’s ethics rules governing practice before the IRS.
- Fred F. Murray (Grant Thornton, Washington, D.C. (Moderator))
- Deborah A. Butler (Associate Chief Counsel (Procedure & Administration), IRS Office of Chief Counsel)
- Michael J. Desmond (Tax Legislative Counsel, Office of Tax Policy, Treasury Department)
- Rochelle Hodes (PricewaterhouseCoopers, Washington, D.C.)
- Phillip A. Pillar (Greenberg Traurig, Philadelphia)
April 29, 2008
Structuring a Tax Policy Workshop Series -- NYU (Student Perspective)
Dave Rifkin (Attorney-Advisor to Tax Court Judge Juan F. Vasquez; Adjunct Professor, Georgetown), a former student participant in NYU's Colloquium Series on Tax Law and Public Finance, continues our series on how to best structure a tax policy workshop series:
Part I: When I attended NYU's Graduate Tax Program, I took the Tax Policy Colloquium (then taught by David Shaviro and the late David Bradford). Sometimes I found the papers to be accessible and interesting; other times I felt that I didn't have a sufficient knowledge of, or experience with, tax to comment on them critically. There were some papers that I understood the substance of but could not appreciate why they were important.
Profs. Shaviro and Bradford did an excellent job at getting the class up to speed on the substance of the papers, but sometimes the "why this is important or merits examination" was lost just in an effort to get the class up to speed on the subject of the paper (or perhaps because without any experience in tax and without knowledge of current developments in tax I could not appreciate why the paper was written). As Leandra intends this workshop to be for J.D. students, I think she may have a very tough road ahead of her in getting scholarly works that will be manageable for a J.D. with only basic tax and perhaps an additional tax course or two.
Additionally, I remember the afternoon discussions of the papers -- which also were attended by NYU tax faculty, tax faculty of other New York area law schools, and sometimes local tax professionals (who sometimes had devoted a lifetime to the subject of the paper). Virtually every afternoon discussion contained at least one question and answer that went over not only my head, but those of the other students in the class. I think keeping discourse about the papers to a J.D. level will be more difficult than finding papers that the students will be able to digest.
Also, I remember the fear of asking a question that was "stupid" in front of professors and professionals. I recall only asking one question during the "presentation" portion of the colloquium, and I remember it being on a topic that I researched and wrote and independent study paper on as a J.D. student (so I felt comfortable with the material and that I would not embarrass myself). Having students ask questions first (before faculty and other professionals) may be asking too much of J.D. students. Perhaps questions could be vetted in advance with the students proposing the questions during the classroom component? Basic questions could be answered in the classroom setting and questions that merit discussion could be held off until the presentation of the paper (e.g., "Why don't you save that question and ask it to [the presenter].")
I wish Leandra luck on this endeavor. If I may brave another suggestion: Profs. Shaviro and Bradford required my class to write a short paper (I think it was 1-5 pages) in response to each paper that was presented in the colloquium, but gave us the option to take a "pass" on one paper. I suggest she adopt the same "one pass rule" to allow students the opportunity to avoid having to write on every paper submitted (even if it is simply to allow students to maintain their dignity by not forcing them to write something about which they have nothing to say).
Part II: It is interesting to read some of the responses you have posted. It has made me reflect upon my earlier email regarding my experience at NYU.
Before attending NYU's Graduate Tax Program, I had taken a significant number of tax classes, including Tax Policy course taught by Prof. Linda Sugin. I came to the Colloquium with 16 J.D. tax credits and 1 semester at NYU's LL.M. program. As I stated previously, even so I found many of the papers presented challenging and even after discussing them in class I had little to add to the discussion that followed.
I am confused, however, by professors finding the pedagogical need for students to participate in the "presentation" portion of the colloquium. I learned so much by listening to others question, reflect, and argue about the paper I had read. As I said, there was usually a question or 2 that was beyond me (and perhaps the rest of the class too), but this was over the course of a 2 hour presentation, discussion, critique, and defense of the paper. Many insightful questions and answers were presented and discussed, and I got much more out of this than if the presenter had had to answer some basic questions asked by the students. Often the discussion developed in ways I could not have anticipated and I would not have have benefited from this had discussion been retarded by devoting a substantial portion of the discussion to answering student's questions.
I believe students can learn as much or more by listening to others discuss a subject as they can by participating in the discussion. I believe that if a student has a question worth asking in a colloquium that it will get asked. That was my experience without having a "student's first" rule in place. I think pedagogically a "student's first" rule might put undue pressure on the students to ask questions ("volunteering" only in the Army sense of the word), could reflect poorly on the professor (e.g., "THOSE were the questions the students had?" or "the students didn't have ANY questions after preparing for 2 weeks?"), and could be a time black hole. The presenter and the audience would better served by a discussion developing naturally, rather than by "forced" questioning by the students, of the paper presented. Hopefully, the students will listen (sans laptop) to the discussion, learn, and if they have a question ask it.
4th Circuit Affirms Government's Victory in BB&T Corp. LILO Tax Shelter Case
On the heels of the Government's big win last week in the Fifth Third Bancorp LILO tax shelter case: the 4th Circuit today affirmed the Government's victory in the first LILO tax shelter case, BB&T Corp. v. United States, No. 07-1177 (4th Cir. 4/29/08):
This appeal requires us to determine the tax consequences of acomplex financial transaction. BB&T Corp. entered into a "leasein/ lease-out" transaction, often called a "LILO," hoping to reduce its tax liability, but the IRS disallowed the deductions it claimed. After BB&T sued for a refund, the district court granted summary judgment in favor of the Government.
BB&T now appeals, arguing that the district court misapplied the "substance-over-form" doctrine in determining that it could not claim deductions for rent and interest under §§ 162(a)(3) & 163(a). Specifically, BB&T disputes the district court’s conclusion that although the form of the transaction involved a lease financed by a loan, BB&T did not actually acquire a genuine leasehold interest or incur genuine indebtedness as a result of the transaction. For the following reasons, we affirm. ...
In closing, we are reminded of "Abe Lincoln’s riddle . . . ‘How many legs does a dog have if you call a tail a leg?’" Rogers v. United States, 281 F.3d 1108, 1118 (10th Cir. 2002). "The answer is ‘four,’ because ‘calling a tail a leg does not make it one.’" Id. Here, BB&T styled the LILO as a lease financed by a loan, but did not in substance acquire a genuine leasehold interest or incur genuine indebtedness. Accordingly, although we decline to resolve whether the transaction as a whole lacks economic substance — that is, whether it has "reached the point where the tax tail began to wag the dog," Hines, 912 F.2d at 741, we conclude that the Government was entitled to recognize that tail for what it was, not what BB&T professed it to be. The judgment of the district court is therefore.
Prior TaxProf Blog coverage:
- Government Wins Second Big LILO Tax Shelter Case (4/22/08)
- Government Wins Summary Judgment in First "LILO" Tax Shelter Case (1/4/07)
Update: Department of Justice press release:
“Taxpayers seeking to hide behind bogus paper transactions should think twice. Today, taxpayers have once again been told by a federal court that the Government may look at the substance, rather than the form, of a transaction to determine its legitimacy for tax purposes,” said Nathan J. Hochman, Assistant Attorney General of the Justice Department’s Tax Division.
Shores: Textualism and Intentionalism in Tax Litigation
Tax cases frequently turn on issues of statutory construction. The statute might be general in nature, such as section 162, which allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Alternatively, the statute might be highly specific, providing a clear answer to the question at hand. General statutory provisions of the first type bristle with interpretative questions. For example, what is the meaning of “ordinary and necessary?” What is a deductible “expense,” as opposed to a nondeductible capital expenditure? When is an expense “paid or incurred,” and does it matter whether the taxpayer reports income using the cash or accrual method of accounting? What is the meaning of “carrying on” a trade or business? What is a “trade or business?” In answering questions of this type, courts will often look to legislative history, statutory structure, or tax policy in an effort to determine exactly what Congress intended when it adopted the provision or term in question. Such an intentionalist approach is, of course, in keeping with conventional rules of statutory construction that call for a determination of congressional intent when no clear answer can be obtained by applying the statutory language to the issue at hand.
In some instances the statute will be highly specific. A court might then adopt a textual or plain meaning approach to statutory interpretation, closing its eyes to legislative history, statutory structure, or tax policy, suggesting a congressional intent at odds with the result dictated by the language of the statute. Indeed, the court might not view such a case as involving an issue of statutory construction at all. To construct or construe a statute implies a need to determine its meaning. But, if the meaning is clear, the court merely needs to apply the statute according to its text. Construction is unnecessary. It is in cases of this type that courts are likely to part company, with some taking a textual approach, and others adopting an intentionalist approach to reach a result viewed as consistent with legislative intent in spite of its inconsistency with the statutory language. As the Supreme Court has observed, “the plain meaning of the statute should be conclusive except in the ‘rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.’” It is the rare case of this type that is the subject of this Article.
Ring: What's at Stake in the Sovereignty Debate?: International Tax and the Nation-State
Diane M. Ring (Boston College) has posted What's at Stake in the Sovereignty Debate?: International Tax and the Nation-State, 49 Va. J. Int'l L. ___ (2008), on SSRN. Here is the abstract:
The international tax problems of today are typically beyond the scope of a single nation to solve. However, the prospect of multinational problem solving, often under the auspices of an international organization, unleashes objections grounded in sovereignty. Despite widespread reliance on sovereignty arguments, little attention has been directed at what precisely is meant by sovereignty and what place it has in international tax policy. This article contends that a loss of sovereignty undermines both significant functional roles played by a nation-state (revenue and fiscal policy) and important normative governance values (accountability and democratic legitimacy). Whether these limitations are severe enough to demand that a sovereign state recall its taxing powers from an international body (or not surrender them initially) depends on the nature of the powers in question and the necessity for a coordinated global response.
Part I develops the basic nexus between sovereignty and taxation. Part II examines the use of sovereignty in the debates and analyses surrounding three international tax case studies. Drawing upon the case studies, Part III considers how sovereignty claims are manipulated in tax debates, how states think about sovereignty in taxation, and what their decisions, in turn, suggest about the future of international tax and the prospects for international cooperation.
How Americans View Charities: A Report on Charitable Confidence, 2008
The Brookings Institution has published How Americans View Charities: A Report on Charitable Confidence, 2008, by Paul C. Light. From the Executive Summary:
[P]ublic confidence in charities remains at contemporary lows. ... The percentage of Americans who said they had “a lot” of confidence in charitable organizations dropped from 25% in July 2001 to 18% in May 2002. The percentage that reported having “none at all” rose from 8% in 2001 to 17% in 2002.
A March 2008 survey ... shows four patterns that should worry charitable organizations and sector leaders:
- Charitable confidence has not risen significantly since it hit bottom in 2003.
- Americans remain skeptical of charitable performance.
- The considerable drop in the ratings of helping people poses a serious challenge to the sector’s distinctiveness as a destination for giving and volunteering.
- Estimates of charitable waste remain disturbingly high.
Birthday Gift Suggestion
Structuring a Tax Policy Workshop Series -- NYU (Co-Convenor's Perspective)
Daniel N. Shaviro, co-convenor of NYU's Colloquium Series on Tax Law and Public Finance, continues our series on how to best structure a tax policy workshop series:
NYU had the first tax policy colloquium, for which I must thank John Sexton, our dean at the time when I was considering moving from Chicago to NYU. John put me in touch with David Bradford and suggested that we introduce a colloquium along the lines of the Dworkin-Nagel law and philosophy colloquium at NYU. Ours remains fairly unique among tax colloquia that I have attended, in that we don’t have the author present the paper but plunge right into directed discussion in the public afternoon session (which comes after a two-hour morning session with the students followed by lunch with the speaker).
Done right in circumstances where it’s feasible, I believe this is the best approach, but there are a number of preconditions for it to be feasible. The conveners (there really have to be at least 2 for it to work well) have to be ready, willing, and able to take on all topics. They have to have enough time (which depends in part on the teaching credits they get) to be able to spend a great deal of time thinking about the issues. They have to spend enough time with the author in advance of the session, in a collegial spirit that avoids being either too deferential or too confrontational, to make the public discussion a shared enterprise based on having cleared away all initial misunderstandings. And they have to have a sufficiently large and lively audience, with a culture of participation, so that the audience doesn’t sit there thinking: “Why do we need to listen to these guys again instead of hearing the author, who is here just for the day?” When I am the discussion leader (I take turns with my partner), then even if I have lots of things to say I try to keep in mind the maxim “Jason Kidd, not Stephon Marbury.” In other words, try to facilitate discussion not dominate it, and get things to the audience fairly swiftly but having suggested guidelines that will shape what comes next.
Done right, you crisply tee up a few key issues for in-depth discussion, focusing on one issue at a time, using the paper as a starting point, and the audience gets a richer experience than they would from listening to a summary that merely repeats what the paper already said. Done wrong, you can bet that the audience will vote against you over time with its feet.
Those are the basics of the afternoon session as we do it at NYU. We prepare discussion notes, typically with 3 main topics and a few central points about each. At lunch this can all change due to discussions with the author, but at 4 pm we do it as revised, keeping each point short, with the author responding each time and then the audience chiming in. Sometimes we fail to move on as swiftly as we should to cover all of the topics, but that’s a lesser sin than cutting off lively audience discussion prematurely.
The central aim of the afternoon session is not to assess the paper, or even to tell the author what to do with the paper (though this usually happens). Rather, it is to advance, through dialogue and collective effort, all of our thinking about the topics discussed in the paper. In doing so, we try to combine accessibility to students with cutting edge content for the legal and other academics, practitioners, etc., in the room.
The aim of having an advanced discussion while also including and enlightening the students would be unachievable if the afternoon session was all we had. In our morning session, however, our aim is to provide the students with as full a background as possible on the literature and ideas that underlie the paper. Indeed, the aim of the AM session is not to do a dry run of the PM session but rather to equip the students to understand and follow it.
We also have every student participate in one AM class as a discussion leader (usually with one other student) who prepares an outline just for us that we review with the preparer(s) in advance but don’t grade. Rather, the grade is based on critique papers, assessing and responding to the week’s reading, that are due at the start of the AM class. Students are required to write 5 papers of about 6 to 8 pages (the details of this vary with the year) and can choose whichever weeks they like. One of the key pedagogical features of the class is that we write comments back to the students concerning their critique papers, often 2 or 3 pages long, containing a grade but also offering not just an assessment of how good a job the critique paper did but further thoughts on the issues it raised.
The day’s final event is a dinner, typically with 7 to 9 people including the authors, the conveners, and usually 1 to 3 students along with academics, practitioners, etcetera, who have attended the PM session. In addition to being enjoyable (given that we are in lower Manhattan, our motto is “14 weeks, 14 different places”), we also aim both to further pursue the PM session and to advance our aims of creating a tax policy discussion community where people inside and outside NYU, including students, make lasting connections with others.
One final point about our design is that it aims to be inter-disciplinary. I always co-teach it with an economist, and we exhibit some inclination to have the economists comment on more law-based papers while I comment on more economics-based papers. While we mainly invite law professors (and an occasional legal practitioner) and always try to keep in mind readability for the students and broader legal audience, we always have several papers by economists, and also invite political scientists and philosophers when they have suitable papers. Among invited law professors, we aim for a mix that includes junior people. We also interpret “tax policy” broadly to include, for example, budgetary issues, entitlements, transfers, and even topics such as regulatory mandates if they appear sufficiently “tax-like” for our discussion purposes.
Beale: Tax Patents: At the Crossroads of Tax and Patent Law
Linda M. Beale (Wayne State) has posted Tax Patents: At the Crossroads of Tax and Patent Law, 2008 U. Ill. J.L. Tech. & Pol'y ___, on SSRN. Here is the abstract:
Since the 1998 State Street case, the U.S. Patent and Trademarks Office has been issuing patents on tax planning methods, even including methods that do not require computerized implementation. The tax and intellectual property bars generally have widely divergent views of tax planning method patents. The patent bar tends to view the incentivizing of innovation as a per se public good, while the tax bar expresses concerns ranging from the impact on practice to the impact on the federal fisc.
After a general introduction to the issues raised by tax planning method patents, Part II of the article provides a concise history of business method patents. Part III then sets out important recent developments relating to the patenting of tax strategy patents in three different arenas: Congress, where broad patent reform legislation is under consideration; the courts, where the rush towards an extraordinarily broad interpretation of patent law subject matter eligibility requirements is under question; and the Internal Revenue Service, which has issued proposed regulations to require reporting of transactions that use tax planning method patents.
In that context of across-the-board questioning of the rationales for tax planning method patents, Part IV explores the reasons that the tax bar's views of tax strategy patents diverge so widely from the intellectual property bar's views. Although acknowledging that patents on abusive tax planning strategies would be particularly offensive, this Part emphasizes that patents on legitimate tax planning techniques are also highly problematic. After acknowledging widespread concerns about impact on tax practitioners' practice of the law and lack of Patent Office competence to assess tax strategies for novelty and obviousness, this Part presents a critique of tax strategy patents based on the special attributes of the tax system that set it apart from other areas of the law. The critique rests in particular on three significant concerns: (i) the demand for an external distributive justice criterion rooted in institutions of a democratic polity based on personal liberty and equal respect, (ii) the institutional requirement for congressional authority in setting economic and tax policy through legislation, and (iii) the detriment to the profession from the inappropriate application to the tax laws of the patent law's focus on innovation.
Hellerstein: Is "Internal Consistency" Dead?: Reflections on an Evolving Commerce Clause Restraint on State Taxation
Walter Hellerstein (Georgia) has published Is "Internal Consistency" Dead?: Reflections on an Evolving Commerce Clause Restraint on State Taxation, 61 Tax L. Rev. 1 (2007). Here is the abstract:
Under the internal consistency doctrine articulated by the U.S. Supreme Court under the dormant Commerce Clause, a state tax must be structured so that if every state were to impose an identical tax, interstate commerce would fare no worse than intrastate commerce. Although a relatively recent addition to the Court's Commerce Clause jurisprudence, the doctrine has played a significant role as the basis for the judicial invalidation of a wide array of state and local taxes. In American Trucking Associations, Inc. v. Michigan Public Service Commission, 545 U.S. 429 (2005), however, the Court sustained an admittedly internally inconsistent $100 per truck tax over Commerce Clause objections. The case marked a retrenchment – and arguably an abandonment – of the internal consistency doctrine as a constraint on state taxation. This article explores the implications of this decision for internal consistency analysis against the background of the doctrine's evolution over the past two decades. While observing that the decision has reconfigured internal consistency doctrine and requires a rethinking of its more expansive applications, the article concludes that the doctrine remains a significant structural restraint on state and local taxation, and it identifies the types of taxing regimes that remain vulnerable to internal consistency attack.
TIGTA: Audit Rate of Largest Corporations Down 20%
The Treasury Inspector General for Tax Administration yesterday released an audit report, Trends in Compliance Activities Through Fiscal Year 2007 (2008-30-095), which found:
- Enforcement revenue collected increased to $59.2 billion
- Total dollar amount of uncollected tax liabilities increased to $290 billion
- Gap between new delinquent account receipts and closures by 63%
- Overall percentage of tax returns examined increased by 9%
- 83% of examinations were correspondence examinations
- Number of field examiners decreased by 4%
- Corporate tax audit rate increased by 4% (but are still down 45% since 1998)
- Audit rate of largest corporations (> $250 million assets) decreased by 20%
- Audit rate of smallest corporations (< $10 million assets) increased by 12%
- Audit rate of corporations with assets > $10 million decreased by 9%
See also IRS Audits of Big Companies Fall to All-Time Low (4/14/08).
Authentic Happiness and Meaning at Law Firms
We advocate that law firms can and should foster authentic happiness and meaning in the professional lives of their associates. Based upon empirical and experimental research in behavioral economics and positive psychology, we consider how law firms can implement policies to promote authentic happiness and meaning in their associates' professional lives. We also believe that law schools can and should help to reduce the anxiety, stress, and unhappiness that individuals feel as law students and help them develop abilities to achieve meaningful careers as law firm associates. We provide a guide as to how law firms and law schools can design policies and procedures to nudge people towards achieving more authentic happiness and meaning in their professional (and personal) lives if people so desire.
April 28, 2008
Smith: The Deliberative Stylings of Leading Tax Law Scholars
Andre L. Smith (Florida International) has published The Deliberative Stylings of Leading Tax Law Scholars, 61 Tax Law. 1 (2007). Here is the Introduction:
This Article examines the deliberative techniques of leading tax scholars as gleaned from articles they have written. It compares their deliberative or interpretative prescriptions to the nine Supreme Court tax cases since 2000. After the comparison, the Article finds that Lawrence Zelenak’s theory describes the Court’s deliberative process better than the theories of the others, that Deborah Geier’s text-based purposivism is the most attractive normative theory of those advanced by these scholars, but that none of them describes judicial deliberation over tax law with enough detail to prescribe a normative or positive technique one can actually follow. However, this problem exists in all areas of law. Thus, this Article also pursues a concept of legal justification, “formulaic deliberation,” based on using mathematical expressions and terminology to develop more precise descriptions and prescriptions of deliberative or interpretative techniques.
Lawrence Zelenak’s Thinking of Nonliteral Interpretations of the Internal Revenue Code appears to have initiated the contemporary discussion of judicial tax deliberation. He shows that the Supreme Court occasionally decides federal income taxation cases by relying on purpose more than text. He also shows the Court’s reliance on purpose to be frustratingly unpredictable. Paul Caron contributes to the discussion by examining the degree with which the Court decides cases relating to tax differently than those relating to other areas of law. He suggests that the Court should reject tax exceptionalism.
Tax scholars of the 1990s and the early 2000s advocated particular interpretative or deliberative techniques, the principal tension being between textualism and purposivism. John Coverdale and Allan Madison defend textualism against the attacks of Deborah Geier, Mary Heen, Noël Cunningham and James Repetti (Cunningham & Repetti), and Richard Lavoie. Geier is a strident purposivist who would allow purposes identified in a certain way to trump text. Heen and Cunningham & Repetti prefer the intent and purposes of Congress as memorialized in regulations to the text of the statute. Richard Lavoie’s attack on textualism suggests that in addition to purposes he would also require judges to consider consequences beyond those contemplated by the legislature. Michael Livingston’s deliberative technique is a bit harder to describe. He attacks purposivism because he finds it unpredictable, but he lauds Eskridge’s practical reason method which asks judges to consider text, intent, purpose, and modern dynamics—a task at least four times as complicated and, for that reason, as unpredictable as purposivism. Properly understood, though, Livingston is arguing for less emphasis on purpose and more on text, intent and modern dynamics, an argument that could have been more cogently presented using mathematic terminology and formula, that is, “formulaic deliberation.” Similarly, despite Geier’s favor for purpose and Coverdale’s affection for text, each of the scholars surveyed argue for greater emphasis on a particular technique rather than myopic and mechanical applications of it.
Each scholar’s work represents a segment of the Supreme Court’s deliberative process, but examination of the nine Supreme Court cases decided since 2000 proves that no article by these scholars describes that deliberative process better than Zelenak’s original piece. United States v. Gitlitz and Galletti v. Commissioner show the Court’s preference for text. In Galletti, the Court relied on the meaning lawyers would attribute to the word “assessment.” In Gitlitz, the Court chose the meaning of “income” that was consistent with a number of closely related tax statutes. However, the Court’s seven other cases belie John Coverdale’s belief that text resolves most tax issues. Moreover, United States v. Craft specifically rejects Allan Madison’s brand of textualism, where plea for judges seeking the plain meaning of a statutory term must accept the determination of state officials, particularly the Secretary of State. While the Court indeed considers purpose, in Fior D’Italia it rejected purposes that were identified in the manner Deborah Geier suggests. Craft and Banks reject Richard Lavoie’s embrace of modern dynamics.
Mary Heen and Cunningham & Repetti are comfortable with the Court ceding consideration of intent and purposes to the Treasury. The Court follows this prescription in Cleveland Indians Baseball, Boeing, and Fior D’Italia. In United Dominion Industries, however, the Court would not rely on the Treasury’s inexpert and ad hoc interpretation as the putative intent of Congress. Although not discussed in this article, scholarship since 2005, like that authored by Gregg Polsky and Kristin Hickman, examines administrative deference doctrines (Chevron, National Muffler, Mead, Skidmore, Cottage Savings, etc.) attempting to predict when the Court will emphasize the regulation as reflecting the putative intent of Congress.
Section II of this Article provides a framework for “formulaic deliberation,” a way of classifying meaning and consequences into functions represented by factors, with the relative emphasis between functions and factors described using coefficients. Section III examines the writings of over ten tax law scholars and recharacterizes their scholarship on statutory interpretation in terms of formulaic deliberation. The Article uses mathematical symbols (sparingly!) to show how mathematical terminology can make the discussion of tax law interpretation more precise and useful. Section IV concludes by using a formula to describe the major points of disagreement between the tax law scholars surveyed.
Schneider: Use of Judicial Doctrines in Federal Tax Cases Decided by Trial Courts, 1993-2006: A Quantitative Assessment
Daniel M. Schneider (Northern Illinois) has posted Use of Judicial Doctrines in Federal Tax Cases Decided by Trial Courts, 1993-2006: A Quantitative Assessment on SSRN. Here is the abstract:
This paper examines the use of judicial doctrines in federal tax trial controversies. Despite a taxpayer`s strict compliance with the terms of a statute, a judge may still justify deciding for the government by applying a judicial doctrine. The common wisdom, derived from traditional tax scholarship about these doctrines, is that the doctrines are raised only by the government or the court and can only favor decisions in behalf of the government. A taxpayer may argue that the form of a transaction be set aside in limited circumstances such as fraud, so negating form is a one way street, available only to the government. The literature does not contain any empirical research.
The five most common judicial doctrines, which were analyzed, are: business purpose, economic substance, sham transaction, step transaction, and substance over form.
The hypothesis of this article is that the common wisdom is incorrect.
A database was created for this article and consists of those federal trial decisions rendered by the district court, the Tax Court, and the Court of Federal Claims between 1993 and 2006 in which one or more of the doctrines were raised. Data was culled from on-line sources for these cases and for the accompanying briefs, if they were available.
The evidence sustains the hypothesis. Judicial doctrines were raised in a much richer manner than the common wisdom would suggest. Among the results gleaned from the data are:
- All three parties raised doctrines, the court more than the government or the taxpayer. The taxpayer raised doctrines half as much as the government, suggesting the taxpayer's active interest in judicial doctrines. The court's predominant role in raising doctrines appears to have occurred because litigants made more focused arguments, depending upon more specific authorities in their briefs, such as cases or legislative history.
- All three parties raised doctrines, expecting that they would be applied, but the taxpayer argued much more frequently than the court or government that a doctrine it had raised should not be applied.
- Three doctrines could be raised by the taxpayer to its advantage - economic substance, step transaction and substance over form - but the other two could be raised only to benefit the government - business purpose and sham transaction. The litigants, however, did not raise doctrine in a manner resonant with this model.
- The areas of tax law in which doctrines were raised were inconsistent with traditional observations about the areas in which they should have been raised.
- Despite the absolute nature of the one way rule, it was largely ignored when the taxpayer raised a doctrine.
- Doctrines' use in the database could be associated with specific causes. More generally, a party's argument that the doctrine that it had raised be applied in behalf of a specific litigant was predictive of the doctrine being applied in that litigant's behalf. More specifically, and quite robustly, the taxpayer's prevailing in a doctrine's application was associated with use of substance over form and the government's prevailing was associated with the use of the business purpose doctrine.
In addition to the paper's presentation of its result, it underscores the gap between traditional legal scholarship and empirical research. As this paper illustrates, more quantitative analysis can and needs to be done, in law and especially in tax.
Structuring a Tax Policy Workshop Series -- Toronto
The James Hausman Tax Law and Policy Workshop began at the Faculty of Law of the University of Toronto in the fall of 2004. The primary motivation behind the workshop is to increase the profile and circulation of innovative and emerging tax research at the law school and, to the extent possible through this type of forum, the broader tax community. A number of secondary motivations surrounding the workshop include: (a) promoting the pedagogical value of exposing all interested students to the latest tax research; (b) generating useful feedback for our invited guests in the form of written student comments; and (c) solidifying the desirability of the law school for JD and graduate students who are interested in studying tax law and policy. The primary motivation of the workshop — to increase and profile and circulation of innovative and emerging tax research at the law school — in my view has been and remains dominant as we approach its fifth year.
While the workshop is open to all members of the law school community (and beyond), it is offered for credit to a limited number of upper year JD and graduate students (maximum enrollment is 10), all of whom must have taken at least the introductory income tax course, and are encouraged to take additional tax courses as well. The workshops are usually held every two to three weeks throughout the year. Students enrolled in the workshop for credit prepare short written responses to the papers that are presented, and produce a longer tax policy paper at the end of the course on a topic of their own choosing. In keeping with the primary motivation of the workshop, there has not been a preoccupation with an overall theme or with establishing a logical course of development from one workshop to the next; instead, the workshop strives simply to attract those who are doing important and influential work in tax law and policy to Toronto. We are extraordinarily grateful to the friends and family of James Hausman who continue to honour his life and work by providing financial support to the workshop. Without them, the workshop would not be possible.
More Celebrity Tax Troubles: Britney Spears
Doonesbury on Laptops in the Classroom
Check out the hilarious Doonesbury from Sunday's newspaper on laptops in the classroom. Here is the last panel:
Rising Taxes, Not Rising Mortgage Payments, Primary Cause of Middle-Class Squeeze
I previously blogged (here and here) Todd Zywicki's contention that in their book, The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke, Elizabeth Warren and her daughter Amelia Warren Tyagi wrongly blamed rising mortgage and health care costs for the increasing strain on family budgets despite the growing incomes earned by two-income couples. Zywicki argues, using Warren and Tyagi's own figures, that increases in family tax burdens far outstripped increases in mortgage and health care costs.
In a Sunday Washington Post op-ed, Don't Blame All Borrowers, Robert Frank resurrects The Two-Income Trap thesis in explaining the current mortgage and housing crisis:
Hints of how things began to go awry appeared in The Two-Income Trap, a 2003 book in which Elizabeth Warren and Amelia Warren Tyagi posed this intriguing question: Why could families easily meet their financial obligations in the 1950s and 1960s, when only one parent worked outside the home, yet have great difficulty today, when two-income families are the norm? The answer, they suggest, is that the second incomes fueled a bidding war for housing in better neighborhoods.
Zywicki takes Frank to task for ignoring the far greater influence of rising tax burdens on families:
Isolating just the mortgage burden, according to Warren & Tyagi's figures the percentage of family income dedicated to mortgage payments actually declined from the 1970s to 2000s, from 14% of household income ($5310 of $38,700) to 13% of household income ($9000 of $67,800). Again, this is using Warren & Tyagi's own figures.
I learned after writing the column that there is some dispute about the source of the rising tax burden. I followed Warren and Tyagi's lead from the book and attributed the growth in the tax burden primarily to the second-earner bias. Subsequently I found that there is some dispute about the extent to which the growth in the tax burden is attributable to income taxes rather than state and local taxes (including state income taxes). What has not been questioned is that Warren and Tyagi's own numbers show that the growth in the overall household tax burden overwhelms the growth in home mortgage expenses with respect to its impact on the household bottom line.
Update: Frank Pasquale has more on Concurring Opinions.
Structuring a Tax Policy Workshop Series -- Loyola-L.A.
We all suggest Colloquium speakers, participate in the weekly Colloquium discussions, host the visiting speakers, and organize a faculty dinner for each speaker. Other Loyola faculty (tax and nontax, full-time and adjunct) and professors from other Southern California schools also attend the Colloquium. The Colloquium is open to Tax LLM students and JD students who have completed Income Tax I, but enrollment is limited. Interested students must submit an application (cover letter, resume, and transcript) to Katie and Ted. (Last fall, we selected a dozen students for the Colloquium.)
We invite a diverse group of tax scholars to present Colloquium papers. Also, we try to select an interesting cross-section of paper topics. (Some of the papers are quite complex, but we believe the students are capable and will learn from the challenge.) We also arrange for a formal Commentator for each presentation. Our Commentators typically come from Southern California (law schools or RAND), but we sometimes invite Commentators from outside Southern California.
At the start of the term, Katie and Ted give the students a 100-page Tax Policy primer (with article excerpts and material we drafted) to introduce terms and concepts. We also provide an overview of this introductory material in the first two Colloquium class meetings. In addition, we give the students a list of questions to consider as they read the Colloquium papers: (1) what problem is the author addressing? (2) what is the thesis of the paper? (3) which normative approaches or tools is the author using (implicitly or explicitly) to address the problem? (4) how does the author conceptualize the role of the IRC? (5) is the author’s proposal an ideal proposal or a real proposal? and (6) is the proposal politically viable?
After two weeks of course introduction, Colloquium speakers present papers in the weekly class meetings. (Our approach is to have a paper presentation each week, not every other week; we do not discuss the papers with our students before the presentations.) The students read all of the draft papers and submit three written questions to Katie and Ted before each presentation. The format for each Colloquium presentation is like a faculty workshop, but with a longer Q & A period; the Colloquium speaker presents the paper for about a half hour; the Commentator responds for 10-15 minutes; the discussion takes up the rest of the two-hour class session. The Colloquium students ask questions, comment on the papers, and participate fully in the discussions. Several of the fall 2007 Colloquium speakers remarked that the student comments were quite thoughtful and interesting.
The Colloquium students also write four reaction papers (of 8-12 pages each) over the term. Two of the reaction papers are pre-presentation papers and two are post-presentation papers. We assign the reaction papers based on the students’ preferences. (In our first class meeting, we distribute the list of Colloquium presentation topics and ask the students to rank the topics according to their preferences.) We try to allocate the reaction paper assignments evenly across the various papers being presented.
Grades are based on: (1) the four reaction papers, (2) the written questions submitted weekly, and (3) class participation. There is no final exam.
Hickman: Responding to Treasury's (Lack of) Compliance with APA Rulemaking Requirements
Kristin E. Hickman (Minnesota) has posted A Problem of Remedy: Responding to Treasury's (Lack of) Compliance with Administrative Procedure Act Rulemaking Requirements, 76 Geo. Wash. L. Rev. ___ (2008), on SSRN. Here is the abstract:
In earlier work, I found that more than 40% of Treasury regulations studied are susceptible to legal challenge for their failure to satisfy Administrative Procedure Act rulemaking requirements. Given this finding, why is it that taxpayers rarely raise such claims? The article explores this question and focuses particularly on statutory and doctrinal limitations on pre-enforcement judicial review in the tax context and their role in further limiting post-enforcement challenges. Although the article proposes ways in which the courts could relax the limitations on pre-enforcement judicial review in tax cases, the article also acknowledges that the courts are unlikely to change course and that congressional action may be necessary.
Heriot: The ABA's "Diversity" Diktat
If you have ever wondered why colleges and universities seem to march in lockstep on controversial issues like affirmative action, here is one reason: Overly politicized accrediting agencies often demand it.
Given that federal funding hinges on accreditation, schools are not in a position to argue. That is precisely why the U.S. Department of Education, which gives accreditors their authority, must sometimes take corrective action. George Mason University's law school in northern Virginia is an example of why corrective action is needed now. ...
[I]t is up to the Education Department to bring the ABA to heel. In 2006, when the ABA's status as accreditor was itself up for renewal, opposition came from many quarters on many grounds. Surprised, the Education Department put the ABA on a short leash, giving it only 18 months before its next renewal, and requiring it to submit its official correspondence for inspection.
It is now time to find permanent solutions to the problems of ABA abuse. Foremost on the Education Department's list should be to get the ABA out of the diversity business. It is one thing for a law school to adopt its own discriminatory admissions policies; it is quite another to force it to do so on pain of losing federal funding.
McLure: Uniformity and Diversity in State Corporate Income Taxes
Charles E. McLure Jr. (Stanford University, Hoover Institution) has published Understanding Uniformity and Diversity in State Corporate Income Taxes, 61 Nat'l Tax J. 141 (2008). Here is the abstract:
This article describes generic forces creating uniformity and diversity in state corporate income taxes, examines several episodes in the evolution of these taxes to determine how uniformity—or the lack thereof—came about, and discusses whether the Uniform Division of Income for Tax Purposes Act is likely to be revised to make it more sensible and more comprehensive. The episodes examined involve the definition of income, the choice of methods of dividing income among the states, jurisdiction to tax, apportionment formulas, and combination of the activities of related entities. The article does not discuss harmonization of tax rates.
TaxProf Blog Weekend Roundup
- Tax Problems Threaten Al Franken's Senate Candidacy
- Structuring a Tax Policy Workshop Series -- Boston College
- Government Victories Using the Economic Substance Doctrine
- Ex-Dividend Day Price and Volume: The Case of 2003 Dividend Tax Cut
- Top 5 Tax Paper Downloads
- Structuring a Tax Policy Workshop Series -- Texas Tech
- Virginia Bar Sanctions Tax Lawyer
- Feldstein: Effects of Taxes on Economic Behavior
- Using Insurance Law and Policy to Interpret §§ 165 & 213
April 27, 2008
Top 5 Tax Paper Downloads
There is a bit of movement on 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 #4 and #5:
1. [349 Downloads] Deduction Ad Absurdum: CEOs Donating Their Own Stock to Their Own Family Foundations, by David Yermack (NYU, Stern School of Business) [blogged here]
3. [151 Downloads] Empty Promises: Settlors' Intent, the Uniform Trust Code, and the Future of Trust Investment Law, by Jeffrey A. Cooper (Quinnipiac) [blogged here]
4. [108 Downloads] Taxation as a Global Socio-Legal Phenomenon, by Allison Christians (Wisconsin), Steven Dean (Brooklyn), Diane M. Ring (Boston College) & Adam H. Rosenzweig (Washington University) [blogged here]
5. [107 Downloads] Zappers: Tax Fraud, Technology and Terrorist Funding, by Richard Thompson Ainsworth (Boston University) [blogged here]
Structuring a Tax Policy Workshop Series -- Texas Tech
Bryan Camp (Texas Tech) offers his perspective as the convenor of a non-tax workshop series at Texas Tech, as part of our series on how to best structure a tax policy workshop series:
I LOVE colloquia! We did them at my undergrad (Haverford), and I did several in my grad work in history. I run one here at Texas Tech every other year, ostensibly on the topic of slave law, but more abstractly on consideration of a lawyer's proper role in an immoral legal system. From this experience I offer several ideas:
- Focus on basics. Often, the best learning and the best advancement in learning comes through re-examination of first principles. This is where students are very helpful because they bring to THEIR learning of first principles a whole different set of preconceptions that those of us who have been around bring to the table. Basic questions are opportunities to test and retest assumptions. I do not think you can select articles that are "too" basic to generate a good start.
- Give all participants a shared vocabulary. As a corollary to (1) I like to choose readings for the first 3-4 weeks that give the group access to common vocabulary so that we can quickly start to move to more efficient communication patterns.
- Don't always choose the "best" articles. I actually like to use articles that may have some serious deficiency, because that really generates good discussion. You can structure a good discussion around the deficiency (debating whether it really is a deficiency and, if so, what the consequences are for the article's thesis or future work).
- Require all participants to turn in at least three thoughtful questions about the readings and use those questions to structure the discussion. This helps moderate discussion because you have basically a list of stuff each person is ready to talk about. This also really works well when you designate students as the discussion leaders. It helps them find focus and structure and keep the class from becoming just a beery bull session. It also allows discussion leaders to keep the "gunners" in line: they can always switch to a question from someone else.
- Designate one or two participants to write a 10 page paper (no longer!) critiquing one of the readings for the week and designate another participant (or two) to be the designated "defenders" of the critiqued work. This takes some advance planning because the papers need to be distributed the week before the discussion takes place. The idea is that the class will read the designated works for the week and at the same time read one or two of their colleague's thoughts/critiques on the matter.
Those are some ideas that I think really help make a colloquium work well. Yep, I just LOVE colloquia!
Virginia Bar Sanctions Tax Lawyer
Last month, I blogged the disciplinary proceedings involving a Virginia tax lawyer who had contended that his tax services provided to clients were "administrative" services not involving an attorney-client relationship. On Friday, the Virginia three-judge court imposed a series of sanctions against the tax lawyer for violating Virginia Rule 7.1 by providing false or misleading information about his services to potential clients. (Hat Tip: our sister Legal Profession Blog.)
Feldstein: Effects of Taxes on Economic Behavior
This paper discusses how the effects of taxes on economic behavior are important for revenue estimation, for calculating efficiency effects, and for understanding short–term macroeconomic consequences. The primary focus is on taxes on labor income but some attention is given to taxes on the income from saving. Specific calculations illustrate the importance of behavioral responses for accurate calculation of the revenue effects and deadweight losses of tax changes.
Using Insurance Law and Policy to Interpret §§ 165 & 213
Andrew Blair-Stanek (J.D. 2008, Yale) has published Note, Using Insurance Law and Policy to Interpret the Tax Code's Loss and Medical Expense Provisions, 26 Yale L. & Pol'y Rev. 309 (2007). Here is the Conclusion:
Insurance law and policy have developed over centuries at the hands of innumerable judges, legislators, and regulators. The practices of the insurance industry have emerged from the input of these government actors, as well as from scholars, consumer groups, and data on literally hundreds of millions of policies. Insurance case law provides well-reasoned, policy-oriented resolutions to a wide variety of situations and problems in the tax context. In interpreting and implementing the partial insurance programs of §§ 165 and 213, the IRS and the federal courts have much to gain from looking to insurance law for precedent and guidance.
April 26, 2008
Tax Problems Threaten Al Franken's Senate Candidacy
Business Mishaps Threaten Franken Campaign: Rivals Are Pouncing on Charges of Unpaid Taxes and Workers Comp (Minneapolis Star Tribune), by Patricia Lopez & Kevin Duchschere:
Al Franken's career as an entertainer made him famous and rich and positioned him to run for the U.S. Senate. But now, just as he appears on the verge of securing the DFL endorsement to take on Republican Sen. Norm Coleman, Franken could be tripped up by missteps in the way his show business enterprise was run. ...
On Friday, Franken's campaign manager, Andy Barr, declined to say whether Franken had paid taxes on earnings in California between 2003 and 2007. He said Franken's accountant is working with California officials to sort things out.
The latest Republican charge that Franken's taxes there have gone unpaid comes in the wake of earlier disclosures that Franken failed to pay workers' compensation and disability premiums in New York and botched the dissolution of his California corporation. Since then, Franken has paid more than $25,000 in fines to New York and still owes more than $4,700 in corporate taxes and fines to California.
More press and blogosphere coverage:
- Associated Press: Franken Acountants Looking Into Extent of Tax Problem, by Patrick Condon
- Minneapolis Star Tribune: New Round of Financial Questions Dogs Franken, by Kevin Duchschere & Patricia Lopez
- Taxable Talk: Is Al Franken the Next Celebrity Tax Scofflaw?, by Russ Fox
Structuring a Tax Policy Workshop Series -- Boston College
Jim Repetti and Diane Ring, co-hosts of Boston College's Tax Policy Workshop Series, continue our series on how to best structure a tax policy workshop series:
The Boston College Law School Tax Policy Workshop Series involves guest speakers presenting their papers to faculty from BC and other Boston area schools, BC alumni who are tax practitioners or government policymakers, and students who have a strong interest in tax.
Papers for each workshop are emailed to participants at least one week in advance. We limit the number of attendees to 20 and seat everyone around one large table in order to maintain an informal and relaxed atmosphere. After lunch is served, the presenter speaks for about one half hour followed by discussion and questions for another hour.
This was our first year running the workshop. We had had a great time, learned a lot, and enjoyed the company of wonderful guest speakers. Even our non-tax faculty have commented how much they have enjoyed the workshops!
Government Victories Using the Economic Substance Doctrine
Timothy R. Hicks (J.D. 2008, Cumberland) has published Comment, Government Victories Using the Economic Substance Doctrine: A Changing of the Tide in Tax Practice? 38 Cumb. L. Rev. 101 (2008). Here is the Conclusion:
In America, as perhaps nowhere else, businesses and taxing authorities play the “tax shelter game” with unrivaled dedication. From time to time, the IRS launches a full on attack using a host of judicially sanctioned weapons. In light of such an onslaught, the tax shelter industry retreats only to return with innovative and intricate ways to minimize their corporate tax bills. Without question, the government is currently on the attack using the economic substance doctrine as its main artillery, but the true impact of the government's recent appellate successes is not yet known. However, as if the Service had any doubts, the tax shelter game will not end with this line of government victories; it will continue as long as there are tax savings to be had and tax practitioners with creative solutions to paying corporate tax.
Ex–Dividend Day Price and Volume: The Case of 2003 Dividend Tax Cut
Yi Zhang (University of Nebraska, College of Business Administration), Kathleen A. Farrell (University of Nebraska, College of Business Administration) & Todd A. Brown (Stephen F. Austin State University, Department of Finance) have published Ex–Dividend Day Price and Volume: The Case of 2003 Dividend Tax Cut, 61 Nat'l Tax J. 105 (2008). Here is the abstract:
We examine the impact of the 2003 dividend tax cut, which removes the differential taxation between dividends and capital gains for individual investors, on the ex–dividend day price and trading volume. We find the ex–dividend day price and volume are affected by taxes, risk, and transaction costs. The ex–dividend day price drop ratio (excess return) increases (decreases) and dividend clienteles weaken after the tax cut. Ex–dividend day abnormal volume among high dividend yield stocks decreases after the tax cut consistent with a diminished motivation for tax–induced trading. Our results suggest that individual investors have a measurable effect on the ex–dividend day price and trading volume.
April 25, 2008
More on Whether Winning Bidder of $175k David Ortiz Jersey Can Claim $174k Charitable Deduction
Following up on this morning's post on whether the buyer of David Ortiz's Red Sox jersey buried in the concrete of the new Yankee Stadium by a construction worker can claim $174,385 of the $175,100 paid for the jersey at an eBay auction as a charitable deduction: Bryan Camp (Texas Tech) offers his thoughts:
Hi all, great exam question which can test 2 doctrines, the “to or for the use of” language in § 170(c), and the fmv issue that Paul identifies in his post. Both are cool issues.
The first issue turns, I think, on the identity of the seller. If the seller is a § 501(c)(3) org, then the payment of cash is “to” a charity. From the AP account, that is what actually happened. The Yankees donated the jersey to the Jimmy Fund, presumably a qualified charity and it was the Jimmy Fund that sold the jersey.
But you can have fun with the facts, I think, if you posit that the seller was NOT a § 501(c)(3) org. So say it was actually the Yankees that sold the jersey. Then, to take the charitable deduction, the buyer has to make some argument that the payment is being made in trust or some similar arrangement, Davis v. United States, 495 U.S. 472, 483 (1990) (donation is “for the use” of when it is made to a trust or trust-like entity which is obliged to disburse the funds to or on behalf of qualified charitable organizations who “must have significant legal rights with respect to the disposition of donated funds”). So the Jimmy Fund must have had some significant LEGAL rights to the sale proceeds, otherwise it would just be the Yankee’s donation. You need some binding arrangement that give the Jimmy Fund significant legal rights to the sale proceeds. Dealing with this first issue is a matter of good planning. So this might be a good fact pattern to test that part of § 170.
The second issue, of course, is the one Paul id’s in his post. I would raise it by asking students whether both the buyer AND the Yankees get a charitable deduction and, if so, for how much? Again, this could be a matter of planning. If the Jimmy Fund had purchased the jersey from the Yankees for $715, then you would now at least have a market transaction that you could argue established a fmv for the jersey. But it seems to me that the buyer is in a much more difficult position to assert the $175k as a donation.
Of course, there seems to always be a baseball exception to every tax rule --- witness the record-setting home run baseball issue and, of course, Artnell.
Structuring a Tax Policy Workshop Series -- UConn
Ruth Mason, host of UConn's Tax Lecture Series, continues our series on how to best structure a tax policy workshop series:
Established in 2006, the University of Connecticut Tax Lecture Series is not a formal course. Instead, throughout the year, we have invited three to four tax faculty members from other schools, aiming for two lectures in the fall and two in the spring. Lectures are open to the whole law school community, and student participation has been fairly active, in part because the tax faculty strongly encourages our students to attend, and the paper is available at least a week in advance of the lecture. I also ask the students in my classes who will attend the lectures to write out questions in advance of the lecture, which I think has contributed to the high quality of the discussion. Additionally, when a lecture touches on other areas of law, I usually contact the relevant faculty member. So, for example, when Michael Tumpel of Johannes Kepler University in Linz talked about indirect taxation in the European Union, I contacted my colleague Willajeanne McLean, who teaches EU law. She asked her students to attend the lecture, which produced an informed audience. Since the lecture series is not a formal course, the students do not have the benefit of the kind of advanced discussion that takes place at NYU or Indiana.
Call for Tax Papers: Empirical Legal Studies Conference at Cornell
The Conference on Empirical Legal Studies to be held at Cornell Law School on September 12-13, 2008, has extended its deadline for papers from April 15 to May 16. Papers will be accepted in over two dozen areas of law, including tax. For more details, see here.
WSJ: McCain and Taxes
Wall Street Journal editorial, McCain and Taxes:
John McCain, the Republican nominee for President, has proposed extending the Bush tax cuts. So as morning follows night this week, Democratic news analysis has been pouring forth to proclaim that his tax ideas are a threat to the republic because they'll explode the budget deficit. The Senator needs to understand that he can't win this election by playing on this economic turf.
The subtext of the criticism of the McCain tax plan is that it would somehow "starve" the government of revenue. ...
If all the tax cuts expire, however, we would see the largest tax increase in U.S. history and that percentage of national income going to the Treasury would climb steeply higher. In which economics text is it written that the cure for a slowing economy is an unprecedented tax increase? ...
The past week's criticisms are intended to bait Mr. McCain into debating his tax cuts on these liberal terms. He can only win this debate, and the election, by breaking free of that mindset and making his own personal case for lower taxes and the prosperity they help to create.
Update: For a contrary view, see Citizens for Tax Justice: McCain's Transformation Complete: Tax Cuts for the Rich, Even if We Cannot Pay for Them.
RateMyProfessors.com Correlates with Student Evaluations
In today's Inside Higher Ed: Validation for RateMyProfessors.com?, by Scott Jaschik:
You’ve heard the reasons why professors don’t trust RateMyProfessors.com, the Web site to which students flock. Students who don’t do the work have equal say with those who do. The best way to get good ratings is to be relatively easy on grades, good looking or both, and so forth.
But what if the much derided Web site’s rankings have a high correlation with markers that are more widely accepted as measures of faculty performance? Last year, a scholarly study found a high correlation between RateMyProfessors.com and a university’s own system of student evaluations. Now, a new study is finding a high correlation between RateMyProfessors and a student evaluation system used nationally.
A new study is about to appear in the journal Assessment & Evaluation in Higher Education and it will argue that there are similarities in the rankings in RateMyProfessors.com and IDEA, a student evaluation system used at about 275 colleges nationally ....
Sugin: Why Taxing Endowment is Unjust
Linda Sugin (Fordham) has posted Let the Beachcomber Drown: Why Taxing Endowment is Unjust on SSRN. Here is the abstract:
Many legal scholars who care about fairness in taxation are increasingly drawn to the idea of endowment taxation - a tax based on a person's ability to earn income, rather than on her actual income. For these scholars, endowment taxation is an appealing model for designing an actual tax system because, unlike income and consumption taxes, an endowment tax cannot be avoided by choosing leisure rather than work and is thus consistent with the intuition that tax should be based on one's ability to pay. This article evaluates equity-driven claims that endowment is the ideal tax base; to the contrary, it argues that the protection of liberty and equality, as understood in liberal egalitarian political theories, prohibits a tax on endowment. The article explains why the economist's attraction to endowment taxation is not compelling to those concerned about fairness. It suggests reframing the debate about tax equity away from so-called beachcombers - people who simply opt out of the social project - to take account of productivity that is undervalued or occurs outside the market. It explains why different deontological theories lead to different conclusions about fair taxes and compares the libertarian approach to endowment taxation with the liberal egalitarian approach. Last, it focuses on the apparent affinity of the equal opportunity norm for endowment taxation, comparing the work of John Rawls and Ronald Dworkin, and concludes that neither philosopher would embrace endowment tax as an ideal.
Can Winning Bidder of $175k David Ortiz Jersey Claim $174k Charitable Deduction?
A construction worker secretly buried a #34 David Ortiz Red Sox jersey in the concrete of the new Yankee Stadium in hopes of "cursing" the new ballpark. The Yankees unearthed the jersey and agreed to auction it off, with the proceeds to benefit the Red Sox' Jimmy Fund charity. The auction closed yesterday on eBay for $175,100. Along with the jersey, the winning bidder also received two tickets to a 2008 Red Sox home game at which he/she will be presented with the jersey; a new Ortiz road jersey; and a New York Yankees t-shirt.
The tax angle: the auction listing asserts that "amounts in excess of $715 are tax deductible. ... The FMV listed above is not negotiable and will be used for tax purposes. Income and other taxes, if any, are the sole responsibility of the winner."
Is this tax advice correct? Doesn't the winning bidder have "reason to know" the $715 does not represent the true fmv of the jersey? Like other collectibles such as record-setting home run balls, this jersey clearly has a fmv in excess of an off-the-shelf Ortiz jersey. See Reg. § 1.170A-1(h)(4):
(4) Donee estimates of the value of goods or services may be treated as fair market value—
(i) In general. For purposes of section 170(a), a taxpayer may rely on either a contemporaneous written acknowledgment provided under section 170(f)(8) and §1.170A–13(f) or a written disclosure statement provided under section 6115 for the fair market value of any goods or services provided to the taxpayer by the donee organization.
(ii) Exception. A taxpayer may not treat an estimate of the value of goods or services as their fair market value if the taxpayer knows, or has reason to know, that such treatment is unreasonable. For example, if a taxpayer knows, or has reason to know, that there is an error in an estimate provided by an organization described in section 170(c) pertaining to goods or services that have a readily ascertainable value, it is unreasonable for the taxpayer to treat the estimate as the fair market value of the goods or services.
Press and blogosphere coverage:
Structuring a Tax Policy Workshop Series -- Penn
Michael Knoll, Chris Sanchirico, and Reed Shuldiner, co-hosts of Penn's Tax Policy Workshop Series, continue our series on how to best structure a tax policy workshop series:
At Penn, we have been running our tax policy workshop since 2002. Each year, we invite roughly half as many academic speakers as there are class sessions. That generally means we have only five or six paper presentations. The week before each speaker's presentation one of us presents a lecture on the topic area of the speaker's paper. Before attending that preparatory lecture the students have read a set of background materials. The readings are intended to situate the speaker’s paper within the existing literature or introduce the students to some of the tools used by the speaker. We find that providing both background readings and a preparatory lecture for each speaker greatly raises the level of student interest and the quality of student questions and comments at the speaker's presentation.
The day of the presentation, we take the speaker to lunch or coffee before the talk. At that point, we ask our own questions, provide our own comments and generally engage the presenter in a lengthy discussion of the paper. At the presentation itself, we rarely interject ourselves, but rather we try to leave the hour and half to student comments and to the comments of other faculty who might be in attendance.
After the presentation, we take the speaker out to dinner and continue our discussion from lunch, adding interesting topics that arose during the presentation.
Students are required to write short reaction papers on four of the five speakers. Later in the semester we give them the opportunity to rewrite one of the papers.
Each year we have run the workshop, we have added one speaker from the government. Usually, the government speaker is a current senior tax official with substantial policy experience. The government speaker is usually off of the regular calendar to accommodate the speaker’s schedule and late in the semester. Although we give the government speaker the option to present a paper or assign readings, that option is rarely taken. Accordingly, we do not conduct a preparatory lecture for the government speaker.