May 31, 2008
Biggest Losers Under Obama's Plan to Remove the Current $102k Wage Ceiling for Social Security Taxes
Tax Foundation: Obama’s Plan to Abolish the Social Security Wage Ceiling: A State-by-State Breakdown, by Gerald Prante:
It is commonly observed that the policy ideas of Barack Obama and Hillary Clinton are almost identical, but Obama does have one major tax proposal that Clinton does not specifically endorse: eliminating the wage ceiling for Social Security taxes. ...
[T]here has always been a ceiling on the tax, an amount of annual wages above which the tax does not apply. Right now, the wage ceiling is quite high, $102,000 for a single person ... In 2008, the maximum Social Security tax for a single person is 12.4% of the first $102,000 in wages, or $12,648.
Reporters have asked Obama how he can propose to abolish the wage ceiling and also keep his promise not to raise taxes on anyone who makes less than $200,000 or $250,000 (Obama has cited both figures). His response is that he might campaign for a "donut hole" in the Social Security tax. That is, wages up to the ceiling would be taxed as usual, followed by a non-taxable amount up to $200,000 or $250,000, and then all wages above that would be taxed.
In the table below we give a state-by-state breakdown of those three scenarios: (1) wage ceiling is eliminated, (2) wage ceiling eliminated but with a donut hole up to $200,000, and (3) wage ceiling eliminated but with a donut hole up to $250,000.
Here are the ten states that would be hardest hit by Obama's proposal (along with the percentage of the state's workers who would see their taxes increase under the Obama plan):
- New Jersey (10.7%)
- Maryland (9.6%)
- Connecticut (9.5%)
- Virginia (9.0%)
- Massachusetts (8.9%)
- California (8.8%)
- New York (8.0%)
- Illinois (7.02%)
- Colorado (6.96%)
- New Hampshire (6.8%)
Here are the ten states that would be least affected by Obama's proposal (along with the percentage of the state's workers who would see their taxes increase under the Obama plan):
- Montana (2.4%)
- North Dakota (2.6%)
- South Dakota (2.9%)
- West Virginia (3.38%)
- Nebraska (3.41%)
- Idaho (3.44%)
- Wyoming (3.45%)
- Iowa (3.5%)
- Kentucky (3.6%)
- Mississippi (3.7%)
From Human Capital to Capital Gains: The Puzzle of Profits Interests
Sarah Pendergraft (McKee Nelson, Washington, D.C.; J.D. 2007, Virginia) has published Note, From Human Capital to Capital Gains: The Puzzle of Profits Interests, 27 Va. Tax Rev. 709 (2008). Here is the abstract:
This note discusses the tax treatment of a “money and brains” partnership. The tax treatment of a “brains” partner who performs services in exchange for a capital interest in a partnership is well settled. The treatment of a partner who receives an interest only in the partnership’s profits, however, has been controversial. Under current law, a partner who receives a profits interest can avoid paying ordinary income tax on the return to her labor, instead paying only capital gains. This surprising feature of the tax law has received a great deal of scholarly attention. The current literature has not, however, considered the nature of the services that the brains partner performs in exchange for her profits interest in the partnership. By failing to consider the nature of the contributed services, commentators have overlooked the gray area between services and property. Drawing a clear distinction between services and property is important, as property contributed to a partnership in return for an interest in that partnership is a tax-free exchange, while the contribution of services for such an interest is taxable. Such a distinction can only be drawn by recognizing that some human capital should be considered a form of property. In order to appropriately tax service partners, it is necessary to distinguish the services they provide from the property they contribute in the form of human capital.
Bassett: Changing Perceptions of Private Religious Schools: Public Money and Public Trust in the Education of Children
William W. Bassett (San Francisco) has posted Changing Perceptions of Private Religious Schools: Public Money and Public Trust in the Education of Children, 2008 BYU L. Rev. ___ (2008), on SSRN. Here is the abstract:
Private religious schools were originally intended to provide a sound secular education to children in their formative years, together with religious instruction and the experience of the life and culture of their faiths. In recent decades, however, as ongoing social and economic challenges have led to the deterioration of the public school system, private schools have been looked to as possible alternatives for educating public school children through such programs as tax-funded school vouchers.
But can these institutions be trusted to provide quality education without bias? In the last half century, Supreme Court opinions discussing public education and the Establishment clause have reflected a general distrust of parochial school systems. Public perception of religious schools has also changed little. The author argues, however, that private religious schools -- in particular Catholic schools -- have evolved to become more professional, more ecumenical, and more financially transparent, and thus are well positioned to offer viable alternatives to provide quality educational opportunities to public school children. But in order for these programs, such as school vouchers, to succeed, the public must be assured that religious schools will not divert taxpayer dollars into self-interested sectarian purposes.
May 30, 2008
7th Circuit Affirms Dismissal of Disgruntled Client's Suit Against Tax Advisors
The Seventh Circuit yesterday affirmed the district court's grant of summary judgment to J.K. Harris & Co. in a disgruntled client's suit alleging that the tax services firm breached its contract or comitted fraud in pursuing internal IRS appeals of a notice of definiceny but not a Tax Court proceeding. Patridge et ux. v. J.K. Harris & Co., No. 07-3461 (7th Cir. 5/28/08)
Fortune: The Role of Expert Opinions in the Tax Shelter Problem
In today's Fortune: Blowing the Whistle on Unethical Lawyers; Legal Professor William Simon Aims to Shame Colleagues Who Sell Their Opinions for the Right Price, by Roger Parloff:
In a forthcoming Stanford Law Review article titled The Market for Bad Legal Advice: Academic Professional Responsibility Consulting as an Example, Columbia Law School professor William Simon cites [examples of] patently bad advice offered in exchange for lucrative compensation by academics whom he contends are becoming "enablers of pernicious... practices." ...
Simon's article, the "take-no-prisoners" tone of which left me slack-jawed, contends that there is a systemic, recurring problem that arises when well-heeled clients go shopping for expert exonerations -- sometimes prior to doing something shady, sometimes after they've already done it -- to immunize themselves from civil liability or criminal prosecution. ... He cites the example of lawyers at another law firm who "gave hundreds of opinions to taxpayers to the effect that bizarrely complex and economically substanceless transactions ... were acceptable ways to reduce taxes. Some of them were virtually copies of transactions that the IRS had specifically condemned." ...
Simon's article seeks not just to diagnose the problem but also to prescribe and administer remedies. The most controversial will surely be the measure he calls "shaming." That process consists of having other academic ethics experts -- like Simon -- write law review articles brutally critiquing the opinions that their colleagues have offered while under retainer. This, he believes, will help deter the delivery of bad advice. ...
Here's Simon's theory as to how tainted advice is born: Clients ask lawyers to provide opinions that they plan to show to someone else -- like a regulator or jury -- if the client's conduct is challenged. A clear example is where the promoter of a dicey tax shelter offers a boatload of money to a law firm to opine that its Rube Goldberg-style investment has a genuine "business purpose" and should, therefore, pass muster with the IRS.
The letter is initially shown to prospective tax-shelter investors for marketing purposes, but otherwise remains confidential. If, however, the investors who sign up get audited and the IRS determines the tax shelter is bogus, the opinion letter remains valuable. That's because the investor can still wave it in the face of the IRS auditor and say, "How should I have known it was illegal? Such-and-such big-name law firm told me it was fine. Here's their letter!"
At least until 2004 -- when tax laws were modified to address abuses -- the erroneous letter would typically suffice to immunize the taxpayer from both civil penalties and criminal prosecution.
The problem is even worse, Simon contends, when the client seeks a self-serving opinion not from a law firm but from an ostensibly above-the-fray law professor. "The norms of the academy regard openness and transparency as an essential guarantee of the reliability of a scholar's views," Simon writes. But these norms do not pertain in litigation contexts. On the contrary, rules of confidentiality give the client control over the opinion's release, and generally bar the expert from otherwise discussing the matter.
The academic "invokes the authority of her role and institution as emblems of both acuity and impartiality," writes Simon, "yet she forswears the norms of openness that the academic world regards as essential to such claims." ...
I am now sufficiently old and decrepit to describe myself as a longtime observer of the American legal system. For what it's worth, I find Simon's analysis of what's wrong with legal ethics testimony to be not just dead-on, but cathartically so. How gratifying to finally hear someone speak truth to power so bluntly, boldly, and persuasively. The ethics emperors have no clothes on, and thank goodness the socially oblivious little boy has finally said it.
Tax Court: Tax Liens Not Discharged in Bankruptcy in Light of Taxpayer's Tax Evasion Conviction
In Bussell v. Commissioner, 130 T.C. No. 13 (5/29/08), the Tax Court yesterday held that the IRS did not abuse its discretion in excepting the unpaid tax liabilities of a surviving spouse and her husband's estate from a bankruptcy discharge where the wife previously had been convicted of attempted tax evasion.
NLJ: Is the Country Ready for Ten New Law Schools?
From next week's National Law Journal: A Deluge of Law Schools: As Many as 10 Are in the Works — But Are They Needed?, by Leigh Jones:
As many as 10 new law schools are in the works, with the majority of them proposed in the eastern part of the country.
While their proponents insist that the schools will serve the needs of their communities and beyond, the plans are drawing sharp criticism from those who argue that creating more law schools is irresponsible.
With three new law schools proposed in New York alone and others also in the early stages in Connecticut, Maine, Pennsylvania and elsewhere, developing facilities to pump out juris doctor degrees is the goal du jour for institutions looking to build a bigger name for themselves.
Planners assert that their schools will offer specialized programs and innovative curricula to J.D. hopefuls. Critics, however, point to a tight job market and starting salaries that do not cover the ballooning costs of tuition for the majority of students already graduating from the nation's hundreds of law schools.
IRS Service Center Employee Snoops on Tax Records of 200 Celebrities
From today's Cincinnati Enquirer: Did IRS Worker Snoop? Charges Say He Looked at 197 Celebrity Tax Records, by Jim Hannah:
An IRS tax examiner in Northern Kentucky was arrested Thursday on charges that he illegally looked up the personal information of nearly 200 celebrities and professional athletes. The victims include Hollywood stars such as Kevin Bacon, Alec Baldwin, Sally Field, Vanna White of "Wheel of Fortune" fame and the late Eddie Albert of the classic sitcom "Green Acres." The athletes include tennis champion Steffi Graf, Cincinnati Reds and Chicago Cubs players, and Bengals coach Marvin Lewis. ...
[John] Snyder was caught when authorities audited who was accessing personal and tax information stored on a federal database called the Integrated Data Retrieval Systems, according to the affidavit. ... Snyder, 56, faces up to a year in prison and a $250,000 fine at this time if found guilty of improperly accessing IRS data, a misdemeanor. ... Snyder has been employed by the IRS since 1991.
Other celebrities named as victims in the affidavit include John Cleese, Timothy Bottoms, Portia De Rossi, Penny Marshall, Randy Quaid, Tara Reid, Maura Tierney and Chevy Chase.
Tax Profs at Law & Society Annual Meeting
Here are the Tax Profs with speaking roles at the three-day Law & Society Annual Meeting in Montreal:
Law, Society, and Taxation #1 -- Tax and Budget Issues Facing the Next U.S. President
- Lisa Philipps (York University) (Chair/Discussant)
- Cheryl Block (Washington University), Earmarks and Budget Process Reform
- Neil H. Buchanan (George Washington), What Do We Owe Future Generations? Part 3: Environmental Constraints on Economic Growth
- Bobby L. Dexter (Chapman), Serfs at the Mercy of a Hungry Beast
- Jon Forman (Oklahoma), Tax and Budget Issues Facing the New President
Law, Society, and Taxation #2 -- Family and Taxes
- Roberta Mann (Widener) (Chair/Discussant)
- Richard Beck (New York Law School), Tax Treatment of Child Support
- Wendy Gerzog (Baltimore), Families for Tax Purposes: What about the Steps?
- Reginald Mombrun (Florida A&M), An End to the Deadbeat Dad Dilemma? Puncturing the Paradigm by Allowing a Deduction for Child Support Payments
- Michael J. Waggoner (Colorado), Section 71 Impoverishes Children, Endamgers Ex-Wives, and Creates Traps for the Poorly-Advised
Law, Society, and Taxation #3 -- Author Meets Reader: The Faithless Fiduciary and the Elusive Quest for Nonprofit Accountability
- Ann Thomas (New York Law School) (Chair)
- James J. Fishman (Pace) (author)
- Evan J. Criddle (Syracuse) (reader)
- Nina J. Crimm (St. John's) (reader)
- Norman I. Silber (Hofstra) (reader)
Law, Society, and Taxation #4 -- Roundtable: Same-Sex Tax Issues in Transnational Perspective: Canada and the United States
- Lee-Ford Tritt (Florida) (Chair)
- Anthony C. Infanti (Pittsburgh)
- Toni Robinson (Quinnipiac)
- Claire Young (University of British Columbia)
Law, Society, and Taxation #5 -- Roundtable: The Future of Critical Tax Scholarship
- Bridget J. Crawford (Pace) (Chair)
- Anthony C. Infanti (Pittsburgh)
- Kathleen Lahey (Queen's University)
- Beverly I. Moran (Vanderbilt)
Law, Society, and Taxation #6 -- Taxation as a Global Socio-Legal Phenomenon
- Karen Brown (George Washington) (Chair/Discussant)
- Allison Christians (Wisconsin), Does U.S. Tax Policy Breach International Law?
- Steven A. Dean (Brooklyn), Law School Tax Deharmonization: Radical Asymmetry in the International Tax Regime
- Diane M. Ring (Boston College), The Role of Sovereignty in International Taxation
- Adam Rosenzweig (Washington University), The Expressive Function of International Tax Law
Law, Society, and Taxation #7 -- Author Meets Reader: Making America Work
- Richard Schmalbeck (Duke) (Chair)
- Jon Forman (Oklahoma) (author)
- Cheryl Block (Washington University) (reader)
- Bobby L. Dexter (Chapman) (reader)
- Brian D. Galle (Florida State) (reader)
Law, Society, and Taxation #8 -- Fraud, Evasion, Valuation, and Tax Compliance
- Jeffrey A. Cooper (Quinnipiac) (Chair/Discussant)
- Linda M. Beale (Wayne State), Tax Advisers as First Interpreters
- Wendy Gerzog (Baltimore), Valuation Discounting Techniques: Terms Gone Awry
- Sarah Lawsky (George Washington), Probably? Understanding Statements about Risk and Uncertainty in Tax Law Law
Society, and Taxation #9 -- Taxing Fictions: Corporations and Entities as Taxpayers
- Debra Davis (Reish Luftman Reicher & Cohen) (Chair/Discussant)
- Bradley Borden (Washburn), Taxing Public and Private TICs
- Walter Schwidetzky (California Western), Integrating Subchapters S and K
- Richard Winchester (Thomas Jefferson), Corporations That Aren't: The Early Years of the Modern Income Tax
Law, Society, and Taxation #10 -- The Tax Treatment of Mutable and Immutable Differences: Race, Religion, and Sexuality
- Sarah Lawsky (George Washington) (Chair/Discussant)
- Karen Brown (George Washington), Are Blacks Overtaxed?
- Patricia Cain (Santa Clara), The Federal/State Tax Problem for Same Sex Couples
- Roberta Mann (Widener), Is Mohammed's Castle Deductible? Islam and the Tax Treatment of Mortgage Debt
- Richard Schmalbeck (Duke), 501 (Say What?): Proposing a New Exempt Category for Churches
Law, Society, and Taxation #11 -- Culture, Development, and Comparative Tax Analysis
- Diane M. Ring (Boston College) (Chair/Discussant)
- J. Clifton Fleming, Jr. (BYU) & Robert J. Peroni (Texas), Better Than Exemption
- Ruth Mason (Connecticut), Globalization, Progressivity, and Personal Tax Benefits
- Irma Johanna Mosquera Valderrama (Utrecht University), The Interaction of Tax Systems and Tax Cultures in an International Order for Taxation
Law, Society, and Taxation #12 -- Issues in International Taxation
- Irma Johanna Mosquera Valderrama (Utrecht University (Chair/Discussant)
- Kim Brooks (McGill University), Building on Musgrave: Is there Anything New to Say about Inter-Nation Equity?
- Arthur Cockfield (Queen's University), Protecting Taxpayer Privacy Under Enhanced Cross-Border Tax Information Exchange
- J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Ropes & Gray), Worldwide vs.Territorial Taxation
- Sol Picciotto (Lancaster University), The International Crisis of Income Taxation: Combating Tax Havens, Capital Flight, and Corruption
Law, Society, and Taxation #13 -- Justice, Equality, and Fairness
- Allison Christians (Wisconsin) (Chair/Discussant)
- Charlotte Crane (Northwestern), Which Promises Should We Keep? Of Roth IRAs, Rate Changes, and Tax Base Changes
- Joseph Dodge (Florida State), The Content of an Ability-to-Pay Income Tax
- Brian D. Galle (Florida State), Democracy v. Welfare: Hidden Taxes and Optimal Taxation
- Lisa Philipps (York University), Equality Rights Challenges to Tax Legislation
Law, Society, and Taxation #14 -- Administrative Issues of Taxation
- Ruth Mason (Connecticut) (Chair/Discussant)
- Linda M. Beale (Wayne State), Ability To Pay or Not to Pay: Taxpayer Elections and the Integrity of the Tax System
- Debra Davis (Reish Luftman Reicher & Cohen), Who Should Employees Trust? Evaluating the Employer-Based Retirement System
- Stephanie R. Hoffer (Ohio State), Tax Issues in Identity Theft
- John A. Miller (Idaho) & Robert Pikowsky (Georgia Institute of Technology), Taxation and the Sabbatical: Doctrine, Planning, and Policy
Law, Society, and Taxation -- The Intersection of Public and Private Work
- Neil H. Buchanan (George Washington) (Chair/Discussant)
- Ellen Dannin (Penn State), The High Cost of Low-Waged Jobs: A Tale of Privatization, People with Disabilities, and Low-Waged Work
- Robert M. Dannin (Suffolk), The Social Conflict Over School Choice in Ohio
- Peggie R. Smith (Iowa), Compensating Family Members as Paid Caregivers: Lessons for Feminist Theory and Implications for Employment Law
- Michael A. Zuckerman (Cornell), The Offshoring of American Government
Creating New Knowledge and Exploring New Approaches in the Law of Donative Transfers
- E. Gary Spitko (Santa Clara) (Chair/Discussant)
- Patricia Cain (Santa Clara), Proposal for an Estate Tax that Is Fair for Same Sex Couples
- Mary L. Fellows (Minnesota) &E. Gary Spitko (Santa Clara), An Empirical Study of Will Substitutes: The Creation of New Knowledge to Challenge Old Assumptions
- Ray Madoff (Boston College), Creating New Knowledge and Exploring New Approaches to the Law of Donative Transfers
- Lee-Ford Tritt (Florida), Sperms and Estates: The Unintended Estate Planning Consequences of Sperm Donations
Historical Perspectives on Corporate Law
- Richard Winchester (Thomas Jefferson), Corporations That Aren't: The Early Years of the Modern Income Tax
How the State Constitutes Race in Diverse Contexts
- Beverly I. Moran (Vanderbilt), Critical Tax Theory: Welcome to the Mainstream
Questioning Acts of Consent
- Toni Robinson (Quinnipiac), Tax Planning for Same-Sex Couples
Private Practice Lawyers -- Drivers of Contemporary Law Firm Culture
- Mitt Regan (Georgetown), Taxes and Death: The Rise and Demise of Jenkens and Gilchrist
Transnational Legal Orders -- Transnational Legal Orders and Domestic Systems
- Allison Christians (Wisconsin), The OECD and the Promotion of Transnational Tax Norms
IRS Announces Public Meeting of ACT, Names New Members
The IRS announced yesterday (IR-2008-75) that the Advisory Committee on Tax Exempt and Government Entities (ACT) will hold a public meeting on June 11 to present recommendations on ways to improve operations regarding employee retirement plans, tax-exempt organizations, tax-exempt bonds and federal, state, local and Indian tribal governments. The IRS also named eight new members to the 21-member ACT:
- Employee Plans:
- G. Daniel (Danny) Miller (Conner & Winter, Washington, D.C.) (new)
- Susan P. Serota (Pillsbury Winthrop Shaw Pittman, New York, NY) (new)
- Susan D. Diehl (PenServ, Horsham, PA) (continuing)
- Dodi Walker (Gross, Reed Smith, Pittsburgh, PA) (continuing)
- Michael M. Spickard (Summit Retirement Plan Services, Akron, OH) (continuing)
- Marcia S. Wagner (The Wagner Law Group, Boston, MA) (continuing)
- Exempt Organizations:
- Karin Kunstler Goldman (New York State Department of Law) (new)
- Jack B. Siegel (Charity Governance Consulting, Chicago) (new)
- Bonnie Brier (Children’s Hospital, Philadelphia, PA) (continuing)
- Fred T. Goldberg, Jr. (Skadden, Washington, D.C.) (continuing)
- Mary Rauschenberg (Deloitte Tax, Chicago, IL) (continuing)
- Ana Thompson (Charles & Helen Schwab Foundation, Palo Alto, CA) (continuing)
- Government Entities: Indian Tribal Governments:
- Joe Lennihan (Sutin Thayer & Brown, Sante Fe) (new)
- Dennis Puzz, Jr (Best & Flanagan, Minneapolis, MN) (continuing)
- Mary J. Streitz (Dorsey & Whitney, Minneapolis, MN) (continuing)
- Government Entities: Tax Exempt Bonds:
- Michael G. Bailey (Foley & Lardner, Chicago) (new)
- Joan M. DiMarco (BondResources Partners, Philadelphia, PA) (continuing)
- John G. Pasicznyk (Dormitory Authority, State of New York, Albany, NY) (continuing)
- Government Entities: Federal, State and Local Governments:
- Ruth Duquette (Director of Payroll and Tax Reporting, State of Michigan, Lansing) (new)
- Maryann Motza (Social Security Administrator, State of Colorado, Denver, CO) (new)
- Steven W. Hoffman (Ohio State University, Columbus, OH) (continuing)
The "Jock Tax": Fair Play or Unsportsmanlike Conduct
John B. DiMascio (J.D. 2007, Pittsburgh; Morgan Lewis, Pittsburgh) has published The "Jock Tax": Fair Play or Unsportsmanlike Conduct, 68 U. Pitt. L. Rev. 953 (2007). Here is part of the Introduction:
Part I will provide an extensive background of the development of the so-called jock tax. The discussion will consider the derivation of a state's authority to tax the income of a nonresident that is earned within its borders and study the application of such taxing authority to nonresident athletes. Federal income tax considerations will be ignored, as athletes are treated the same as all other taxpayers for determining federal taxable income. [FN16] Part II will shift the focus specifically to Mr. Strow's proposal in Washington, including an analysis of why the proposal as it stands will not become law and whether any alternatives exist for the four states that do not impose a personal income tax. Part III will further analyze the desirability of the jock tax generally and whether the tax as administered by the 20 imposing states is really much different than the proposal in Washington. The analysis will bring to light the ills present in the current scheme of nonresident athlete income taxation andwill be followed by the conclusion, suggesting the abolishment of the jock tax.
May 29, 2008
Knoll: Business Taxes and International Competitiveness
Around the world, policymakers are obsessed with the competitiveness of their domestic companies and domestically based multinational corporations (MNCs). Such concerns frequently influence policy, especially tax policy. In this paper, I develop a theory of how taxes affect the international competitiveness of businesses. I then use that theory to evaluate basic tax policy decisions, such as the choice between residence- and source-based taxation and the level of tax rates, and to understand the impact various provisions in the U.S. Internal Revenue Code are likely to have on the competitiveness of U.S.-based corporations and MNCs.
Lake Wobegon in Palo Alto: Stanford Switches to Honors/Pass Grading System
From an email sent today by Stanford Dean Larry Kramer (via Above the Law):
Yesterday afternoon, the faculty voted to adopt a grade reform proposal which will change our grading system to an honors, pass, restricted credit, no credit system for all semesters/quarters. The new system includes a shared norm for the proportion of honors to be awarded in both exam and paper courses. No grading system is perfect, but the consensus is that the reform will have significant pedagogical benefits, including that it encourages greater flexibility and innovation in the classroom and in designing metrics for evaluating student work.
David Lat writes:
[T]his may be a case of "be careful for what you wish for, you might just get it." The disadvantage of what we'd call an "under-articulated" grading system, like the one used by our alma mater, is that there are fewer opportunities to distinguish yourself academically. If you're a Rhodes Scholar, this "reform" is great; a barebones grading system allows you to "lock in" your pre-law-school record (and land a Supreme Court clerkship with relative ease). But if you're not a Rhodes Scholar, think hard about whether this is actually a good thing.
Another possible downside: an Honors-Pass grading system may dilute the academic environment. To be sure, some people are hyper-competitive tools in law school (we were). But grades do cause people to bring their "A game" (pun intended) to exams, papers, class discussion, and academic endeavors generally. If Stanford law students can land solid law-firm jobs with P-filled transcripts -- and we have every confidence that they can, since Yalies already do -- will they bother doing any work? Especially living in northern California, which has much nicer weather than New Haven?
WSJ: New IRS Rules Help Donors Vet Charities
Today's Wall Street Journal: New IRS Rules Help Donors Vet Charities; Revised Tax Form Will Make Nonprofits Reveal More About How They Spend, by Mike Spector:
Americans searching for the best places to make charitable donations are about to get more help from the federal government. The IRS, the tax agency that serves as the main regulator of nonprofits, is ramping up efforts to increase charities' transparency as donors clamor for better tools to evaluate how their money is spent. The first tangible signs of reform are happening now, as charities' annual tax form -- known as Form 990 -- gets a makeover for the first time in nearly 20 years. The changes promise to provide potential donors with a standardized, one-stop shop for information on charities amid a sea of varied nonprofit watchdog Web sites. Charities begin using the new form next year, when they report their 2008 information.
The form, which nonprofits must continue to make available to donors and others on request, will now include a top summary page listing comparative financial information -- revenues and expenses -- over a two-year period. The next page requires charities to detail their organization's accomplishments during the past year, moving that information closer to the front of the form than before. Other sections ask charities to provide more-detailed information about fund raising, governance and compensation for top executives and trustees.
Swain: A Comparative Look at International and State & Local Tax
John A. Swain (Arizona) has published Same Questions, Different Answers: A Comparative Look at International and State and Local Taxation, 50 Ariz. L. Rev. 111 (2008). Here is the abstract:
This Essay is a primer on the income taxation of cross-border transactions, comparatively examining the approaches of the U.S. federal government and the American states, and focusing on the problems of residency, enforcement jurisdiction, sourcing, and transfer pricing. The sourcing rules of each level of government share common flaws, while the approaches to the problem of transfer pricing offer the sharpest contrast. The differences between the two systems often are explained by the higher level of integration within the federal system, but as the global economy continues to integrate, the approaches may begin to converge.
TaxProf Blog Named "Top 50 Law School Blog"
This popular, informative, and easy to read tax law blog, written by Paul Caron, a professor at the University of Cincinnati Law School, offers topics touching on a range of issues that will be of interest to students, professors, and practicing lawyers alike. There’s even a post about Wesley Snipe’s failure to pay taxes and how the decision in the case could affect future tax enforcement.
- Brian Leiter's Law School Reports
- ContractsProf Blog
- Health Law Prof Blog
- Media Law Prof Blog
- TaxProf Blog
- Wills, Trusts and Estates Prof Blog
- Workplace Prof Blog
Happy Birthday, Bush Tax Cuts
The Treasury Department yesterday released two reports to mark the five-year anniversary of the 2003 Bush tax cuts:
- Recent Trends in Federal Tax Receipts as a Percentage of GDP
- Who Pays Most Individual Income Taxes?
- Income Mobility
- How Has the President’s Tax Relief Reduced the Marriage Penalty?
- Effect of Lowering the Top Individual Tax Rates on Flow-through Businesses
- Encouraging Investment
- How Might Taxpayers Respond to Higher Tax Rates?
The tax relief enacted during the President’s term in office, principally in the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, the Working Families Tax Relief Act of 2004, the American Jobs Creation Act of 2004, the Tax Increase Prevention and Reconciliation Act of 2005, and the Economic Stimulus Act of 2008, reduced taxes for everyone who pays income taxes as well as for business taxpayers. This document provides estimates of the aggregate tax reduction provided by the tax relief as well as estimates of the tax reduction received by representative taxpayers over the period 2001 through 2011.
Student Note Sides With Original Murphy Decision
Andrew Balcer (J.D. 2008, St. Louis) has published Comment, Can the Taxman "Tax Your Tears": Murphy v. IRS and the Inclusion of Personal Injury Compensation in "Income," 27 St. Louis U. Pub. L. Rev. 195 (2008). Here is part of the Conclusion:
The second Murphy decision contains language more deferential and broader than any other court case on the subject of income. Under all of the negative criticism and pressure from tax articles and tax scholars, Chief Judge Ginsburg's buckling is understandable. His buckling is also unfortunate. Some things are too solemn for Congress to tax so arbitrarily.
It was the hope of this Comment to instill in readers the notion that Congress cannot simply make up whatever it likes as a constitutional definition of income. It was a second goal that readers could see, through the brief histories set out in the paragraphs above, the changing conceptions of income and personal injury compensation that have existed throughout the country's history. After this reading, it should be apparent that personal rights to one's body and emotional-well being were not income as the Framers conceived the term, nor are they income now, in the twenty-first century. While society has moved past a stale definition of res income to a more dynamic and evolving definition under Glenshaw and Haig-Simons, there are still certain things, such as psychological health and human physical attributes, which Congress must leave solemn. This author's position is, of course, the minority view. However, as the concept of income has proven, even unfair notions of what is allowable eventually give way to more enlightened times.
Contemporary U.S. Tax Policy, 2d Edition
In Contemporary U.S. Tax Policy, C. Eugene Steuerle, one of the country’s most influential economists, offers an insider’s look at tax policy based on a quarter century of working with officials of all political stripes. Steuerle outlines the principles of taxation and the early postwar period before proceeding to a the tax policy battles that began with the Reagan revolution and continue today. Those expecting a simple story of triumph and defeat may be surprised. Rather than moving toward consensus and progress, tax policy history has been messy, repetitive, and often rancorous. Yet evolution—and even revolution—do occur. The second edition has been updated with a look at tax policy during the George W. Bush presidency.
May 28, 2008
IRS Wins AWG SILO Tax Shelter Case
AWG Leasing Trust v. United States, No. 1:07-CV-857 (N.D. OH 5/28/08):
With this action, two large national banks dispute adjustments that the Internal Revenue Service (“IRS”) made to partnership federal income tax returns for the 1999, 2000, 2001, 2002, and 2003 tax years. In those adjustments, the IRS found that the banks’ partnership, the AWG Leasing Trust, mis-characterized a 1999 transaction as a $423 million purchase of a German waste-to-energy facility. The IRS says the transaction was a thinly-veiled tax dodge that attempted to skirt IRS and Congressional action directed to limiting transactions that had the purpose of transferring tax deductions for rental payments, depreciation, amortization, and interest payments from tax neutral entities. As a result, the IRS claims that the Plaintiffs owe approximately $88 million in taxes for the 1999 - 2003 tax years and will owe much more for subsequent years.
As will be described below, the banks say that they paid $423 million on December 7, 1999 to buy a waste-to-energy facility in Wuppertal, Germany and should be allowed to depreciate the Wuppertal plant. The banks argue that their contemporaneous lease of the facility back to the original owner under a very long-term triple-net lease and their grant of an option to repurchase the facility does not defeat their claim of ownership rights to the facility.
The banks also say that they should be allowed to deduct interest on the $368 million long-term non-recourse loans that they obtained from two German banks to finance the transaction even though the loan proceeds went to escrow-type accounts that the German entity could not access and that were committed to paying the German company’s lease payments and to providing sufficient funding to complete the option exercise.
In deciding this case, the Court makes two determinations. First, the Court decides whether the 1999 transaction has economic substance apart from the tax benefits at issue. Second, the Court considers whether the banks enjoyed the benefits and burdens of ownership of the Facility when the transaction pre-funded the repurchase of the facility and also required the original owner to repurchase the facility unless it met near-impossible conditions. As will be described, the Court finds that the transaction had some minimal substance apart from the tax benefit. However, the Court finds that the Plaintiffs never obtained an ownership interest sufficient to obtain a depreciable interest in the facility. The Court further concludes that the Plaintiffs are not entitled to deductions for interest paid or accrued on the underlying transaction loans because such loans do not constitute genuine indebtedness.
For the reasons that follow, this Court SUSTAINS the IRS’s determination that the Plaintiffs’ asserted tax benefits relating to the AWG transaction are improper. The Court DENIES the Plaintiffs’ claimed depreciation deductions under § 168, interest expense deductions under § 163(a), and amortization of transaction costs deductions. The Court also upholds the IRS’s imposition of accuracy-related penalties at the partnership level for substantial understatement of tax liability under § 6662(a)
IRS Seeks Grant Applications for Low Income Taxpayer Clinics
Under the LITC grant program, the IRS awards matching grants of up to $100,000 per year to develop, expand or maintain low income taxpayer clinics. The program is in its tenth year and continues to expand. To date in 2008, the LITC Program Office has awarded LITC grants to 154 organizations in 50 states, the District of Columbia, Puerto Rico and Guam. ...
The application period for this grant will run from May 27, 2008, to July 7, 2008. The grant will cover the 2009 grant cycle, from Jan. 1, 2009, through Dec. 31, 2009. Applications must be postmarked or filed electronically by July 7, 2008.
For more information, see:
- IRS Press Release (IR-2008-74)
- Publication 3319: Low Income Taxpayer Clinic Grant Application
- Publication 4134: Low Income Taxpayer Clinic List
WSJ: New Law Makes Escape Tougher For Tax Exiles
Article in today's Wall Street Journal: New Law Makes Escape Tougher For Tax Exiles, by Martin A. Vaughan:
It's been called "the ultimate estate plan": moving to a desert island or other far-off locale to escape the clutches of the IRS. Indeed, hundreds of Americans do formally renounce their U.S. citizenship every year, many in order to protect their wealth from income, estate and gift taxes. But last week, Congress may have made life less rewarding for tax exiles. ...
Now, after years of threatening to do so, Congress has passed a law that will tax the assets of those who leave for good on their way out the door, as if they were selling those assets. But tax experts say the more significant change may be a provision that taxes U.S. heirs on amounts given or left to them by ex-U.S. citizens. Taxing the recipient instead of the donor will make it harder to get around the tax rules.
2008 Tax Filing Season: E-filing Up 12.0%, IRS Web Site Visits Up 44.5%
The IRS announced today (IR-2008-73) that the just-finished 2008 filing season set records:
- e-filing: 86.35 million returns, up 12.0% from last year
- 59.98 million of these were prepared by tax professionals, up 9.2%
- 26.37 million of these were self-prepared, up 19.1%
- web usage: 205.65 million hits to IRS.gov, up 44.5%
2008 FILING SEASON STATISTICS
Cumulative through the weeks ending 5/18/07 and 5/16/08
Individual Income Tax Returns
Visits to IRS.gov
WSJ: Michigan's Tax Warning
Editorial in today's Wall Street Journal: Granholm's Tax Warning:
It's no fun to kick a state when it's down – especially when the local politicians are doing a fine job of it – but the latest news of Michigan's deepening budget woe is a national warning of what happens when you raise taxes in a weak economy.
Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be "invested" in social spending and new businesses and lead to a Michigan renaissance.
Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales. Michigan is now in the 18th month of a state-wide recession, and the unemployment rate of 6.9% remains far above the national rate of 5%
Tax Analysts and TRAC Issue First of Monthly Series of Tax Enforcement Reports
Tax Analysts and the Transactional Records Access Clearinghouse of Syracuse University have joined forces to offer a new series of monthly reports on a range of tax enforcement subjects, beginning with the use of the government's criminal powers. Forthcoming monthly reports will focus on tax audits, tax collections, and other related issues.
This month's report on Tax Evasion Prosecutions for Fiscal Year 2007 finds 196 new tax evasion prosecutions. In comparison with prior periods, the number of 2007 tax evasion prosecutions is:
- Down 5.3% from last year
- Down 8.4% from five years ago
- Down 49.4% from ten years ago
- Down 68.7% from twenty years ago
The judicial districts with the most tax evasion prosecutions were:
- 1. Southern District of Ohio: 12
- 2. Central District of California: 11
- 3. Northern District of California: 10
- 4. Northern District of Texas: 10
- 5. New Jersey: 9
- 6. Connecticut: 7
- Northern District of Ohio: 7
- Western District of Pennsylvania: 7
- 9. Northern District of California: 6
- Nevada: 6
Hire an Ex-Con, Get a Tax Break
From the Associated Press: Hire an Ex-Con in Philly, Get a Tax Break:
[T]he city of Philadelphia is making a concerted effort to encourage the hiring of ex-convicts amid a renewed interest nationwide in dealing with high recidivism, growing crime rates and exploding prison populations. Philadelphia averaged a murder a day the past two years and has been sued to reduce its overcrowded, record-high jail population. So, on his 100th day in office last month, Mayor Michael Nutter announced a program, being headed by an ex-offender, that gives $10,000 a year in municipal tax credits to companies that hire former prisoners and provide them tuition support or vocational training.
(Hat Tip: Doug Berman.)
O'Reilly: Principles of Efficient Tax Law: Apocrypha
In this paper, I examine guidelines that legal scholars have suggested for evaluating tax law in terms of economic efficiency. A common theme is that the efficiency of the tax treatment of a transaction is related to an elasticity or elasticities of some sort. Daniel Shaviro considers realization in terms of efficiency. Shaviro suggests that efficiency is promoted by "taxing more lightly the consequences of decisions that are tax-elastic." In separate articles, David Weisbach and Deborah Schenk each proposes evaluating certain tax policies on the basis of the policy's effect on the elasticity of taxable income. In other work, David Weisbach concludes that the determination whether a good is excluded from the tax base should be based on the principle that goods should be taxed like their close substitutes. Weisbach establishes this principle for a case in which lump-sum taxation is feasible and conjectures that the rule essentially applies to other means of offsetting the revenue effects of changing the tax base, such as adjusting income tax rates.
I conclude that these proposed guidelines are unsatisfactory: Economic theory generally does not support determining the efficiency of tax policy based on elasticities. This paper also notes an important qualification to a result by Louis Kaplow and Steven Shavell about the advantages of redistribution using an income tax over redistribution via legal rules: their result does not follow unless the income tax base is comprehensive. Yet some economists estimate that over a third of consumption is excluded from the tax base.
IRS Chief Counsel Issues Best Practices for Brief Review
The IRS's Office of Chief Counsel has issued CC-2008-016 (5/21/08), which provides best practices to be followed by IRS attorneys in the brief review process:
Early and frequent communications are essential between Field and National Office attorneys to ensure a timely and quality brief and an efficient work relationship.
ABA Tax Section Offers Teleconference & Webcast Today on Recent State Tax Reforms: Ohio, Texas and Michigan
The ABA Tax Section offers a teleconference and webcast today on Update on Recent State Tax System Reforms (Case Studies: Ohio, Texas and Michigan) from 1:00 - 2:30 p.m. EST:
This presentation will involve overviews and insights about Ohio’s Commercial Activities Tax (the "CAT"); the reformed Texas franchise tax (the "Margin Tax") and Michigan’s new Michigan Business Tax (the "MBT").
The three panelists are all current or former executives from their respective state taxing authorities in Ohio, Texas and Michigan. They will provide "insider" overviews of these new tax laws, comparisons between the new taxing systems and those that they have replaced and an update on the latest state guidance on current and prospective compliance issues.
This program is a "must-hear" for tax attorneys who represent taxpayers that do business in any or all of these states, and is an updated encore performance of the presentation that the same panelists gave at the ABA/IPT Advanced Income Tax Seminar in March 2008.
- Lynn A. Gandhi (Honigman Miller Schwartz & Cohn, Lansing, MI (Moderator))
- Janet Spies (Office of the Comptroller of Public Accounts, Austin, TX)
- Glenn R. White (Michigan Department of Treasury, Lansing, MI)
- Thomas M. Zain (McDonald Hopkins, Columbus, OH
May 27, 2008
Delgado: The Myth of Upward Mobility
Richard Delgado (Pittsburgh) has published The Myth of Upward Mobility, 68 U. Pitt. L. Rev. 879 (2007) (reviewing Michael J. Graetz & Ian Shapiro, Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth (Princeton University Press, 2005), & Charles Murray, In Our Hands: A Plan to Replace the Welfare State (American Enterprise Institute Press, 2006)). Here is the Conclusion:
Joseph Campbell and others have argued that a society's myths say much about it and are important ways it organizes its business. With upward mobility, society needs a better myth. The current one is dysfunctional -- individualistic, unrealistic, and prone to promise more than it can deliver. Descriptively, or even aspirationally, it lacks any mooring in our current circumstances.
American society, and especially ordinary workers, would do better to substitute a new narrative -- that of working-class solidarity -- for the current version that does such mischief. An emphasis on working class solidarity would assure steady group progress and would include such aims as better education, stronger unions, better occupational health and safety requirements, a higher minimum wage, and a safety net of services, including health care, for those who need them. It would seek changes that would benefit everyone, substituting genuine progress for mythical dreams or misnamed TV shows that do not depict reality at all.
It would capture the teaching of Graetz and Shapiro that dreams do not happen merely because we desire them, but require work, vigilance, and resistance to false rhetoric. The new myth would reject simplistic remedies such as Murray's flat-grant solution, substituting programs that rekindle hope, inspire community, and do not dissipate our national treasure in trivial ways that have little chance of making a lasting contribution to the fair and just society that we aspire to be.
ABA Tax Section Submits Comment Letters
The ABA Tax Section has submitted comment letters on:
- Example 4 of Reg. § 1.367(b)-4(b)(1)(iii)
- Guidance under § 529
- Funding of the Joint Committee on Taxation
- Correction Program for Nonqualified Deferred Compensation Plan Failures under § 409A
- Final Regs under § 337(d) Relating to Conversion Transactions
Why A Porn Tax Is Unconstitutional
It seems to me the tax would likely be unconstitutional. Content-based taxes on the sale of First-Amendment-protected materials (and recall that the law targets not just unprotected and illegal obscenity, but also constitutionally protected pornography) are generally forbidden, see Arkansas Writers' Project v. Ragland (1987).
NYSBA Issues Tax Reports
The New York State Bar Association Tax Section has issued several tax reports:
- Notice 2008-20: Intermediary Tax Shelters (1156)
- Revenue Procedure 2003-65 (1155)
- Transactions Between a Risk Protection Buyer and an Individual "Cell" of a "Protected Cell Company" Outside the Insurance Context (1154)
- Recommending Repeal of Section 562(c) With Respect to RICs and REITs (1153)
- Treasury Regulations Sections 1.368-1(d) and -2(k) (1152)
- Modifications to Commercial Mortgage Loans Held by a Real Estate Mortgage Investment Conduit (REMIC) (1151)
- Report on Proposed Treasury Regulation Section 1.1502-13(g) Relating to Intercompany Obligations (1150)
- Report on the Proposed Amendments to Circular 230 Relating to Standards with Respect to Tax Returns (1149)
- Canadian-U.S. Treaty Protocol -- Payments Through Hybrids (1148)
- New York Stock Transfer Tax (1147)
Using ExpressO to Implement Law Review Submission Reform
In response to my post on law review submission reform, my new junior colleague Lynn Bai proposed a simple but elegant solution to the current madness of faculty submitting articles to often over a hundred law reviews and then using the expedited review process to trade up the food chain: allow faculty to submit to as many law reviews as they like, but they must accept their first offer. Al Brophy (North Carolina) applauded the idea but feared that it would be "enormously difficult to get law reviews to agree to it." Jack Chin (Arizona) has proposed using ExpressO to implement the reform:
I assume it would be technically simple to add to the ExpressO submission system an option committing the author to accept the first offer. This information would be sent with the article and cover letter to the journals. Journals, in turn, could accept such a piece on line, and all the other journals informed that it was no longer available. Perhaps the journals would also be told the number of other journals to which a particular paper had been submitted; if five, they would pay more attention than if fifty.
One of ExpressO's advantages is the many journals using its service, so ExpressO would not want to do anything that would drive off law reviews. But it is hard to see why journals would object to being told that the authors of particular pieces will accept the first offer. Journals would not have to prioritize review of such pieces. They might appreciate not having to waste time reviewing articles they have no chance of getting--as they do now under the current system when a higher ranked journal has made an offer on a piece, and the author has not had the courtesy to withdraw it from venues no longer in play.
Crane: Loan Proceeds as Income: A Response to Professor Dodge
Charlotte Crane (Northwestern) has published Loan Proceeds as Income: A Response to Professor Dodge, 27 Va. Tax Rev. 563 (2008). Here is the Conclusion:
In short, the cash-flow treatment of loans fails to account for the distinction between transfers that anticipate the creation of new value by the recipient/transferee from those that do not. It also fails to appreciate the lender's position as well as the borrower's position to avoid overcounting wealth even when new value is created. Thus, it would not be an imporvement, udner the norms of the income tax, over the current tax treatment of loan transactions.
Charlotte's article is in response to Joseph M. Dodge, Exploring the Income Tax Treatment of Borrowing and Accruals, or Why the Accrual Method Should Be Eliminated, 26 Va. Tax Rev. 245 (2006).
An Academic Manifesto on Civility v. Servility
I see evidence all too often that there are junior faculty members out there whose pre-tenure activities are geared toward avoiding controversy, not saying what they believe to be true, and otherwise calculating their moves, whether as scholars or members of the university community, with tenure in mind. ...
There should be "less anxiety about civility, and more anxiety about truth, sensible argument, and intellectual integrity." We must value truth first and foremost. We must, within disciplinary standards, have the presence of mind and force of will to say what is right and what is wrong, what is good argument and what is bad argument. Civility should not serve as a brake on our doing so, or it becomes something other than civility; it becomes servility. "Here I stand, I can do no other," or "Still it moves," should be the watchwords of the academic, not "It's a beautiful day in the neighborhood."
None of this is to say that one can't be blunt and fierce in defense of the truth and civil. Sometimes those two may be in tension, but more often, I think, they are not, and sometimes one can actually serve the other. There is a difference between annihilating an argument, step by step and sentence by sentence, until nothing remains of the opposing argument, and disparaging a person. There is a difference between saying, as I recently did of Phyllis Schlafly's JLPP piece, that not one sentence of it is either honest or valuable, which I think is true and eminently supported by the article itself, and saying she is an idiot. I am not terribly interested in whether she is an idiot, I fear making such judgments lightly in a fallen world of which I am one more fallen remnant, and in any event even a stopped clock can be right twice a day; I am interested in whether her argument is wrong.
10 Tips for Law Students Who Want to Pursue Law Professor Careers
10 Tips for Law Students Who Want to Pursue Careers in Legal Academia, by Daniel J. Solove (George Washington):
One of the reasons that Yale, Harvard, and a few other schools have so much success [in placing their graduates in tenure-track law faculty jobs] is because they train students to do the things they’re supposed to do to be successful on the teaching market. Not only do they provide a lot of advice about the teaching market and hiring process, but they have their students start doing the two things key to becoming a strong law professor applicant -- read and write legal scholarship. ...
Here's my advice in a nutshell to law students who desire to be law professors:
Although only a few law schools account for most of the law professors hired, it is possible for graduates of other law schools to be successful. Note that many Yale and Harvard graduates did not end up with law professor jobs whereas some students from schools outside the US News Top 20 did. Strong teaching candidates can come from anywhere. The key is to publish a lot of good stuff. Do this, and the general hiring success percentages in my statistics will not apply to you. You'll be much more likely to be successful.
TaxProf Blog Holiday Weekend Roundup
- IRS Releases Spring 2008 SOI Bulletin
- Bai: A New Prof's Suggestion for Improving the Law Review System
- The EITC as an Incentive to Report: Engaging the Informal Economy Through Tax Policy
- Top 5 Tax Paper Downloads
- Rabbi Offers Ten Commandments of Politics
- What Is a Progressive Tax Change?: Unmasking Hidden Values in Distributional Debates
- Memorial Day Tax Resources for U.S. Armed Forces (Plus Their Families & Employers)
- NY Times: Exemptions for Charities Face New Challenges
- Fleming & Peroni: Reinvigorating Tax Expenditure Analysis and its International Dimension
May 26, 2008
Memorial Day Tax Resources for U.S. Armed Forces (Plus Their Families & Employers)
Continuing a TaxProf Blog Memorial Day tradition (2007, 2006, and 2005), I want to pass along links to the Tax Information for Members of the U.S. Armed Forces material maintained on the IRS web site:
The tax laws provide some special benefits for active members of the U.S. Armed Forces, including those serving in combat zones. For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel may qualify for certain tax deadline extensions because of their service in a combat zone.
For dozens of links to military tax resources, see below the fold.
- Economic Stimulus Payments for Military Combat Personnel
- Questions & Answers on Combat Zone Tax Provisions
- A Combat Zone E-mail Address for members of the Armed Forces or their families worldwide to alert the IRS that they are serving in a combat zone
- IR-2007-46: Free Online Tax Filing Available to Many Military Members
- IR-2006-152: Active Duty Reservists Get Relief on Retirement Plan Payments; Refunds of 10-Percent Tax Available Back to 2001, New Law Says
- IR-2006-129: New Law Expands IRA Options for Military; Many Can Still Contribute for 2004 and 2005
- Tax Tip 2006-39: Reservists, Enlistees May Get Deferral for Back Taxes
- Military Family Tax Relief Act of 2003: Tax breaks related to military service, including two provisions that may require amended returns
- IR-2003-132: IRS Helps Military Personnel Get New Law's Tax Breaks
- IR-2003-63: New Tax Scam Targets Families of Armed Forces Members
- Notice 2003-21: Tax Relief for Those Involved in Operation Iraqi Freedom
- IR-2003-43: Tax Assistance for Military Families; New Web Site for Armed Forces
- Fact Sheet 2003-11: Information for Taxpayers Serving in the Armed Forces
- News Release IR-2002-18: Tax Relief for Troops in the Afghanistan Combat Zone
- Notice 2002-17: Tax Relief for Those Involved in Operation Enduring Freedom
NY Times: Exemptions for Charities Face New Challenges
Today's New York Times: Exemptions for Charities Face New Challenges, by Stephanie Strom:
Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.
One issue is the growing confusion over what constitutes a charity at a time when nonprofit groups look more like businesses, charging fees and selling products and services to raise money, and state and local governments are under financial pressure because of lower tax revenues.
And there are others: Does a nonprofit hospital give enough charity care to earn a tax exemption? Is a wealthy university providing enough financial aid? ...
Evelyn Brody, a professor at Chicago-Kent College of Law and an expert on nonprofits and property taxes, said that, in studying the issue in 2002 and revisiting it last year, she had seen an explosion of cases across the country in which charities were challenged to say why they deserve their property tax exemptions.
Fleming & Peroni: Reinvigorating Tax Expenditure Analysis and its International Dimension
J. Clifton Fleming, Jr. (BYU) & Robert J. Peroni (Texas) have published Reinvigorating Tax Expenditure Analysis and its International Dimension, 27 Va. Tax Rev. 437 (2008). Here is the abstract:
Tax expenditure analysis (TEA) was rigorously criticized from its inception and continues to draw negative reviews. Notwithstanding this criticism, the Congressional Budget and Impoundment Control Act of 1974 requires the President's annual budget submission to contain a list of tax expenditures, and Congress's Joint Committee on Taxation has produced its own tax expenditure list each year since 1972. Although TEA has not restrained or reversed the growth of tax expenditures, TEA continues to play a major role in tax policy debates to the chagrin of its detractors.
The persistence of TEA in a hostile environment suggests that it has meaningful substance. In Part III of this article, we argue that TEA is both a logical consequence of, and a device for implementing, the principle of ability-to-pay, the Schanz-Haig-Simons definition of income, and the tax policy principle of neutrality.
In Part IV we comprehensively respond to the litany of criticisms that have been directed at TEA and argue that these objections are either wrong, deal with marginal matters or are outside the realm of practical policy concerns. We also expand on Professor Stanley Surrey's point that the tax expenditure characterization does not make an income tax provision bad per se. Instead, affixing the tax expenditure label triggers a requirement that the provision in question must be recast and examined as a direct expenditure analogue and then must go through a cost/benefit analysis. Indeed, we regard TEA's principal purpose and justification to be its role as a triggering mechanism for mandatory recasting and cost/benefit analysis. A tax provision that successfully endures this analytical approach gets a passing grade even though it bears the tax expenditure label. Of course, many, perhaps most, tax expenditures will receive failing marks when scrutinized in this fashion,but this is due to their inherent weaknesses and not because TEA amounts to a rule of automatic disqualification.
One of Professor Surrey's objectives in advocating TEA was to force recognition of both the revenue cost of individual tax expenditures and the aggregate revenue cost of all tax expenditures. Critics have contended that flaws in the revenue estimation process make TEA useless for this purpose. In Part IV, we argue that these criticisms are overbroad. In Part V, we provide a brief explanation of the cost/benefit evaluative method that we believe should be applied to tax expenditures.
In Part VI, we examine three important features of the U.S. international income tax system,deferral, cross-crediting, and the export sales source rule. In our judgment, all of these features involve tax expenditures that receive failing marks under the recasting and cost/benefit analysis explained in Part V.
May 25, 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:
2. [165 Downloads] Recent Developments in Federal Income Taxation: The Year 2007, by Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston) & Daniel L. Simmons (UC-Davis) [blogged here]
3. [151 Downloads] Perpetuities, Taxes, and Asset Protection: An Empirical Assessment of the Jurisdictional Competition for Trust Funds, by Robert H. Sitkoff (Harvard) & Max M. Schanzenbach (Northwestern) [blogged here]
4. [113 Downloads] Corporate Philanthropy and the Market for Altruism, by M. Todd Henderson (Chicago) & Anup Malani (Chicago) [blogged here]
5. [111 Downloads] Value in the Eye of the Beholder: The Valuation of Intangibles for Transfer Pricing Purposes, by Yariv Brauner (Florida) [blogged here]
Rabbi Offers Ten Commandments of Politics
Rabbi Offers Ten Commandments of Politics (Jewish Light), by Robert A. Cohn:
"Social Justice: The Use and Abuse of Religion in the 2008 Elections" was the topic of a presentation by Rabbi David Saperstein, longtime director of the Religious Action Center, an arm of the Union for Reform Judaism.
Saperstein offered a "Ten Commandments" of do's and don'ts as to what is or is not appropriate when congregations, rabbis or lay leaders deal with political issues or election campaigns
(Hat Tip: Ellen Aprill.)
What Is a Progressive Tax Change?: Unmasking Hidden Values in Distributional Debates
David Kamin (J.D. 2009, NYU) has published What Is a Progressive Tax Change?: Unmasking Hidden Values in Distributional Debates, 83 N.Y.U. L. Rev. 241 (2008). The paper won second prize in the 2007 Tannenwald Writing Competition. Here is the abstract:
There is widespread confusion both in policy circles and in the academic literature about how to measure the progressivity of a tax change. The confusion is particularly vexing because policymakers and analysts often rely on progressivity as a guidepost in constructing and analyzing policy, but do little to justify the particular progressivity measures that they employ. Progressivity measures--which can differ considerably from one another--tend to be picked haphazardly or chosen based on arguments that have rhetorical flair but lack normative substance. Thus, policy is being constructed and evaluated based on distributional measures that may not be meaningful and, in fact, may be misleading. This Note proposes a framework for analyzing measures of progressivity. In particular, if the measures are to gauge accurately changes in tax fairness, progressivity measures must be rooted in whatever theory of distributive justice motivates our concern for distribution. This Note applies this approach and draws connections between particular measures of progressivity and individual theories of distributive justice.
May 24, 2008
IRS Releases Spring 2008 SOI Bulletin
The IRS has released the Spring 2008 Statistics of Income Bulletin (IRS Publication 1136):
- Individual Income Tax Returns, Preliminary Data, 2006, by Brian Balkovic
- High-Income Tax Returns for 2005, by Brian Balkovic
- Individual Noncash Contributions, 2005, by Janette Wilson
- Accumulation and Distribution of Individual Retirement Arrangements, 2004, by Victoria L. Bryant
- The One-Time Received Dividend Deduction, by Melissa Redmiles
- Federal Estate Tax Returns Filed for 2004 Decedents, by Brian G. Raub
- The Development of Taxable REIT Subsidiaries, 2001-2004, by Thornton Matheson
Bai: A New Prof's Suggestion for Improving the Law Review System
Having been in the legal academic for just a year, I already feel strongly about the inadequacy of the law review system. The thing that is particularly weird is that everyone submits to every law journal out there and then bargains up the placement. The immediate effect of this is that most of the journals, particularly the top ranking journals, do not review submissions; they let the lower ranking journal do the first screening work -- extremely unfair. This process is also unfair to authors because they usually get only a short time period to respond to lower ranking journals that have accepted their submissions. I think this problem can easily be fixed if the legal academy adopts a submission policy used by Journal of Empirical Legal Studies, i.e., authors are obligated to publish with the journal that first accepts their papers. In this way, authors are more selective about the journals where they want to place the article in the first place, so the work load is evenly spread out among different law journals. Moreover, every journal, including top ranking journals, has the incentive to read the submissions as quickly as possible. It seems to me that a significant chunk of the law review submission problem can be easily eliminated by the above measure. It just requires some law journals to take the initiative. I think journals other than a handful of "elite" ones all have the incentive to opt for this.
Lynn's most recent work is There Are Plaintiffs and . . . There Are Plaintiffs: An Empirical Analysis of Securities Class Action Settlements, 61 Vand. L. Rev. ___ (2008) (with James D. Cox & Randall S. Thomas).
The EITC as an Incentive to Report: Engaging the Informal Economy Through Tax Policy
John J. Infranca (J.D. 2008, NYU) has published The Earned Income Tax Credit as an Incentive to Report: Engaging the Informal Economy Through Tax Policy, 83 N.Y.U. L. Rev. 203 (2008). Here is the abstract:
The Earned Income Tax Credit (EITC) provides financial assistance to low-income workers through a refundable tax credit. The EITC, which has received strong bipartisan support since its introduction in 1975, now represents the nation's largest anti-poverty program for non-elderly individuals. In this Note, I contend that the EITC's historical development failed to account for (and prior scholarly analysis of its impact on labor supply decisions have ignored) the important role of informal employment in the lives of the working poor. This Note presents the first analysis of the financial impact of government transfer and tax programs on the decision to report informal income--income that, were it reported, would be otherwise legal. As the Note's analysis reveals, while drastic changes in both tax and transfer programs may be necessary to provide financial incentives for many households with children to report informal income, more targeted changes to the EITC could provide strong incentives for childless informal workers to report. The Note argues that the benefits to both individuals and society, financial and otherwise, of tax reporting by low-income individuals engaged in informal work merits reconsideration of the EITC's overall structure and administration. Administrative and policy innovations described in the Note are also necessary to maximize reporting compliance.
May 23, 2008
Cindy McCain Releases Summary of Her 2006 Tax Return
In response to intense media pressure, Cindy McCain has released the first two pages of her 2006 tax return on the eve of the Memorial Day hoiliday weekend:
She reports $6,066,431 AGI, $569,737 of itemized deductions, and $1,730,952 in taxes (28.5% average tax rate), none of which is AMT. She has not yet filed her 2007 return. In contrast, her husband reported $386,527 AGI in 2007 and $118,660 in taxes (30.7% average rate), which included $5,413 in AMT. Press and blogosphere coverage:
Taylor: Faith in God Hurts Law School Academic Performance
Tax Prof Scott A. Taylor (University of St. Thomas) has posted Spirituality and Academic Performance at a Catholic Law School: An Empirical Study, 45 Cal. W. L. Rev. ___ (2008), on SSRN. Here is the abstract:
This empirical study explores whether a student's spirituality affects academic performance during the first year of study at the University of St. Thomas School of Law (Minnesota). A spirituality index measured 1) frequency of attendance at religious worship, 2) frequency of discussion of religion with others from different faith traditions, 3) the presence and strength of the connection between God and morality, and 4) the presence and strength of the view that entry into the legal profession is a divine calling. The spirituality index was correlated with academic performance measured by comparing actual performance and predicted performance (using the LSAT and the student's undergraduate grade point average). Strong spirituality had a negative correlation with academic performance. Medium and low spirituality had no correlation. And among the third of the students who performed substantially under expectations, the negative correlation was more significant than the broader positive correlation of either the LSAT or the undergraduate grade point average. This study is especially interesting and powerful because the University of St. Thomas School of Law has a strong Catholic identity and affirmatively promotes its faith-based mission at all levels of operation. The author discusses possible explanations for his findings that high spirituality correlates negatively with expected academic performance.
Raedy: Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality
Jana Smith Raedy (University of North Carolina, Kenan-Flagler Business School) has posted Discussion of: Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality on SSRN. Here is the abstract:
Ayers, Jiang and Laplante (2008) provide evidence that the association between taxable income and market returns is a function of the level of "noise" in taxable income. Their study extends the nascent but growing literature which documents a correlation between taxable income and market returns¿a result which holds up in multivariate analyses that properly control for book income (e.g., Hanlon, 2005; Hanlon, Laplante and Shevlin, 2005; Lev and Nissim, 2004; and Shevlin, 2002). Ayers et al. (2008) partition their sample firms based on the extent of tax planning and provide evidence that the noise introduced by this activity weakens the association between taxable income and returns. This result provides a useful contribution to the literature because it strengthens the body of evidence which suggests that taxable income incorporates elements of economic income. The paper also provides evidence which addresses whether the association between taxable income and market returns is a function of the noise in book income. This discussion will focus on three issues: (1) hypothesis development, (2) research design, and (3) directions for future research.