Friday, June 6, 2008
The 2008 Junior Tax Scholars Conference kicks off today at NYU:
Panel #1 (9:45 a.m - 11:15 a.m.):
- Joshua Blank (Rutgers-Newark), Overcoming Overdisclosure: Toward Tax Shelter Detection
- Steven Dean (Brooklyn), Tax Deharmonization: Radical Asymmetry in the International Tax Regime
- Stephanie Hoffer (Ohio State), Using an Opt-Out Model of Taxation to Finance Locally Provided Non-Essential Public Goods
Panel #2 (11:30 a.m. - 1:00 p.m.):
- Bradley Borden (Washburn), The Residual Risk Distinction Between Tax Partnerships and Tax Corporations
- Meredith Conway (Suffolk), Defining Debt
- Dennis Ventry (UC-Davis), Ownership as the Basis of Family Taxation.
Panel #3 (2:00 p.m. - 3:30 p.m.):
- Miranda Fleischer (Illinois), Taxation, Charity, and the Burdens of Social Cooperation
- Ruth Mason (Connecticut), Progressive Taxation and the Cross-Border Worker
- Sarah Lawsky (George Washington), Charitable Donations as Double Benefit
Panel #4 (3:45 p.m. - 4:45 p.m.):
- Bobby Dexter (Chapman), Serfs at the Mercy of a Hungry Beast: Aggressive Regressivity, Private Equity, and the Quandry of the St. Luke Imperative
- Allison Christians (Wisconsin), Fair Taxation as a Basic Human Right
See below the fold for abstracts of the papers:
Bradley Borden (Washburn), The Residual Risk Distinction Between Tax Partnerships and Tax Corporations:
This Article employs economic theory to evaluate the distinction between tax partnerships and tax corporations. Tax law has traditionally relied significantly upon the legal distinctions between corporations and other arrangements to classify them for tax purposes. Traditional legal distinctions include: continuity of life, centralization of management, limited liability for business owners, and free transferability of interests. The emergence of new business forms, especially limited liability companies, made those distinctions largely unhelpful for tax purposes. As a result, Treasury promulgated the “check-the-box” regulations that draw a bright, arbitrary line between corporations and noncorporations based upon legal labels. Thus, all state law corporations are tax corporations and all multiple-member noncorporations are tax partnerships, but tax partnerships can elect to be tax corporations.
Recent theoretical work in partnership tax law and the proliferation of target allocations in partnership agreements raise entity classification issues. Considering those items, this Article identifies residual risk as the critical attribute that should define whether tax law treats a business entity as a tax partnership or a tax corporation. Economists define residual risk as “the risk of the difference between stochastic inflows of resources and promised payments to agents.” Residual claimants contract for rights to net cash flows of a business arrangement and bear the residual risk. Shareholders are the residual claimants of corporations and partners are the residual claimants of partnerships. The manner of determining the residual risk should determine whether an arrangement is a tax partnership or a tax corporation.
Partners’ residual risk depends in part upon the partners’ agreed apportionment of partnership economic items. Upon partnership liquidation, a partner is entitled to receive a distribution equal to the partner’s contributed capital plus (minus) an amount equal partnership income (loss) apportioned to the partner throughout the life of the partnership. Thus, partners have allocation-dependent residual risk. Shareholders’ residual risk depends upon the liquidation rights given to outstanding stock. Corporations do not allocate economic items to shareholders throughout the life of the corporation. Instead, shareholder residual risk depends upon a formula, determined by stock ownership, for distributing corporate residual assets. Thus, shareholders have distribution-dependent residual risk.
This Article suggests that the difference between allocation-dependent residual risk and distribution-dependent residual risk should divide tax partnerships from tax corporations and determine the tax regime that should apply to each. The Article demonstrates that aggregate-plus taxation properly taxes income allocated to bearers of allocation-dependent residual risk. Entity taxation, on the other hand, properly taxes income at the entity level when a distribution formula determines residual risk. Under the residual risk analysis, close corporations with one class of stock have allocation-distribution symmetry and could be subject to aggregate-plus taxation, entity-minus flow-through taxation, or entity taxation. The current entity classification rules do not recognize that distinction. The rules allow distribution-dependent residual risk bearers to apply aggregate taxation to their arrangements and alter the incidence of taxation. They also create distortions by allocating items to partners based upon historical cost of partnership assets. The Article suggests that classification rules focused on residual risk would help curb abuse and reduce distortions.
Steven Dean (Brooklyn), Tax Deharmonization: Radical Asymmetry in the International Tax Regime:
Despite its obvious potency, today's international tax regime is a holdover from an era in which homogeneity seemed both inevitable and desirable. Until now, from an international tax perspective nations have been viewed as essentially fungible. As a result, it has long been assumed that harmonization, a convergence among national tax systems towards a universal ideal, is the surest route to greater efficiency. This Article considers the possibility that specialization, or tax deharmonization, could succeed in providing many of the benefits that tax harmonization has failed to deliver.
Currently, there exists a split in the U.S. Courts of Appeals with respect to whether certain amounts paid to university professors relinquishing tenure and retiring early constitute "wages" with respect to "employment." This Article addresses that split before exploring, more broadly, the troubled concepts of "wages" and "employment." Though some courts have struggled to draw discernable lines of demarcation to separate "wages" from "income" and the income tax conception of "wages" from the payroll tax conception, other courts, apparently yielding to expansive conceptual pressures and the visceral tug of the existence of the employer/employee relationship, have pursued regressive taxes from low- and mid-wage earners by embracing tangential precedent, importing broad conceptions of "wages" and "employment," and looking to shifting administrative interpretations for guidance. And yet, at the same time that Congress, certain courts, and administrative agencies have undertaken to sniff out the merest trace of low- and mid-wage earner revenue (lest the serfs take tax holiday), certain entities/individuals in the "capital-gain" Mecca of private equity have managed, in breathtaking defiance of longstanding tax principles, to survive a degree of scrutiny despite raking in billions of dollars as compensation for services rendered. Having presented commentary on this contrast, the Article turns to the impending Social Security crisis and presents rational alternatives to the enhancement of systemic inequities which would result from raising payroll tax rates, sharply increasing the FICA Wage Base, or reducing benefit levels for those who have, quite literally, earned the right to retire with financial dignity.
Stephanie Hoffer (Ohio State), Using an Opt-Out Model of Taxation to Finance Locally Provided Non-Essential Public Goods:
Mandatory participation would seem to be the sine qua non of a well-functioning tax system. A “tax” that is not mandatory with regard to those persons who bear its legal incidence is, perhaps, not a tax at all. Or is it? This semantic inquiry may have obscured a potentially useful method by which local governments might raise revenue for the provision of non-essential public goods: the opt-out model of taxation. This project will explore the desirability and viability of such a system in the context of local taxation. Building upon my current work in progress and using the German church tax as a natural, although not entirely analogous, experiment, I seek to show that some localities in the United States could benefit from use of the German system in a purely secular context as a means of funding the provision of non-essential public goods that are charitable in nature. If viable, the use of an opt-out system for this purpose would alter the dialogue between residents and local government and could result in a more equitable and efficient allocation of resources.
Ruth Mason (Connecticut), Progressive Taxation and the Cross-Border Worker:
Studies of international tax have primarily focused on highly mobile capital and corporations. In contrast, labor, a relatively immobile factor of production, has been largely overlooked, even though labor mobility has increased with globalization and most countries raise a majority of their tax revenue by taxing individuals. This article draws attention to the neglected area of taxation of cross-border workers, and, in particular, it raises a new issue concerning which country should confer social welfare benefits administered through the tax code on a worker who has income (and is taxable) in two or more states. While significant attention has been paid to the question of which state should tax income connected to more than one state, surprisingly little intellectual energy has been devoted to the inverse problem of allocating the responsibility to provide personal tax benefits, such as personal exemptions and deductions for family expenses. This article argues that the default rule under international law, which for administrative reasons assigns sole responsibility for personal tax benefits to the taxpayer's home state, must be reexamined in light of globalization to take into account not only of administrative concerns, but also efficiency, equity, cultural, and democratic concerns.
Dennis Ventry (UC-Davis), Ownership as the Basis of Family Taxation:
This project comprises two articles. The first establishes the principle of ownership as the basis of family taxation as it evolved from 1913 to 1930; that is, from the ratification of the 16th Amendment to the Supreme Court’s decision in Poe v. Seaborn, which held that ownership interest dictates family taxability. The second article establishes the continued vitality of this principle by examining all federal and state court cases from 1930 to the present that cite Seaborn (i.e., nearly 500 cases). With the ownership principle firmly established as good law, the article articulates an argument for taxing members of state-recognized civil partnerships — married, single, opposite-sex, same-sex — according to ownership interests as determined by state property law. It also explores (and, I think, ultimately discards) the idea of extending the ownership principle of taxation beyond civil, general law contracts to private, voluntary contracts (obviously, this idea must overcome the Supreme Court’s prohibition against income-splitting assignments of income [Lucas v. Earl] as well as its prohibition against voluntary civil partnerships that achieve income splitting [Commissioner v. Harmon]).