October 31, 2008
Halloween Tax Treats
WSJ: Using Shared Appreciation Mortgages to Solve the Housing/Mortgage Crisis
Wall Street Journal: We Can Keep People in Their Homes: Let Lenders Profit Later For Easing Terms Now, by Andrew Caplin (NYU), Thomas Cooley (NYU), Noel Cunningham (NYU) & Mitchell Engler (Cardozo):
The world's turned upside down. For generations of Americans, family homes were assets to be bequeathed to our children. Today, instead, we are proposing to leave them billions of dollars in long-term debt issued by the federal government to prop up a housing market gone bad. This is unfair.
Moreover, while the rescue plan may help the balance sheets of financial institutions, it does nothing to help the balance sheets of households. Their problems must be addressed.
The way to do so is through the shared appreciation mortgage, or SAM. The concept is simple: Homeowners are offered the chance to write down a portion of their mortgage debt, but at the same time, they are required to share future appreciation gains with those who helped them out. ...
The federal government needs to give taxpayers an ownership stake in the future. The SAM does just this. For example, a homeowner unable to support payments on a house purchased for $200,000 that today is worth only $150,000 might be offered a write-down of up to $50,000. But this would not be a free lunch.
With the SAM, once the value began appreciating above $150,000, the mortgage holders would be due their share. The details of the write down and the appreciation sharing could be tailored to different circumstances. But one way to give lenders a share of the upside would be to pay back some of the write down if the house is later sold, in the scenario above, for more than $150,000. This is a model in which both parties benefit, preventing default while giving future taxpayers a fighting chance at some real upside to the investment we're forcing on them. ...
Appreciation sharing is a cost to the borrower. Thus, if the terms are set correctly, those with the means to get through the decline in their collateral without giving up some of their upside will find it in their interest to do so.
The SAM was pioneered by banks in the U.S. some 40 years ago, but it has been allowed to languish due to an archaic, IRS-imposed block. (The IRS hasn't ruled whether such a contract is a mortgage because it combines elements of equity and debt.) This block could be removed at the stroke of the Treasury secretary's pen. ...
SAMs are the new deal in housing that our children need.
Call for Tax Papers: Stanford/Yale Junior Faculty Forum
Stanford and Yale Law Schools have issued a call for tax papers for the eighth annual Stanford/Yale Junior Faculty Forum to be held at Stanford Law School on May 28-29, 2009:
The Forum's objective is to encourage the work of young scholars by providing experience in the pursuit of scholarship and the nature of the scholarly exchange. Meetings are held each spring, at Yale one year and Stanford the next.
Approximately twelve scholars (with one to seven years in teaching and who are not yet tenured) will be chosen on a blind basis from among those submitting papers to present. Two senior scholars, not necessarily from Stanford or Yale, will comment on each paper. The audience will include the invited young scholars, faculty from the host institutions, and invited guests. The goal is discourse on both the merits of particular papers and on appropriate methodologies for doing work in that genre. We hope that comment and discussion will communicate what counts as good work among successful senior scholars and will also challenge and improve the standards that now obtain. The Forum also hopes to increase the sense of community among legal scholars generally, particularly among new and veteran professors.
Each year the Forum invites submissions on selected topics in public and private law, legal philosophy, and law and humanities -- alternating loosely between public law and humanities subjects in one year, and private and dispute resolution law in the next. The focus of the tenth session will be private law and dispute resolution. The topics to be addressed [include tax].
There is no publication commitment associated with the Forum, nor is published work eligible. Yale or Stanford will pay presenters' travel expenses, who will be required to attend the entire Forum schedule. Paper submissions for the Forum should be sent to: Judy Dearing (firstname.lastname@example.org) by February 16, 2009.
Today is Deadline for Nolan Fellow Nominations
Today is the deadline for nominations for the ABA Tax Section's 2009-2010 Nolan Fellows. For more information or to submit a nomination, contact Janet In.
Business Roundtable Tax Wishlist
Sholk: A Guide to Election Year Activities of § 501(c)(3) Organizations
Continuing a TaxProf Blog tradition (see prior 2005, 2006, and 2007 versions), Steven H. Sholk (Gibbons, Newark, NJ) has made available to readers his wonderful 165-page A Guide to Election Year Activities of Section 501(c)(3) Organizations, in Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings (PLI 2008).
My wife and I attended the kick-off event for the University of Cincinnati's Proudly Cincinnati $1 billion capital campaign, where they unveiled this awesome video:
Freakonomics: Why Do Americans Whine So Much About Taxes?
Freakonomics asks: Why Is Everyone Whining About Taxes?:
We are a low-tax country; our average tax rate, counting all taxes, hovers above 30%. Why do we hear so many more complaints about high taxes than I hear in the European Union, where taxes are a much higher percentage of G.D.P.? ...
Joe the plumber pays far lower taxes than Josef or José the European plumber does, so why should Joe’s fellow citizens have any sympathy for him? One economic answer to this question is that we all expect to become rich and don’t want to have very high taxes on our expected large incomes. Yet today, income mobility is no greater in the U.S. than in Europe, so our expectations do not seem rational. What’s the answer? Are we more selfish than Europeans? Are our governments less efficient?
WSJ: Falling Real Estate Prices Make QPRTs Especially Attractive
Wall Street Journal: Gifting Your House and Living in It, Too, by Mike Spector:
Plunging real-estate values have made it an opportune time for older homeowners to give property to their children, while realizing big savings on gift and estate taxes.
They can do this by moving the home out of their estate with a so-called qualified personal residence trust, or QPRT, which allows homeowners to live in a property for many years before passing it on to their heirs. Though the trusts have been around for many years, many estate planners say now could be a good time to set one up since real-estate values have fallen dramatically in many markets.
QPRTs are one of a number of strategies that wealth advisers and estate planners are recommending as clients cope with beaten-down financial markets and a nasty real-estate landscape. The goal: Put beaten-down assets into trusts now and reap benefits from their appreciation outside of your estate. With real-estate values low, executing a QPRT now ensures your estate won't contain a more-expensive home down the road, which could trigger a costly tax bill for your estate.
October 30, 2008
Aprill: Bilski Means More Uncertainty for Tax Strategy Patents
Ellen P. Apill (Loyola-L.A.), the nation's leading authority on tax strategy patents (here, here, here, here, here, here, here), offers her thoughts on the tax implications of today's decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008) (blogged here):
In Bilski, the nine member majority opinion stated emphatically that a “machine-or-transformation” test” as set forth by the Supreme Court is the sole test for subject matter eligibility for a claim of patentability for a process: “A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state of things.”
Significantly, as a result of adopting this “machine-or-transformation test,” the Federal Circuit rejected the test that had been adopted in State Street Bank, the case that famously established that business methods are patentable. State Street had asked whether a process produced “a useful, concrete and tangible result.” Bilski reconsidered: “[W]e also conclude that the ‘useful, concrete and tangible result’ inquiry in inadequate and reaffirm that the machine-or-transformation test outlined by the Supreme Court is the proper test to apply.”
Applying the test, the Federal Circuit determined that Bilski’s process for hedging risks in commodities trading sought to claim a “non-transformative process that encompasses a purely mental process of performing requisite calculations without the aid of a computer or any other device.” It thus failed the machine-or-transformation test.
Since tax strategy patents are considered a subclass of business method patents and these patents have been granted on the basis of their having useful, concrete and tangible results, the case is, in general, good news for those of us who question whether tax strategy patents should be patentable. I would like, however, to make three more specific observations.
First, this case, while it will have an impact on tax strategy patents, does not treat them differently from other business method patents. While I and many others believe there are good policy reasons to enact legislation to prohibit tax strategy patents, the test enunciated here is a test under current law and applies to all business method patents. The consequences of the decision will depend on how PTO examiners understand and apply the test to the patent applications they review.
Second, the decision makes very clear the status of tax patent claims that involve only mental processes. Like the process claimed by Bilski, some tax strategy patents involve a purely mental process of performing calculations without the aid of a computer. Bilski confirms another Federal Circuit case, Comiskey, in holding that such process claims are not patentable.
Third, what the decision means for applications that involve the use of computers is much less clear. Many, perhaps most, tax strategy patents call for the use of a computer. The opinion leaves open the question of what it means for a process to be tied to a “particular machine:” “We leave to the future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.” Thus, what is perhaps the most important practical question is left unresolved.
Federal Circuit Overrules Tax Strategy Patent Linchpin
The Federal Circuit today issued its long awaited decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008), rejecting the patentability test (State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998)) which was the linchpin in the spate of tax strategy patents issued recently. For coverage of the court's 132-page opinion, see Patently-O. For prior TaxProf Blog coverage, see AICPA Asks CAFC to Deny Tax Strategy Patents (4/14/08). (Hat Tip: David Kirk.)
Tax Court Requires House Counsel to Include Forgiven Law Student Loan in Income
The Tax Court yesterday required David Plotinsky, Assistant Counsel in the Office of General Counsel of the U.S. House of Representatives, to include in income $3,043 of law school and college student loans that were forgiven when he consolidated his loans with the lender. Plotinsky v. Commissioner, T.C. Memo. 2008-244 (10/30/08):
Pursuant to AES's incentive program, if an individual were to consolidate the individual's student loans by taking out a loan from AES ... and the individual were to make 36 consecutive on-time monthly payments on the AES loan, AES would discharge a portion of that loan.
Petitioner was aware of AES's incentive program when in August 2001, after graduating from law school, he consolidated petitioner's Federal student loans through AES ...
In 2004, pursuant to AES's incentive program and as a result of 36 consecutive on-time payments having been made on petitioner's consolidated student loan, AES discharged $3,043 of that loan.
AES issued Form 1099-C, Cancellation of Debt (2004 Form 1099-C), to petitioner for his taxable year 2004. That form showed $3,043.28 as the amount of debt canceled. The instructions to the 2004 Form 1099-C that AES sent to petitioner stated in pertinent part: "Generally, if you are an individual, you must include the canceled amount on the 'Other Income' line of Form 1040. * * * However, some canceled debts are not includible in your income."
Petitioner timely filed Form 1040, U.S. Individual Income Tax Return, for his taxable year 2004 (petitioner's 2004 return). In that return, petitioner reported gross income of $76,917 that did not include the $3,043.28 of petitioner's consolidated student loan that AES discharged. Petitioner attached to petitioner's 2004 return a document (petitioner's attachment to petitioner's 2004 return) that stated in pertinent part:
I received a Form 1099-C from AES Graduate & Professional Loan Services ("AES"), which stated a cancellation of debt in the amount of $3043.28. I am not reporting this amount as income because it is my reading of Internal Revenue Service Pub. 525, at 17-18, that this cancellation constitutes a gift rather than income.
AES is the lender with which I consolidated my law school loans approximately three years ago. As an incentive to select AES as my lender, AES offered a reduction in the total amount of my loans, and it is this offer that forms the entire basis for the debt cancellation of $3043.28. The offer was contingent upon my making 36 consecutive on-time monthly payments, and now that this has been achieved the debt cancellation is locked in.
Mr. Plotinsky represented himself in the case, and the judge was not impressed with his argument:
In relying solely on Helvering v. Am. Dental Co., 318 U.S. 322 (1943), to support his position that AES's discharge of $3,043 of petitioner's consolidated student loan constituted a gift under section 102(a), petitioner fails to acknowledge that the Supreme Court in Commissioner v. Jacobson, and Commissioner v. Duberstein, requires us to consider AES's intention in discharging $3,043 of petitioner's consolidated student loan. We shall do so now. ...
On the record before us, we find that AES did not intend to discharge $3,043 of petitioner's consolidated student loan out of "detached and disinterested generosity" ... or "out of affection, respect, admiration, charity or like impulses" ... On that record, we further find that petitioner has failed to carry his burden of establishing that, in discharging $3,043 of petitioner's consolidated student loan, AES intended to make a gift to him.
Based upon our examination of the entire record before us, we find that the $3,043 of petitioner's consolidated student loan that AES discharged is not excludable for his taxable year 2004 from his gross income under section 102(a). On that record, we further find that petitioner must include for that year that amount in his gross income.[FN]
FN: On brief, petitioner further argues that, even if we were to find that the $3,043 of petitioner's consolidated student loan that AES discharged is includible in his gross income, he should recognize that income over the remaining life of petitioner's consolidated student loan. We reject that argument. Income from the discharge of indebtedness is income for the year in which the indebtedness is discharged. Sec. 61(a)(12); see Jelle v. Commissioner, 116 T.C. 63 (2001).
WSJ: NFL Teams Rush to Avoid Obama's Tax Increase
Wall Street Journal editorial: Taxing the Dolphins: Another NFL Team Faces Obama's Tax Rush:
Don't think tax rates matter to business decisions? Ask H. Wayne Huizenga, the owner of the Miami Dolphins, who declared earlier this week that he intends to sell up to half his ownership in the NFL franchise before next year. Why? Because as he told a Florida newspaper, Barack Obama "wants to double the capital gains tax, or almost double it. I'd rather give it to charity than to him." ...
Mr. Huizenga also has NFL company. In July, we wrote about the Rooney family's musings about selling part of the Pittsburgh Steelers to avoid the 45% death tax rate. We saw a similar tax effect in 1992 when Bill Clinton raised tax rates.
The U.S. Capital Gains Tax Rate: An International Perspective
A new report by Ernst & Young, commissioned by the American Council for Capital Formation, compares individual long-term capital gains taxes among 25 major economies of the world as well as major trading partners of the U.S:
The U.S. capital gains tax rate compares unfavorably with that of many other major economies (see Figure 1). More than half of the countries surveyed have individual capital gains tax rates lower than that of the U.S.
Kaplow Presents Optimal Policy with Heterogeneous Preferences Today at Columbia
Optimal policy rules - including those regarding income taxation, commodity taxation, public goods, and externalities - are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and externalities are heterogeneous. When preference differences are observable, standard second-best results in basic settings are unaffected, except those for the optimal income tax. Optimal levels of income taxation may be higher, the same, or lower on types who derive more utility from various goods, depending on the nature of preference differences and the concavity of the social welfare function. When preference differences are unobservable, all policy rules may change. The determinants of even the direction of optimal rule adjustments are many and subtle.
WSJ: Bailout Tax Break Worth $5.1 Billion to PNC Bank in Purchase of National City
Wall Street Journal: PNC Stands to Gain From Tax Ruling; Acquisition of National City Will Bring Billions in Deductions, Experts Say, by Jesse Drucker:
PNC Financial Services Group Inc. will receive several billion dollars in federal tax savings stemming from its purchase of National City Corp., tax experts said, significantly increasing the price tag of the federal assistance that helped spark the deal.
The tax benefit for PNC is the latest outgrowth of a ruling by the Internal Revenue Service and the Treasury Department in late September intended to give a boost to the struggling banking sector. The ruling, which gives banks the ability to quickly use up the "tax losses" of banks they acquire, is adding significantly to the overall cost of the $700 billion bailout package passed by Congress.
Robert Willens, an independent corporate tax analyst based in New York, estimated the tax savings to PNC could total as much as $5.1 billion.
- Bloomberg: Schumer Challenges IRS Rule Sparking Bank Mergers, by Ryan J. Donmoyer
- Reuters: Schumer Questions IRS Rule Aiding Wells-Wachovia, by Jonathan Stempel
Guide to Tax Policy: The 2008 Presidential Election
The Committee for a Responsible Federal Budget yesterday published Guide to Tax Policy: The 2008 Presidential Election.
Law Prof Blog Rankings
Below are the updated quarterly traffic rankings (visitors and page views) of the Top 35 blogs edited by law professors with publicly available SiteMeters for the most recent 12-month period (October 1, 2007 - September 30, 2008) [click on chart to enlarge]:
- These Law Prof Blog Rankings are drawn from Dan Solove's comprehensive Law Professor Blogger Census. They include all blogs edited by law professors -- both law-related and non law-related. Please email me the names of any Law Prof Blogs with traffic over the past twelve months that would qualify for inclusion on the lists (125,947 visitors and/or 180,245 page views). If necessary, I will re-publish the list to include all qualifying blogs.
- Several popular Law Prof Blogs do not have publicly available SIteMeters and thus are not included on the list: e.g., BlackProf, California Appellate Report, Credit Slips, The Deal Professor, Dorf on Law, Feminist Law Professors, Harvard Law School Corporate Governance Blog, Legal Theory, Point of Law.
- The list includes only those Law Prof Blogs that have been in operation for at least a year (and thus does not include popular blogs such as The Faculty Lounge).
- These rankings cover only those blogs edited by law professors. Other law-related blogs edited by practitioners, librarians, non-law school academics, and journalists are not included on this list: e.g., Above the Law, How Appealing, Law Librarian Blog, Wall Street Journal Law Blog.
- Members of our Law Professor Blogs Network comprise, by visitors, two of the Top 10, five of the Top 20, and eleven of the Top 35 blogs; and by page views, one of the Top 10, five of the Top 20, and ten the Top 35 blogs.
- These rankings reflect 8.8% growth in visitors (133,809.690 v. 123,040,260) and 9.7% growth in page views (163,841,443 v. 149,406,023) from the last quarterly rankings (July 1, 2007 - June 30, 2008).
CB&PP: The Impact of State Income Taxes on Low-Income Families in 2007
The Center on Budget and Policy Priorities yesterday published The Impact of State Income Taxes on Low-Income Families in 2007, by Jason A. Levitis & Andrew C. Nicholas:
Eighteen states, out of the 42 with an income tax, taxed working-poor, married couples with two children in 2007:
Johnson: Substance and Form in State Taxation
Steve R. Johnson (UNLV) has published Substance and Form in State Taxation, 50 State Tax Notes 239 (Oct. 27, 2008). Here is the abstract:
In the interpretation of tax statutes, a venerable principle is that "taxation should move in an atmosphere of practical realities rather than amid the intricate and wooden concepts" of legal formalities. That principle is familiar in federal taxation, and it holds no less sway in state and local taxation. Indeed, the idea that the substance of a transaction usually controls over the form of the transaction is not confined to taxation; it is a principle of U.S. law generally.
The principle commands that the underlying reality of the events usually determines tax consequence; the forms or labels attached to the events by the parties themselves (by contract or otherwise), or even by nontax law usually, are not determinative. This column will explore the "substance versus form" rule from three perspectives: justification for the rule, the reach of the rule and examples of its application in state and local taxation, and use of the rule in favor of taxpayers.
Monahan & Hall: Section 125 Plans for Individual Insurance and HIPAA's Group Insurance Provisions
Amy B. Monahan (Missouri) & Mark A. Hall (Wake Forest) have posted Section 125 Plans for Individual Insurance and HIPAA's Group Insurance Provisions on SSRN. Here is the abstract:
Several states have either passed or proposed legislation requiring employers to offer their employees the ability to pay for health insurance on a pre-tax basis through a "cafeteria" (or "premium-only") plan under section 125 of the tax code (a "section 125 plan"). Prior to these initiatives, many employers voluntarily established section 125 plans for this purpose. Recently, some authorities have raised a serious concern about the legality of this arrangement under the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA). Specifically, they maintain that, under the tax code, section 125 plans cannot be used to purchase medically-underwritten individual insurance because doing so would violate HIPAA's non-discrimination provisions for group plans. This paper explains the basis for this legal concern, and presents contrary legal arguments. It concludes that the current state of the law is unclear and is subject to change.
October 29, 2008
Ken Hirsh Named Director of Law Library at Cincinnati
I am delighted to share the news that Kenneth J. Hirsh of the Duke Law Library has been named Director of Law Library and Information Technology and Clinical Professor of Law at the University of Cincinnati College of Law, effective February 1, 2009. I have served on the Board of Directors of CALI with Ken for the past four years and am thrilled that we were able to attract a person with his background, experience, talent, and leadership ability to take the helm of our library. From the UC press release:
Mr. Hirsh is a graduate of the University of Miami (A.B. 1974) and received his J.D. from the University of Florida in 1977. He practiced law in Florida for nearly ten years before obtaining his M.S. in Library and Information Studies from Florida State University in 1989. He then joined the Law Library at Duke University School of Law and served as Reference Librarian (1989-1994), Manager of Computing Services (1993-2001), and Director of Computing Services (2001-2008). Mr. Hirsh also has served as a Senior Lecturing Fellow at Duke since 1989, teaching Legal Research and a course in Technology in the Practice of Law.
Mr. Hirsh’s extensive experience in both reference and information technology at one of the country’s finest law schools will serve the College of Law and its Library well. His accomplishments at Duke have been as an innovator – using his legal education, practice background, and technical expertise to bring new technologies to bear beneficially on the work of law students and faculty.
He likewise has been a nationally prominent leader in two of the foremost organizations in his field, the American Association of Law Libraries (“AALL”) and the Center for Computer Assisted Legal Instruction (“CALI”). Mr. Hirsh served as President of the AALL’s Southeastern Chapter and currently serves as Secretary of CALI and a member of its Board of Directors. CALI honored him with its Excellence in Service Award in 2000. The AALL similarly hailed Mr. Hirsh’s contributions, honoring him for distinguished service in 2004. AALL has named its distinguished service award in the area of computing services for Mr. Hirsh.
Yin Presents Temporary-Effect Tax Legislation Today at Penn
George K. Yin (Virginia) presents Temporary-Effect Legislation, Political Accountability, and Fiscal Restraint, 84 NYU L. Rev. ___ (2009), at Pennsylvania today as part of its Tax Law and Policy Seminar Series. Here is the abstract:
We examine the measurement of tax expenditures and offer recommendations aimed at improving their value to analysts and policymakers. We use calculations from NBER’s TAXSIM to illustrate some of the problems with the current methodology for estimating tax expenditures. Unlike most previous work on the topic, we focus on how features of the current tax system complicate and compromise the value of information provided by the tax expenditure budget. Our recommendations for reform include presenting revenue estimates for major tax expenditures, reporting some negative tax expenditures, grouping expenditures by conceptually-linked categories, and establishing an appendix for tax expenditure estimates of permanent versions of expiring provisions and AMT interaction effects.
NY Times: In Bleak Times, the IRS Looks Good
New York Times: In Bleak Times, the IRS Looks Good, by James Barron:
Benjamin Franklin said that nothing in this world is certain except death and taxes. When death is not an option and the world is maximizing the uncertainty, taxes look like an intriguing career alternative.
The IRS dangled the possibilities when it held an open house at the federal office building at 290 Broadway in Lower Manhattan on Tuesday. An hour before the fair was scheduled to begin, the crowd began lining up — recently laid-off Wall Street types in charcoal-gray pinstripe suits and trench coats; less formally dressed people; a woman with a new accounting degree on her résumé and a 14-month-old baby in a stroller.
(Hat Tip: Jim Hart, Ruth Mason.)
Leviner Presents A New Era of Tax Enforcement Today at Toronto
Sagit Leviner (Tel Aviv University, Buckmann Faculty of Law) presents A New Era of Tax Enforcement: From "Big Stick" to Responsive Regulation, 2 Reg. & Governance 360 (2008), at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series. Here is the abstract:
Recent developments in regulation and tax administration in Australia inspired this article on tax compliance and responsive regulation. This article analyzes the economics of crime and compliance as the dominant approach to tax enforcement of the past three and a half decades. It evaluates the key advantages and disadvantages of the economic approach as well as its application to tax. The article then explores responsive regulation as an alternative method that draws on the economic paradigm but also supplements this approach with other theories, particularly those involving identity, conflict escalation, and procedural justice. Building on this analysis and a case study of Australian investors in mass marketed tax schemes, the article suggests that the broader, more balanced, and closely tailored method of regulating responsively may enable regulators to draw on the advantages of the economic model while alleviating some of its drawbacks. Responsive regulation may therefore constitute a superior method for regulating compliance.
Students Comments & Notes in ABA Tax Lawyer
Here are the student comments and notes in the latest issue of The Tax Lawyer (Vol. 61, No. 3):
- Jared H. Binstock, Comment, Transactions of Interest: Are They “Interesting” Enough To Warrant the New Obligations?, 61 Tax Law. 949 (2008)
- Steven Gilbert, Comment, On the Difficulties of Taxing Disregarded Single Member Limited Liability Companies as Corporations for Employment Taxes, 61 Tax Law. 969 (2008)
- Benjamin Vaughn, Note, The High Cost of Free Exercise: All Saints, the Service, and Section 501(c)(3), 61 Tax Law. 981 (2008)
- Meghan M. Walsh, Note, The Anonymous Taxpayer: What the Tax Court Failed to Reveal in Anonymous v. Commissioner, 61 Tax Law. 999 (2008)
More McCain, Obama Tax News
- ABC News: Obama Outmanuevers McCain on Taxes
- American Thinker: Senator Obama's Four tax Increases for People Earning Under $250k, by Ned Barnett
- The Atlantic: McCain on Taxes, by Clive Crook
- Bloomberg: McCain Economic Plan a Winner, Even If He Loses, by Amity Shlaes
- Citizens for Tax Justice: The Effects of the Candidates' Tax Plans on Households at Different Income Levelas: Examples
- L.A. Times: Obama: McCain Worse Than Bush on Taxes
- Mauled Again: Wealth Redistribution, Socialism, and the Tax Law, by Jim Maule
- National Review: Obama's Tax Increases on the "Middle Class," by Mark R. Levin
- New York Times: 2 Rivals' Plans on Fiscal issues Add to Deficits, by Jackie Calmes
- Tax Foundation's Tax Policy Blog: Obama Lets Part of Bush Tax Cuts Expire; McCain Lets Virtually None Expire, by Gerald Prante
- U.S. News & World Report: The Facts About Barack Obama's and John McCain's Tax Plans, by John Farrell
- Wall Street Journal: Biden's Tax Truth: That "Tax Cut" Threshold Keeps Falling (editorial)
- Wall Street Journal: Republicans' Dominance on Taxes Slips, by Jonathan Weisman
- Wall Street Journal: Voters' New Choice: Dueling Tax Breaks, by Tom Herman
Tax Video Contest Winner
For the second ($1,000) and third ($500) place finishers, see here.
Why No Competition for the LSAT?
Inside Higher Ed: GRE vs. GMAT, by Scott Jaschik:
The Educational Testing Service, which had and lost the lucrative market for admissions testing for those aspiring to earn M.B.A.’s, is increasing its efforts to gain back a good share of that business.
In 2003, ETS lost the contract to manage the Graduate Management Admission Test to ACT and a division of Pearson. In the last year, ETS has been quietly and not so quietly urging business schools and students to consider using the Graduate Record Examinations instead of the GMAT. Now ETS is upping the ante, with a more formal campaign and by unveiling a table that compares GRE and GMAT scores in terms of predictive validity for business-school performance. The lack of such comparative data has discouraged business schools from considering using the GRE, since some worry about considering GMAT scores for some applicants and GRE scores for others.
The reason that the GMAT can be challenged in this way is that it is a test of verbal, mathematical and writing skills (as is the GRE). The GMAT does not focus on finance or accounting or business strategy. It’s also more expensive than the GRE ($250 vs. $140 in the United States). And with nearly 250,000 tests given in the testing year that ended June 30, it’s a testing market others eye. ...
35 additional M.B.A. programs have said that they will accept GRE scores, bringing the total to 125 — a fraction of those that accept the GMAT, but a notable increase. ... The Graduate Management Admission Council is disputing the ETS claims about the GRE as an alternative to the GMAT. “At this point, there is only one valid predictor of success in in an M.B.A. program: It is the GMAT,” said David A. Wilson, president of GMAC. He said that whatever comparisons ETS is making can’t equal the long-term validity studies conducted by his organization showing a clear relationship between certain scores and success in business school.
House Holds Hearing Today on Economic Recovery, Job Creation and Investment In America
The House Ways & Means Committee holds a hearing at 10:00 a.m. today on Economic Recovery, Job Creation and Investment In America. From the hearing announcement:
The hearing will focus on challenges facing American families and State and local governments during the economic downturn and solutions to improve economic security, create new jobs and invest in America’s infrastructure.
In connection with the hearing, the Joint Committee on Taxation has released four reports:
- Present Law Related to the Individual Income and Social Insurance Taxes as in Effect for 2009 and Background Data Related to the Distribution of Federal Taxes (JCX-84-08)
- Present Law and Issues Related to Infrastructure Finance (JCX-83-08)
- Present Law and Background Relating to Valuing Assets in Defined Benefit (JCX-82-08)
- Present Law Tax Treatment of the Cost of Health Care (JCX-81-08)
- David Paterson (Governor, New York)
- Mark Sanford (Governor, South Carolina)
- Douglas Palmer (Mayor, Trenton, NJ)
- Timothy Firestine (Chief Operating Officer, Montgomery County Executive, Rockville, MD)
- David Mongan (President, American Society of Civil Engineers)
- Dennis Van Roekel (President, National Education Association)
- Jared Bernstein (Director, Living Standards Program, Economic Policy Institute)
- Robert Greenstein (Executive Director, Center on Budget and Policy Priorities)
- Christine Owens (Executive Director, National Employment Law Project)
- Jeanne Lambrew (Professor, LBJ School of Public Affairs, University of Texas at Austin)
- Martella A. Turner-Joseph (Vice President, Joseph & Turner Consulting Actuaries, New York)
- Alan Viard (Resident Scholar, American Enterprise Institute)
A Voter's Guide to the U.S. News Law School Rankings
From Race to the Top in Legal Education (David Fagundes (Southwestern) & Jerry Solomon (Georgia)): A Voter's Guide to the U.S. News Law School Rankings:
Each year, hundreds of law professors, lawyers and judges complete the survey that makes up 40% of the total score – no other category comes close -- of the U.S. News rankings that dominate the institutional incentives for most law schools.
U.S. News used to call this a "reputation" survey but it does not anymore; it asks respondents to assess the quality of each J.D. program. But with no information on educational quality, research shows that respondents simply replicate the previous year's U.S. News rankings, and the scores remain fairly static over time.
Given the question U.S. News asks, we need to think more about evaluating schools based on the quality of education that they provide for students, or the "value added" by the institution, in filling out the survey.
If schools can rise and fall based on the education they provide, they will have the incentive to improve, and less of an incentive to “game” the system. We might just get a race to the top in legal education. This project aims to provide some information to help make this possible. ...
Attached is some information on schools that have (1) high bar passage rates relative to entering credentials; (2) curricula that use “best practices” in legal education; and (3) strength in programs that are highly relevant to developing skills for practice, such as legal writing, clinical programs, trial advocacy, and dispute resolution. In future years, we hope to produce a shorter list of top "value added" schools that get high marks in all or most of these categories.
For more, see Law Schools Competing on Quality, by Jerry Solomon.
ABA Tax Section Offers Teleconference & Webcast Today on Hot Topics for Public Charities
The ABA Tax Section offers a teleconference and webcast today on Hot Topics for Public Charities: Election Year Activities and Foundation Classification Issues from 1:00 - 2:30 p.m. EST:
The first part of this program will provide an overview of the rules that govern lobbying and political activities by public charities and dispel common myths in this area. This part of the program will also provide an update on the Internal Revenue Service’s
The second part of this program will discuss recent changes in the classification of public charities, including elimination of the advance ruling process and foundation classification issues that newly-formed charitable organizations should consider in light of the Pension Protection Act, the redesigned IRS Form 990 (particularly Schedules A and C), and other recent legislative and regulatory developments.
Atolia: Public Investment, Tax Evasion, and the Welfare Effects of a Tariff Reform
Manoj Atolia (Florida State University, Department of Economics) has posted Public Investment, Tax Evasion, and the Welfare Effects of a Tariff Reform on SSRN. Here is the abstract:
Contrary to the case considered in literature, the experience of developing countries indicates that the tariff reforms have not been revenue neutral due to the heavy dependence of developing countries on trade taxes and pervasive tax evasion. In contrast to the plausibility of a welfare loss shown by the current literature, when the adverse effect of the loss of tariff revenue on public investment is factored in, the welfare outcomes of tariff reforms of past few decades turn out to be much more pessimistic. The constraints imposed by tariff dependence and tax evasion imply that future tariff reforms in these countries should be undertaken after the strengthening their domestic tax system and augmenting the ability of their governments to fight tax evasion. For countries of sub-Saharan Africa, where such reforms are likely to be concentrated, this would need planning and capacity building over a longer time horizon.
October 28, 2008
Top 100 Most Influential People in Tax and Accounting
I am honored (and surprised) to be included on the list of Accounting Today's Top 100 Most Inluential People for the third year in a row. The magazine contains one-sentence explanations of why each of the folks made the list; here is mine:
One of the most widely read tax sites on the Internet, Caron's TaxProf Blog is frequently cited and linked to by other blogs, attracting an audience of faithful readers.
I am honored to be on the list with such high-powered people in the tax and accounting worlds, including:
Government and Industry Group Officials:
- Ernest Almonte (Chair, AICPA)
- Robert Attmore (Chair, GASB)
- Christopher Cox (Chair, SEC)
- J. Russell George (Treasury Inspector General for Tax Administration)
- Robert Herz (Chair, FASB)
- Barry Melanconi (President & CEO, AICPA)
- Mark Olson (Chair, PCAOB)
- Nina Olson (National Taxpayer Advocate, IRS)
- Henry Paulson (Secretary of the Treasury)
- Douglas Shulman (Commissioner, IRS)
CEOs of Major Accounting Firms:
CEOs of Tax & Accounting Companies & Publishers:
- Jonathan Baron (Thomson Reuters Tax & Accounting)
- Kevin Robert (Wolters Kluwer)
- Mike Sabbatis (CCH)
- Brad Smith (Intuit)
Tax Lawyer Sinks His Teeth Into Dracula
Wall Street Journal: What a Tax Lawyer Dug Up on 'Dracula,' by John J. Miller:
[The challenge for a lot of classic books is that [t]he stories are so familiar that their twists and turns fail to shock or awe. Yet the publisher W.W. Norton & Co. seems to have found a commercially viable way out of this fix, with a series of annotated volumes that perform the marketing miracle of making the old seem new again. The latest, The New Annotated Dracula, is out just in time for Halloween. ...
Leslie S. Klinger, the editor of "The New Annotated Dracula," nevertheless manages to enliven the experience of reading about the world's most famous undead white male. ...
By day, Mr. Klinger is a Los Angeles tax attorney with clients in the entertainment industry. By night, he turns his attention to genre literature.
Mankiw: True Marginal Rate Is 93% Under Obama (83% Under McCain)
Here is a question that you may have been thinking about: How do the different candidates' tax plans affect Greg Mankiw's incentive to work? ...
Let me try to put each tax plan into a single number. Let's suppose Greg Mankiw takes on an incremental job today and earns a dollar. How much, as a result, will he leave his kids in T years?
The answer depends on four tax rates. First, I pay the combined income and payroll tax on the dollar earned. Second, I pay the corporate tax rate while the money is invested in a firm. Third, I pay the dividend and capital gains rate as I receive that return. And fourth, I pay the estate tax when I leave what has accumulated to my kids.
Let t1 be the combined income and payroll tax rate, t2 be the corporate tax rate, t3 be the dividend and capital gains tax rate, and t4 be the estate tax rate. And let r be the before-tax rate of return on corporate capital. Then one dollar I earn today will yield my kids:
For my illustrative calculations, let me take r to be 10 percent and my remaining life expectancy T to be 35 years.
If there were no taxes, so t1=t2=t3=t4=0, then $1 earned today would yield my kids $28. That is simply the miracle of compounding.
Under the McCain plan, t1=.35, t2=.25, t3=.15, and t4=.15. In this case, a dollar earned today yields my kids $4.81. That is, even under the low-tax McCain plan, my incentive to work is cut by 83% compared to the situation without taxes.
Under the Obama plan, t1=.43, t2=.35, t3=.2, and t4=.45. In this case, a dollar earned today yields my kids $1.85. That is, Obama's proposed tax hikes reduce my incentive to work by 62% compared to the McCain plan and by 93% compared to the no-tax scenario. In a sense, putting the various pieces of the tax system together, I would be facing a marginal tax rate of 93%.
The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place. I expect to spend more time playing with my kids. They will be poorer when they grow up, but perhaps they will have a few more happy memories.
- Use this calculator to input your own income data
- Adding Inflation to Greg Mankiw's "Work Incentives" Post
Kaplan: Require 401(k) Plans Only as Supplement to Defined-Benefit Plans
From an Illinois press release:
Congress needs to reform flawed 401(k) laws that could push back retirement for millions of Americans whose savings have collapsed along with the stock market, a University of Illinois elder law expert says.
Law professor Richard L. Kaplan says 401(k) accounts were meant to supplement traditional defined-benefit pensions, but have evolved into the sole nest egg for the bulk of U.S. workers whose employers offer any kind of savings program. The shift, he says, has left workers with the illusion of a company-funded pension when in fact it’s largely their own money in investments that are generally tethered to the stock market, which has lost $8 trillion during an economic meltdown over the last year
“People mistakenly think they have an employer pension plan and don’t understand that their retirement income, other than Social Security, is in very serious jeopardy right now,” said Kaplan, who wrote a 2004 article on the risks of 401(k) plans [Enron, Pension Policy, and Social Security Privatization, 46 Ariz. L. Rev. 53 (2004)]. He argues that Congress should rewrite laws to allow 401(k) programs only in concert with defined-benefit pensions, even if it means more companies join the roughly half of U.S. employers that offer no retirement savings plan.
Stuart: Taxpayer Procedures and Remedies: The "Net Worth" Limitations
Robert J. Stuart (Fredrikson & Byron, Minneapolis) has published Taxpayer Procedures and Remedies in Tax Controversies: The Elusive Maze of the "Net Worth" Limitations, 61 Tax Law. 941 (2008). Here is the Introduction:
There are a number of procedural devices and remedies available to taxpayers involved in federal tax controversies that may either increase the likelihood of success or decrease the cost of the litigation. For example, an eligible taxpayer may be able to shift the burden of proof under § 7491, so that the Service bears the burden of proving certain factual issues. A qualifying taxpayer may also be entitled to recover attorney’s fees and other reasonable administrative or litigation costs under § 7430 if the taxpayer substantially prevails with respect to the amount in controversy or with respect to the most significant issue or set of issues, the Service’s position was not substantially justified, and certain other statutory requirements are met. Alternatively, the taxpayer may decide to make a “qualified offer” under § 7430(g) to pressure the Service into a settlement or recover attorney’s fees and other costs if the Service is unwilling to accept the offer.
As detailed below, the net worth limitations set forth in § 7430(c)(4)(A)(ii) often present a substantial obstacle to taxpayers seeking to take advantage of one or more of the above procedural devices and remedies. Despite the significance of these net worth limitations, determining whether a taxpayer in fact satisfies them is not as easy as one would expect. This Article explores the net worth limitations and addresses select issues regarding the application of these limitations to taxpayers involved in federal tax controversies.
Willens: How M.B.A. Students Can Deduct Their Education Expenses
Robert Willens (Robert Willens LLC, New York; Adjunct Professor, Columbia) has published Deducting an MBA Candidate's Education Expenses, 121 Tax Notes 415 (Oct. 27, 2008):
Robert Willens examines whether a master's in business administration candidate can deduct his expenses for federal income tax purposes, concluding that the typical MBA candidate should be able to comply with the tests laid out by courts, despite the IRS's reluctance to allow the deduction.
Prior TaxProf Blog coverage:
- Tax Court Denies Deduction for M.B.A. Expenses (8/19/04)
- Washington Post on Tax Court's Denial of M.B.A. Expense Deductions (8/23/04)
- More on Tax Deduction for M.B.A. Expenses (8/26/04)
- Tax Court Allows Deduction for M.B.A. Expenses (9/1/05)
- More on Deductibility of M.B.A. Expenses (9/9/05)
- Deductibility of J.D. and M.B.A. Expenses (10/21/05)
- Tax Court Denies Attorneys' Fees in Allemeier MBA Expense Case (2/17/06)
- Tax Court Denies Deduction for Harvard M.B.A. Expenses (2/29/08)
Tax Prof "Power Couple" Vic & Miranda Fleischer Return to Colorado
CP&PP: U.S. Corporate Tax Burden, Not Rate, Is Key Metric
The U.S. corporate tax burden is smaller than average for developed countries. Corporations in the 19 member states of the OECD paid 16.1% of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4%.
Nevertheless, some have argued that U.S. corporate tax rates unduly burden U.S. companies by pointing to the country’s top statutory tax rate, which is 35%. For example, a recent Wall Street Journal editorial calling for corporate tax cuts noted that this is the second highest top statutory tax rate among developed countries. While true, this gives the false impression that the corporate tax burden is greater here than in other developed countries. Because the U.S. tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.
Because the average U.S. corporate tax burden is low, many economists believe a revenue-neutral corporate tax reform that reduces statutory corporate tax rates, while broadening the tax base by eliminating costly tax breaks, could improve economic efficiency and likely benefit the U.S. economy.
A Two-Tiered System of Legal Education?
Bar Passage and Best Practices for Legal Education, by Antoinette Sedillo Lopez (New Mexico):
[T]he confluence of bar passage imperatives and the Best Practices/Carnegie movement might result in a kind of “two-tier” legal education where students with higher LSAT’s and grades will get the Best Practices/Carnegie type education and students with lower LSATs and grades will get a legal analysis focused legal education … [I]ronically legal analysis is the skill that Best Practices and Carnegie Report conclude that legal education over emphasizes … WOW! Is this backward!
Groves: The De-gentrification of New Markets Tax Credits
The thesis of this article is the following: If tax credits are used as part of the solution to urban ills, gentrified projects for the wealthy are not consistent with Congressional intent or wise tax policy. The remedy is to close loopholes in the NMTC act that have allowed problematic use of governmental subsidies, and redirect those funds to ventures that more precisely benefit existing low-income residents who are the object of the NMTC program.
Consistent with this thesis, Part 1 provides an overview of the regulatory structure of the tax credit, foundational definitions and intended operational scheme. This is to clarify that the intent of the legislation was to benefit the low-income residents, not wealthy residents who come into low-income areas. Part II provides a contextual framework for the competing models for how tax subsidies should be delivered to the urban community, i.e. models that allow for gentrified projects and those that do not. Part III contains proposed amendments to the legislation to close loopholes that have diverted funds away from the low-income residents of target communities.
October 27, 2008
Charles Merrill Raises First Amendment Challenge to DOMA in Tax Court
From a press release:
Charles Merrill has filed papers with the U.S. Tax Court objecting to the Defense of Marriage Act (DOMA) based on the 1st Amendment Establishment Clause of the U.S. Constitution. He objects to not getting all the same benefits as other married couples -- 1,138 of them -- under a discriminatory tax code.
Merrill, a life member of the Freedom From Religion Foundation, and cousin of the founder of Merrill Lynch, was previously married to the late Evangeline Johnson, the Johnson & Johnson heiress. He has refused to pay federal taxes, protesting marriage equality. He is legally married to his husband, Kevin Boyle, in the state California, but not recognized by the Federal government.
Cain Presents Taxing Families Fairly Today at Loyola-L.A.
Patricia A. Cain (Santa Clara) presents Taxing Families Fairly, 48 Santa Clara L. Rev. 805 (2008), at Loyola-L.A. today as part of its Tax Policy Colloquium Series. The commentator is Adam Chodorow (Arizona State). Here is the abstract:
This article focuses on the historical role of state marital property law in shaping the current federal tax rules regarding taxation of the family. Now that a number of states have granted status recognition to same-sex couples and granted them marital property rights, the tension between state property law and federal tax law has produced new problems. This article identifies those problems and proposes a solution that would restore uniformity and tax all families fairly.
Monks: A Tax Practitioner's Primer on Patenting Tax Strategies
Thomas J. Monks (Western Connecticut State University) has published Evereything You Always Wanted to Know About Patents but Were Afraid to Ask: A Tax Practitioner's Primer on Patenting Tax Strategies, 61 Tax Law. 907 (2008). Here is part of the Introduction:
This Article provides tax practitioners with an introduction to patents in general and tax strategy patents in particular. A question and answer format is used for ease of understanding and reference. The Article first discusses general concepts of patent law, then provides a discussion on tax strategy patents. The Article next discusses a recent Supreme Court case that should have a major impact on tax strategy patents. Finally, the Article discusses the future of tax patents.
IRS Issues New Publication on Per Diem Rates
The IRS has issued a new edition of Publication 1542, Per Diem Rates (for Travel Within the Continental United States) (rev. Oct. 2008). For Law Profs going to the AALS annual meeting in San Diego, the per diem rate is $211 in January: $147 for lodging, and $64 for meals and incidental expenses ($12 breakfast, $18 lunch, $31 dinner, $3 incidentals). For Sarah Palin, the new per diem rate in Juneau, Alaska is $214 (5/1 - 9/30) and $165 (10/1 - 4/30).
McGill Hosts Conference Today on The Impact of International Tax Standards on Low-Income Countries
McGill University Faculty of Law hosts a conference today on Tracking Our Fiscal Footprint: Assessing the Impact of Conventional International Tax Standards on Low-Income Countries. Here are the speakers and their topics:
- Ilan Benshalom (Northwestern), The New Poor at Our Gates
- Craig Boise (Case Western), Footprints in the Sand: Offshore Financial Centers and Developed Country Tax Policy
- Yariv Brauner (Florida), The Truth About Tax Incentives
- Kim Brooks (McGill), Jalia Kangave (British Columbia) & Michael McIntyre (Wayne State), The UN Code of Conduct
- Karen Brown (George Washington), Redistribution and the Caribbean Region
- Allison Christians (Wisconsin), Tax Norms and Global Governance: the Emergence and Influence of Transnational Epistemic Communities
- Art Cockfield (Queen’s), Do Tax Information Exchange Agreements Work With Developing Countries?
- Tsilly Dagan (Bar Ilan), Just Harmonization
- Steven Dean (Brooklyn), Distributed Taxation
- Nancy Kaufman (St. Louis), International Tax Principles and Premises
- Kathy Lahey (Queen’s), Gender and International Taxation: Where are the Women?
- Yoram Margalioth (Tel Aviv), The Celtic Tiger and the Chinese Lóng
- Lisa Philipps (Ogoode Hall) & Miranda Stewart (Melbourne), Defining Fiscal Transparency: Transnational Norms, Domestic Laws, and the Politics of Budget Accountability
Princeton Review's Top 50 Law Schools
Last week, I blogged the lists of the Top 10 law schools in eleven categories posted on Princeton Review's web site in connection with its publication of the 2009 edition of Best 174 Law Schools. The rankings are the result of Princeton Review's survey of 18,000 students at the 174 law schools, along with school statistics provided by administrators.
With the help of my assistant, I extracted from the individual profiles of the 174 law schools all of the available data and blogged the Top 25 and Bottom 25 schools in each of six categories:
- Academic Experience
- Admissions Selectivity
- Career Preparation
- Professors: Accessible
- Professors: Interesting
- Study Hours
To conclude the series, I present here Princeton Review's Top 50 Law Schools, determined by (1) focusing on those five categories with reported scores in the 60-99 range (thus excluding the study hours category), (2) combining the Professors: Accessible and Professors: Interesting categories into a single category, and (3) adding the scores in the resulting four categories:
Unfortunately, the Princeton Review did not release the response rate per school, so it is impossible to determine how the rankings are affected by each school's representation among the respondents.
For the 2008 Princeton Review Top 50 Law School Rankings, see here.
State Tax Revenues Fall 5.5%
The Center on Budget and Policy Priorities has published State Revenues Plummet: July-September Revenue Numbers Are Worst in Years, by Nicholas Johnson & Andrew Nicholas:
States are beginning to report revenue collections for the July-September 2008 quarter, and the new figures raise the likelihood that large, additional budget shortfalls are developing. Of 15 mostly large and mid-sized states that have published complete data for this period, the majority collected less total tax revenue in July-September 2008 than was collected in the same period in 2007. ... After adjustment for inflation, total revenue collections are below 2007 levels in 14 of the 15 states.
Weekend Wall Street Journal: States' Tax Receipts Fell Sharply in Latest Quarter, by Jesse Drucker [click on chart to enlarge]: