Friday, January 2, 2009
Continuing a TaxProf Blog tradition, below the fold are the Top 10 Tax Stories of 2008, generated from a post on the TaxProf Discussion Group, beginning with Joe the Plumber, Tax Pork Added to the Bailout Bill, and Tax Policy in the Obama-Biden Administration:
1. Joe the Plumber:
Dorothy A. Brown (Emory):
I think one of the top ten stories of 2008, was that tax reform played such a large role in the recent Presidential election. Not only did the policy wonks get involved, but everyday Americans got informed on the various tax proposals of the candidates. To me one of the funniest aspects was Joe the Plumber’s take on taxes. Joe the Plumber was concerned that he was going to pay more in taxes under an Obama administration if he bought a plumbing business and that business had net income in excess of $250,000. In reality, Joe would get a tax cut under the Obama tax plan – yet Joe wasn’t going to vote based on his current tax situation, but his hoped for future tax situation. Joe’s vote was based on his tax liability under an Obama Administration if he bought this hypothetical business, and in this stagnant economy, that business managed to net $250,000. Now that’s change we can believe in!
Jeffrey A. Cooper (Quinnipiac):
Hands down, my vote goes to Joe the Plumber. A guy who was neither named Joe, nor technically a plumber, managed to put tax policy on the front page of every national newspaper. While some of his anti-Socialism rhetoric may have been overblown to say the least, Joe became the personification of the fundamental tax policy differences between John McCain and Barack Obama. I'm not sure whether voters were more or less informed on the issues as a result of Joe's emergence into the national spotlight, but he certainly inspired voters to talk about tax policy (perhaps without even realizing they were doing so). And then, to top it all up, it turned out that Joe had a few pesky tax problems of his own that we could all spend days analyzing. What a gift to us all!
David Elkins (Netanya College School of Law):
My vote for top tax story of the year goes to Joe the Plumber (the legend, not the actual person), the struggling plumber who was supposedly being prevented from buying the plumbing business he had been working in ten hours a day for fear that he would earn over $250,000 and be hit by higher taxes. Joe symbolizes the misconceptions and irrationality that often dominate public discussion of tax issues. True, tax law is complicated and the public cannot be expected to understand its intricate details. Nevertheless, when a focus of political discourse is an individual who apparently prefers continuing working ten hours a day as a modestly-paid salaried employee rather than purchasing the business for fear of earning too much, it is noteworthy. (Of course, one response to the charge would be: Don't be afraid, go ahead and purchase the business because the odds are you won't actually be earning all that much anyway. Now there's a bit of wisdom you probably wouldn't learn in Harvard Business School.)
2. Jim Maule (Villanova): Bailout Bill Survives Thanks to Piggy-Backed Tax Provisions:
The Emergency Economic Stabilization Act of 2008 could not find its way through the Congress until dozens of tax breaks were added to the legislation. Originally a three-page proposal that went nowhere when first proposed, the bill was amended to add specific procedures and standards that responded to criticisms levelled by many members of Congress. Nonetheless, even in its expanded 100-plus-page form, the proposal was voted down. Someone quickly remembered how to get legislation through the Congress: dress it up with tax breaks that individual members could parade before their constituents, or one or two special constituents, and the re-election insurance reversed numerous votes. The bailout provisions remained the same. Somehow, a plan rejected by a majority of the Congress became ideal without anything significant being done to the plan that had fallen short. How did the defects in the bailout become cured? How did the shortcomings of the plan get resolved or become advantages? Simple. Totally unrelated tax giveaways to a variety of special interests made it easy to overlook the problems in the bailout, problems that are now causing people to ask why Congress enacted the legislation without improving it. The answer lies in the power of tax.
The irony is that the 150-plus-page legislation became a 500-page monstrosity because 350 pages of tax provisions were attached to the original proposal. How many years will pass before the Treasury Department issues regulations dealing with all of the new provisions? How many taxpayers were compelled or will be compelled to make major changes in their business plans in order to deal with the changes? Some examples of the provisions with the power to move an otherwise unpassable piece of legislation through the Congress include more generous depreciation deductions for "qualified retail improvements," "qualified smart meters," and "qualified smart grid systems," increases in depreciation allowable in the year of acquisition for certain reuse and recycling property, an extension of the period of time during which taxpayers can place in service motorsports entertainment complexes that qualify for more generous depreciation deductions, increases in depreciation allowable in the year of acquisition for "qualified disaster property," and a long, long list of assorted energy-related investments and practices, which may or may not have a beneficial impact on the nation's energy woes.
Fifteen Tax Profs offerred their views on the tax policy challenges facing the incoming administration.
The change in the tax preparer penalty is a big one for accountants/attorneys/enrolled agents.
2008 saw the most high-profile moves of Tax Profs at Top 25 schools in recent memory:
I believe the Federal Claims Court granting the government’s motion to exclude the testimony of Stuart Smith and Ira Shepard in the Stobie Creek Investments trial on the basis that it was about the law upon which the court needed no expert help is a top tax story. There is a long tradition of tax experts advising the courts on how the law should be applied to certain fact situations and the distinction between informing the court about the law and about other relevant issues is truly blurred. The government came up with a novel argument that got this court’s attention and produced this bad result.
7. Paul L. Caron (Cincinnati), Tax Issues Raise by Obama, Biden, McCain, Palin, Clinton Tax Returns
The facts of Alioto are compelling. A whopping amount due (from returns Joe Alioto filed with his previous wife) and a win to the taxpayer under the very difficult standard of "abuse of discretion" under 6015(f). It's just a fun one.
One of the weirdest stories involved Charles J. O’Byrne, aide to New York Governor David A. Paterson. O’Byrne offered “late-filing syndrome” as one of the reasons that he failed to file tax returns from 2001 to 2005. Others may have scoffed, but we tax professors sympathized. We know several among us who suffer from “late-grading syndrome.”
Even if someone qualifies as an innocent spouse, community assets may be used to satisfy the deficiency (makes it really a good question whether someone in a community property should even apply for innocent spouse relief).