Saturday, February 28, 2009
The IRS does not know to what extent payers fail to submit required 1099-MISCs, but various sources point to the possibility of a significant problem. For tax year 2005, 8 percent of the approximately 50 million small businesses with assets under $10 million submitted 1099-MISCs, but IRS does not know how many of the other 92 percent were required to report payments but did not. Many business payments, such as payments to corporations, are not subject to 1099-MISC reporting. If even a small share of the businesses that did not submit a 1099-MISC should have, millions of 1099- MISCs could be missing with significant amounts of unpaid taxes by payees. GAO’s prior work in 2003 found significant 1099-MISC payer noncompliance by some federal agencies. IRS could mitigate costs for research on payer noncompliance by building on its existing research programs. ...
Congress should consider requiring payers to report payments to corporations on the Form 1099- MISC.
Senate Finance Committee Chair Max Baucus applauded the report.
NPR: White House Counsel Vets Nominees for Top Jobs, by Nina Totenberg:
White House Counsel Greg Craig's job is to be the guy who makes things run so smoothly, you never hear about him. ... President Obama recently asked Craig to take charge of vetting administration nominees for top jobs, because of some stumbles in the process.
Gawker: Obama's Chief Vetter Has His Own Tax Problem, by Owen Thomas:
White House general counsel Gregory Craig has seized control of Obama's vetting process after a series of nominees with unpaid taxes. But his wife's business may also have avoided taxes. Who vets the vetter?
Derry Noyes, Craig's wife, runs Noyes Graphics, a design business, out of the couple's home in northwest Washington. ... Operating a business out of one's home in D.C. requires a home occupation permit and registration with the city's division of corporations. Additionally, the government has instituted a new requirement for business license permits. A spokesman at the Washington D.C. Department of Consumer and Regulatory Affairs told Gawker that no one has ever sought any kind of permit or registration for a business under the name of Noyes Graphics or at the Craigs' home address. By not registering Craig may have avoided local business taxes. ...
An unregistered home business may seem like a "gotcha" scandal. And were some new appointee to come along with this kind of problem, the public might shrug it off, even with the past tax scandals of Obama nominees. But Craig was charged with putting an end to those problems. As Politco explained it: "A narrative was building, and the president asked us to be more vigilant in the vetting process," said a source involved in the vetting. Instead of closing a chapter, Craig has become part of the story himself.
(Hat Tip: InstaPundit.)
- Center on Budget and Policy Priorities: Very Few Small Business Owners Would Face Tax Increases Under President's Budget
- Citizens for Tax Justice: President Obama's First Budget: Not Perfect, But a Massive Improvement Over the Recent Past
- Heritage Foundation:
- Tax Foundation:
- Tax Vox:
Forbes: Higher Taxes: Will the Republicans Cry Wolf Again?, by Bruce Bartlett:
Yesterday, President Obama issued his first detailed budget. Among its most controversial proposals is a significant increase in taxes, especially on those with upper incomes. Obama also proposes a cap-and-trade system to reduce pollution that is in essence a broad-based energy tax.
Republicans will undoubtedly make extravagant claims about the detrimental economic effect of these higher taxes. When one hears these claims, however, it is worth remembering that they said the same things in years past and none of their dire predictions came to pass.
According to a recent Treasury Department study, Ronald Reagan proposed the largest peacetime tax increase in American history as part of a budget deal to get the federal deficit under control. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 was signed into law on Sept. 3, and most of its provisions took effect on Jan. 1, 1983.
During debate on TEFRA, many conservatives predicted economic disaster. They argued that raising taxes in the midst of a severe recession was exactly the wrong thing to do. ...
Looking at the data, however, it is very hard to see any evidence that TEFRA had a negative effect on growth. Indeed, one could easily make a case that its enactment stimulated growth. As one can see, the economy's growth rates after TEFRA took effect were among the fastest in history.
Real GDP Growth
The unemployment rate also peaked just before TEFRA took effect at 10.8% in December 1982. Throughout 1983, it fell steadily to 8.3% by year's end. The unemployment rate continue to fall through 1984, reaching 7.3% by December.
In 1993, Bill Clinton proposed another major tax increase. Perhaps because it was initiated by a Democrat, conservatives were even more convinced that it would bring about economic disaster. ...
An examination of the data, however, shows that this forecast was totally wrong in every respect. The following table shows what happened after the 1993 tax increase was signed into law on Aug. 10.
Real GDP Growth
Gross Private Domestic Investment
... None of this is meant to defend Obama's tax increases. They must be judged on their own merits and in terms of the potential benefits of the programs they would fund. But when Republicans claim that higher taxes will destroy the economy, they should be reminded that they made the same argument in 1982 and 1993 and that the actual economic results were the opposite of what they predicted. And when they denounce Obama's health plan for expanding the size of government, they should be asked how they voted on the Medicare bill in 2003.
Shrilaxmi S. Satyanarayana (J.D. 2008, St. John's) has published Note, Tax Equality: Eliminating the Low Effective Marginal Tax Rates for Private Equity Professionals, 82 St. John's L. Rev. 1589 (2008). Here is the abstract:
The ability to translate ordinary wage income into long-term capital gains income can result in a significant reduction in a taxpayer’s overall tax liability due to the significant differential in the marginal tax rates for ordinary income and long-term capital gains income. While reclassifying income in this regard is beyond the control of most taxpayers, certain individuals employed in the private equity and venture capital sectors are able to achieve such a transformation by taking advantage of partnership tax provisions that allow income earned by the partnership to retain the same treatment it receives when earned at the partnership level, when it is taxed at the individual partner’s level. This Note examines the case law and Internal Revenue Service policies that have allowed certain partners in private equity and venture capital funds to re-categorize their income from ordinary income into long-term capital gains. The Note also considers other segments of the Internal Revenue Code that treat stock-based compensation as ordinary income and argues that in the interest of fundamental fairness, the private equity and venture capital professionals’ compensation should likewise be treated as ordinary income.
Friday, February 27, 2009
Professor Amy Monahan teaches and writes in the areas of federal taxation and employee benefits law. Her current research interests include employer-provided health care, health insurance regulation, and retirement plans.
Professor Monahan received her B.A. from The Johns Hopkins University in International Studies, with university and departmental honors. She received her J.D. from Duke University School of Law, where she was the Managing Editor of the Duke Journal of Comparative & International Law. Following law school, she practiced with Sidley Austin LLP in Chicago.
This paper examines the historical and jurisprudential development of the principle that ownership determines federal taxation of families. It traces the “ownership equals taxability” principle from the late nineteenth century to 1930; that is, from the decades leading up to ratification of the Sixteenth Amendment to the U.S. Supreme Court’s decisions in Poe v. Seaborn and Lucas v. Earl. It is a story of the early federal income tax and its administration; of tax avoidance opportunities for families; of the nature of spouses’ legal interests as defined by state property laws; and of early tax enforcement efforts by the Treasury Department and Congress. It also a story of how the Supreme Court sought to protect the revenue and Congress’ taxing power by articulating an expansive definition of ownership for purposes of determining taxability that relied on indicia of ownership such as control, management, dominion, beneficial interests, equitable interests, enjoyment, and even a “flow of satisfactions” concept that tracked consumption tax principles more closely than income tax principles.
In the end, the paper removes the modern-day false barometer of marriage between a man and a woman as the basis of family taxation under the federal income tax. In its place, it reestablishes ownership principles grounded in Supreme Court jurisprudence as the historically and legally accurate gauge for family taxation. In so doing, it abolishes disparate tax treatments among different kinds of families—married, single, opposite-sex, same-sex, one-earner, two-earner—and paves the way for treating all families equally under the federal income tax.
Mirit Eyal-Cohen (S.J.D. Candidate, UCLA) has published When American Small Business Hit the Jackpot: Taxes, Politics and the History of Organizational Choice in the 1950s, 6 Pitt. Tax Rev. 1 (2008). Here is the abstract:
While many political developments affected American small businesses during the twentieth century, the enactment of Subchapter S of the Internal Revenue Code was of particular significance. For the first time Congress was inclined to, at least partially, eliminate the double tax burden. Following the S Corporation, state legislatures formed other hybrid entities and gradually reduced the barriers to limited liability and other non-tax characteristics of organizational choice. Today, we observe a steady increase in the number of hybrid entities, which indicates that people favor the pass-through approach for taxation. At the same time, it is apparent that the existence of different federal tax regimes still plays a significant role in investors' choice of action. This article begins with the question: How did the American small business community achieve political victory where large organizations had failed? Put differently, how was it that the "little fellow" accomplished the almost impossible--the elimination of double taxation and permission to essentially choose his tax treatment--when, for years, the business community was unsuccessful in its attempts to integrate corporate and individual taxation? By laying out the untold story behind the enactment of Subchapter S, this article argues that three major factors paved the way for the creation of the S Corporation: a genuine economic need to aid small business entrepreneurs in times of recession, strong political pressure from the business sector, and political elite- such as Wilbur Mills, who thought the moment was right to aid small concerns. The story of enacting Subchapter S in 1958 is more than adding another organizational tax choice. It serves as an example of Congress's way of thinking about tax policy as instrumental in implementing social and economic goals. It elucidates a more complex picture of how tax policy evolved in the postwar period. It also reveals one way in which political interest groups affected the process of legislative decision making.
Sarah B. Lawsky (George Washington) has published Money for Nothing: Charitable Deductions for Microfinance Lenders, 61 SMU L. Rev. 1525 (2008). Here is the abstract:
The last five years have seen a huge increase in the general public's interest in microfinance, which provides financial services such as loans, insurance, and savings instruments to people living in poverty. At the same time, the popularity of social networking through the internet has exploded. These two worlds intersect in the form of websites that permit a U.S. individual to use PayPal or a credit card to loan small amounts of money to poor people around the world. By far the most successful of these microcredit websites was also the first such website: Kiva Microfunds, or Kiva.
Although loans through Kiva are truly loans (that is, the lenders expect repayment), Kiva loans pay the individual lender no interest. The right to use money for a period of time has, of course, a real financial value, as the tax code recognizes in many places. But under current law, even though Kiva is a tax-exempt organization, lenders through Kiva receive no tax benefit for the interest they forego when they loan money interest-free through Kiva. This Article argues that the law should be changed to allow taxpayers who lend money through a microfinance organization that qualifies as tax-exempt and who receive no interest or below-market interest on those loans the option of taking a charitable deduction for that foregone interest. The Article also proposes a novel and simple method for implementing this tax benefit.
The practical benefits of the deduction could be significant. Permitting a deduction for interest foregone on loans to Kiva and similar microcredit organizations will help these organizations thrive and thus, as the Nobel Committee stated about another microcredit institution, play a role as an "important liberating force" and a "major part" of eliminating poverty as we know it.
Two pending House bills would extend the NOL carryback rules for victims of the Bernie Madoff Ponzi Scheme from the current three years to ten or thirteen years.
Not So Beautiful Day: Bono "Hurt" by Criticism of His Move From Ireland to Avoid Tax on Music Royalties
Irish Times: Bono "Hurt" by Criticism of U2 Move to Netherlands to Cut Tax, by Brian Boyd:
U2 singer Bono says he was “stung” and “hurt” by criticism of the band moving part of its business to the Netherlands to lessen its tax burden. ...
U2’s move was criticised by politicians and some development groups. “We pay millions and millions of dollars in tax. The thing that stung us [about the criticism] was the accusation of hypocrisy for my work as an activist,” the singer says. ...
As an activist who has access to world leaders, Bono has called for the developed world to lighten Africa’s debt burden, combat poverty, promote fair trade and increase funds in the battle against Africa’s Aids pandemic. His work has been recognised by three nominations for the Nobel Peace Prize and a “Nobel Man of Peace” prize. Two years ago the singer was awarded a knighthood in the British honours list.
Speaking about a Christian Aid report from two years ago which criticised him for “tax avoidance”, the singer says: “It hurts when the criticism comes in internationally. But I can’t speak up without betraying my relationship with the band – so you take the shit. People who don’t know our music – it’s very easy for them to take a position on us – they run with the stereotypes and caricature of us.”
(Hat Tip: Tax Justice Network.) Prior TaxProf Blog coverage:
- U2 & Bono Bail Out to Avoid Irish Tax (Part 1)
- U2 & Bono Bail Out to Avoid Irish Tax (Part 2)
- Bono, Tax Avoider; The Hypocrisy of U2
- Netherlands Is Latest Tax Shelter Hot Spot
Dhammika Dharmapala (University of Connecticut, Department of Economics; moving to Illinois),C. Fritz Foley (Harvard Business School) & Kristin J. Forbes (MIT, Sloan School of Management) have posted The Unintended Consequences of the Homeland Investment Act: Implications for Financial Constraints, Governance, and International Tax Policy on SSRN. Here is the abstract:
The Homeland Investment Act of 2004 provided for a one-time tax holiday on the repatriation of foreign earnings, thereby allowing U.S. multinationals to access earnings retained abroad at a lower cost. Firms responded to this act by significantly increasing repatriations from foreign affiliates. This paper analyzes the impact of the tax holiday on firm behavior. It controls for endogeneity and omitted variable bias by using instruments that identify the firms likely to receive the largest tax benefits from the holiday. Repatriations did not lead to an increase in investment, employment or R&D-even for the firms that lobbied for the tax holiday stating these intentions. Instead, a $1 increase in repatriations was associated with an increase of approximately $1 in payouts to shareholders. These responses are consistent with the view that the domestic operations of U.S. multinationals were not financially constrained and that U.S. multinationals are reasonably well-governed. The results also have significant implications for understanding the impact of the U.S. corporate tax system on the behavior of multinational firms.
Yariv Brauner (Florida) has published The Non-Sense Tax: A Reply to New Corporate Income Tax Advocacy, 2008 Mich. St. L. Rev. 591. Here is the abstract:
This essay challenges recent attempts by influential scholars to rationalize the existence of the corporate income tax. The corporate income tax has long been considered unjustifiable on traditional tax policy grounds. The new justifications recognize that, yet argue that the tax is still desirable because it promotes other goals, such as improvement of corporate governance and restraint of undesirable corporate management power accumulation. The essay demonstrates that the existence and magnitude of these alleged benefits of the corporate income tax are doubtful. Yet, the essay argues, even if taken as correct, the recent rationalization of the corporate income tax cannot support its retention since it misses certain crucial steps in the analysis. First, it does not compare the effects of the corporate income tax with its alternatives. This essay demonstrates that once such comparison takes place, the corporate income tax proves to be less desirable than its alternative on the very grounds promoted by its proponents. Secondly, the support of the corporate income tax completely ignores the social costs of the tax. This essay argues that once taken into account, such costs may overwhelm the alleged benefits, if any. Finally, the essay claims that the recent support of the corporate income tax is based on a strong, yet unproven, popular intuition that the tax is fair. The essay goes on to explain the uncertainty that governs the economic analysis of the burden of the tax, which results in confusion and the inability to assess the fairness of the tax as a whole. This understanding should pull the carpet from underneath the very basis of the arguments in support of the corporate income tax. The essay concludes by asserting that the tax not only should, but also could, be repealed consistent with accepted tax policy principles.
Thursday, February 26, 2009
- Buyout, Hedge-Fund Managers Could Pay $24 Billion More in Taxes, by Jason Kelly & Katherine Burton
- Obama Seeks $1 Trillion Tax Increase in Budget Plan, by Ryan J. Donmoyer
- In Uncertain Times, Donors Hold Back, by Jan M. Rosen
- Review Your Estate Plan Before Tax Laws Change, by Deborah L. Jacobs
- To Pay for Health Care, Obama Looks to Taxes on Affluent, by Jackie Calmes & Robert Pear
- Obama Plan Would Raise Taxes on Individuals, Business, by Jonathan Weisman
Leslie McCall (Northwestern University, Department of Sociology) presents Americans' Social Policy Preferences in the Era of Rising Inequality at NYU today as part of its Colloquium Series on Tax Policy and Public Finance. The co-convenors are Daniel Shaviro (NYU) & Alan Auerbach (UC-Berkeley, Department of Economics). Here is the abstract:
Rising income inequality has been a defining trend of the past generation, yet we know little about its impact on social policy formation. We evaluate two dominant views about public opinion on rising inequality: that Americans do not care much about inequality of outcomes, and that a rise in inequality will lead to an increase in demand for government redistribution. Using time series data on views about income inequality and social policy preferences in the 1980s and 1990s from the GSS/ISSP, we find little support for these views. Instead, Americans do tend to object to inequality and to believe government should act to redress it, but not via traditional redistributive programs. We examine several alternative possibilities and provide a broad analytical framework for reinterpreting social policy preferences in the era of rising inequality. Our evidence suggests that Americans may be unsure or uninformed about how to address rising inequality and thus swayed by contemporaneous debates. However, we also find that Americans favor expanding education spending in response to their increasing concerns about inequality. This suggests that equal opportunity may be more germane than income redistribution to our understanding of the politics of inequality.
Steven A. Dean (Brooklyn) presents Tax Deharmonization at UCLA today as part of its Tax Policy and Public Finance Colloquium Series moderated by Kirk J. Stark and Eric M. Zolt. Here is the Conclusion:
The graceful architecture of the international tax regime has stood the test of time remarkably well. The bulk of the world’s economies are linked together through a network of treaties that subtly encourage harmonization. Harmonization, however, has its limits. Fortunately, falling interjurisdictional transaction costs make a fundamentally different approach to international tax cooperation possible. The potency of transnational networks suggests that specialization in international taxation may offer an escape from the harmonization conundrum and the constraints it has imposed on the international tax regime. By exploiting the inevitable differences among jurisdictions, the resulting deharmonization would help to replace a merely international tax regime with one that could truly be called global.
Leandra Lederman (Indiana) presents W(h)ither Economic Substance today at Boston College as part of its Tax Policy Workshop Series organized by James R. Repetti and Diane Ring. Here is a description of the paper:
This article argues that the economic substance doctrine has become distorted. It no longer serves its original purpose, which is to determine whether the taxpayer’s claimed application of the tax law is consistent with Congress’s intent. The article examines the doctrine both historically and as currently applied, critiquing both the business purpose and economic substance prongs of the current doctrine. In part, it argues that the question of whether a transaction is a "tax shelter" is not a fruitful inquiry. Instead, the article advocates a return to the approach used by the Supreme Court in cases such as Gregory v. Helvering, which focused on ascertaining Congressional intent.
Steven Bank (UCLA) presents The Lost Moment in Corporate Tax Reform, in From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 – Present, at Indiana today as part of its Tax Policy Coloquium Series hosted by Leandra Lederman. Here is the abstract:
If the integration of the corporate and individual income taxes and the removal of double taxation ever had a “legislative moment,” it was the decade following World War II. Between 1943 and 1946, individuals, trade associations, government agencies, and members of Congress forwarded more than sixty proposals for the relief of double taxation, many of which were repackaged or reintroduced several times over the subsequent eight years. Most advocated a variant of one or more of the following three methods of integration: (1) an exclusion for some or all of dividends from shareholder income, (2) a credit against shareholder income taxes for some or all of taxes paid on dividend income earned at the corporate level, or (3) a deduction at the corporate-level for dividends paid. It was not until 1954, though, as part of a comprehensive revamp of the Internal Revenue Code, that Congress enacted a modicum of dividend tax relief in the form of a phased-in $100 exemption and a four percent shareholder credit.
This chapter in a forthcoming book on the history of the corporate income tax in the United States considers three questions: (1) Why did it take so long for dividend tax relief to be enacted given the initial momentum in favor of reform; (2) What led dividend tax reform to rise to the top of the agenda in 1954; and (3) Why, given the degree of interest in integration proposals, was the relief initially so modest and why did it not ultimately take hold as the first step toward full integration. As more fully explained in the chapter, a significant part of the story is the rise and fall of a perceived equity crunch and the reaction to it among managers who had previously given the integration issue lower priority.
Steve R. Johnson (UNLV) has published Interpreting State Tax Exemptions, Deductions, and Credits, 51 State Tax Notes 607 (Feb. 23, 2009):
Modern tax statutes serve many purposes beyond simply raising revenue, and the contours of those statutes are shaped by many (and sometimes conflicting) economic, social, and political objectives. Legislatures choose a variety of structural mechanisms -- including exemptions, deductions, and credits -- to advance those policy goals. Sometimes those features are drafted with less than meticulous precision. Other times, business practices have evolved since enactment of the provisions. In either event, revenue agencies and courts are frequently required to interpret those provisions.
This installment of "Interpretation Matters" concerns one such principle of interpretation: The canon that exemptions, deductions, and credits are construed strictly against the taxpayer. Part I describes the canon. Part II suggests ways by which taxpayers attempt to counter it.
Editorial in today's Wall Street Journal: The 2% Illusion: Take Everything They Earn, and It Still Won't be Enough:
President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."
This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.
See also Bloomberg: Obama's Proposed Tax Increase Would Hit Highest Earners Hardest, by Ryan Donmoyer & Aliza Marcus:
President Barack Obama is proposing the first tax increase on high-income earners in 16 years to help pay for sweeping health-care reforms, asking the U.S. Congress to cap the tax deductions for affluent Americans.
Several leading law schools are retooling their grading policies, with some institutions making major revisions and others merely tweaking their systems.
The Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on IRS Assistance for Taxpayers Experiencing Economic Difficulties. From the hearing announcement:
The Subcommittee will discuss the specific problems encountered by taxpayers during this recession. The Subcommittee will review the steps taken by the IRS to assist struggling taxpayers and consider recommendations of the National Taxpayer Advocate.
Here are the witnesses scheduled to testify:
- Linda E. Stiff (Deputy Commissioner for Services and Enforcement, IRS)
- Nina E. Olson (National Taxpayer Advocate, IRS)
For a critical view of the hearing, see Center for Freedom and Prosperity, Kangaroo-Court Hearing Demonizes Tax Havens, Overlooks Pro-Growth Changes that Would Protect Human Rights and Reduce Tax Evasion.
Wednesday, February 25, 2009
Fairmark: "AMT Deficit" Goes On-Budget; Change Has Profound Implications, by Kaye A. Thomas:
The Obama administration is poised to make a stunning change in budget policy. The change will add over $1 trillion to the projected federal debt — and that's good. It puts an end to a charade that has persisted in past administrations, both Democratic and Republican. The "AMT deficit" is going to go on-budget.
Bloomberg: Obama Showers Wall Street Fees With Muni Stimulus, by Jeremy R. Cooke:
The stimulus law promotes municipal bonds by removing the alternative minimum tax, or AMT, penalty from debt sold to fund private activities such as airport runways and student loans. It also increases the size of bond issues qualified for tax exemptions when bought by commercial banks.
WebCPA: Obama Wants to End Tax Loopholes:
During his Fiscal Responsibility Summit on Monday, President Barack Obama discussed the possibility of lowering the statutory corporate tax rate while also closing tax loopholes that allow companies to reduce taxes.
- Huffington Post: Obama to Target Tax Havens in Budget, by Sam Stein
- Reuters: Obama Can Cut Corporate Tax If Loopholes Closed
When an IRS audit results in a tax deficiency, there is always potential for a conflict of interest between the taxpayer and the preparer. Once a section 6662 penalty has been proposed against the taxpayer, or if the agent is considering a possible section 6694 penalty against the preparer and the preparer is representing the taxpayer in the tax controversy, that possibility of a conflict of interest is so great that the preparer usually will be well advised not to represent the taxpayer before Appeals or beyond. In this article, we will discuss some extreme situations in two recent tax cases and a less clear situation in an older case. We then will relate those cases to the themes of reasonable cause, good faith, and conflict of interest.
Today's Wall Street Journal Tax Report: Changes Abound on New Tax Forms, by Tom Herman:
Here is a guided tour of major changes on federal returns for 2008 -- and advice from experts on how to benefit from them.
- Standard Deduction
- Home-Buyer Credit
- IRS Contribution
- Alternative Minimum Tax
- Mileage Rates
Jay A. Soled (Rutgers Business School) has published Tax Shelter Malpractice Cases and Their Implications for Tax Compliance, 58 Am. U. L. Rev. 267 (2008). Here is the abstract:
In malpractice lawsuits, taxpayers prevailed in courtrooms, around arbitration tables, and in settlement negotiations against peddlers of abusive tax shelters. This analysis illustrates how the tax shelter malpractice experience embodies many virtues that yield tax compliance. From these virtues emerge several important lessons on how to curb aggressive tax planning. Evident from these virtues and lessons is that malpractice litigation is a powerful tool in the sphere of tax compliance, and, where possible, reforms should be instituted to further promote its use.
This book tells the story of fifteen human rights cases from around the world—including cases adjudicated by a court or commission as well as controversies decided outside the courthouse. The cases illustrate key themes, including: the development of human rights norms and the work of human rights organizations; the function of individual and collective identities in human rights struggles; the role of international criminal norms in protecting human rights; globalization, foreign policy, and the economy; and human rights in a world at war. By making real the stories of collective action behind human rights advocacy, legal norms, and enforcement mechanisms, Human Rights Advocacy Stories illustrates the dynamic interactions between advocacy and legal doctrine.
Other titles in the Law Stories Series (for which I serve as Series Editor) are:
- Administrative Law Stories (2006), edited by Peter L. Strauss (Columbia)
- Antitrust Stories (2007), edited by Eleanor M. Fox (NYU) & Daniel A. Crane (Cardozo)
- Bankruptcy Law Stories (2007), edited by Robert Rasmussen (Dean, USC)
- Business Tax Stories (2005), edited by Steven A. Bank (UCLA) & Kirk J. Stark (UCLA)
- Civil Procedure Stories (2d ed. 2008), edited by Kevin M. Clermont (Cornell)
- Civil Rights Stories (2008), edited by Myriam Gilles (Cardozo) & Risa Goluboff (Virginia)
- Constitutional Law Stories (2004), edited by Michael C. Dorf (Cornell)
- Contracts Stories (2006), edited by Douglas G. Baird (Chicago)
- Criminal Procedure Stories (2006), edited by Carol S. Steiker (Harvard)
- Education Law Stories (2008), edited by Michael A. Olivas (Houston) & Ronna Greff Schneider (Cincinnati)
- Employment Discrimination Stories (2006), edited by Joel William Friedman (Tulane)
- Employment Law Stories (2007), edited by Samuel Estreicher (NYU) & Gillian Lester (UC-Berkeley)
- Environmental Law Stories (2005), edited by Richard J. Lazarus (Georgetown) & Oliver A. Houck (Tulane)
- Evidence Stories (2006), edited by Richard O. Lempert (Michigan)
- Family Law Stories (2008), edited by Carol Sanger (Columbia)
- Immigration Stories (2005), edited by David A. Martin (Virginia) & Peter H. Schuck (Yale)
- Intellectual Property Stories (2005), edited by Jane C. Ginsburg (Columbia) & Rochelle Cooper Dreyfuss (NYU)
- International Law Stories (2007), edited by John Noyes (California Western), Mark Janis (Connecticut) & Laura Dickinson (Connecticut)
- Labor Law Stories (2005), edited by Laura J. Cooper (Minnesota) & Catherine L. Fisk (Duke)
- Legal Ethics Stories (2005), edited by Deborah L. Rhode (Stanford) & David Luban (Georgetown)
- Presidential Power Stories (2008), edited by Christopher H. Schroeder (Duke) & Curtis A. Bradley (Duke)
- Property Stories (2004), edited by Gerald Korngold (Case Western) & Andrew P. Morriss (Illinois)
- Race Law Stories (2008), by Rachel F. Moran (UC-Berkeley) & Devon Carbado (UCLA)
- Tax Stories (2003), edited by Paul L. Caron (Cincinnati)
- Torts Stories (2003), edited by Robert L. Rabin (Stanford) & Stephen D. Sugarman (UC-Berkeley)
- Trial Stories (2008), edited by Michael E. Tigar (American) & Angela J. Davis (American)
NALP has released a 20-page report, Perspectives on Fall 2008 Law Student Recruiting:
Consistent with the overall weakening of the legal economy, all of the markers that measure the strength of the legal employment market for new lawyers, such as law firm recruiting levels for summer programs and summer program outcomes, trended downward in 2008. After four years of a very strong legal recruiting market, the fall of 2008 marked what is likely to be the beginning of a weaker legal employment market that may last for a number of years. Information provided by NALP members about fall 2008 recruiting confirms that the market for entry-level legal employment constricted measurably, especially for 2Ls.
Though the median and average summer class size remained unchanged from last year, for rising 3Ls, the offer rate for entry-level associate positions fell by nearly three full percentage points to 89.9%. While still a very healthy offer rate, it is the lowest offer rate recorded since 2003. The acceptance rate for these summer offers also jumped by nearly three full percentage points, to 79.7%, and marks the highest offer acceptance rate recorded since NALP began compiling these figures in 1993. This lower offer rate and higher acceptance rate for this class reflect an economy that was slowing dramatically in August and September.
The most dramatic impact of the current economic situation on legal employment opportunities can be seen in the numbers that describe the fall recruiting of 2Ls. Across employers of all sizes, the median number of offers extended dropped dramatically from 15 to 10. At the largest firms, firms with more than 700 lawyers firmwide, the median number of offers dropped from 30 to 18.5. Similarly, the percent of callback interviews resulting in offers for summer spots fell precipitously to 46.6% from a figure that had hovered at or above 60% for three years. Not surprisingly, the offer acceptance rate also jumped. At 32.5%, it is the highest rate recorded since 2002.
See also National Law Journal: Second-Year Law Students Seeing Far Fewer Offers for Summer Associate Positions, by Karen Sloan.
The American tax system stands at a crossroads. In addition to longstanding arguments over the tax code and budget deficits, there are new concerns raised by Washington's expensive stimulus plan, by proposals to address global warming, and by the scheduled expiration of the 2001 and 2003 tax cuts at the end of 2010. In Tax Policy Lessons from the 2000s (AEI Press, Feb. 2009), fourteen well-known economists [Alan J. Auerbach, Steven J. Davis, Dhammika Dharmapala, John W. Diamond, Nada Eissa, Daniel Feenberg, Seth H. Giertz, Kevin A. Hassett, Laurence J. Kotlikoff, Gilbert E. Metcalf, Douglas A. Shackelford, Matthew D. Shapiro, Alan D. Viard, and Roberton C. Williams III] explore the role taxes should play in setting environmental policy, the effect of tax rate increases on decisions to work and on the determination of taxable income, the economic impact of tax cuts that add to the deficit, and the effect of the tax system on businesses' financial and investment decisions.
At this event, AEI's Alan D. Viard, editor and coauthor of Tax Policy Lessons from the 2000s, will provide an overview of the book and its implications for current policy issues. Independent perspectives will be offered by Rosanne Altshuler, codirector of the Urban-Brookings Tax Policy Center, and Daniel Shaviro, the Wayne Perry Professor of Taxation at the New York University School of Law. AEI's Alex Brill will moderate.
From a memo sent to Yale faculty and staff by President Richard C. Levin:
- We will reduce 2009‐2010 budgets by an amount equal to 7.5% of the salaries and benefits of all nonfaculty staff, rather than the 5% announced in December. We expect to achieve this reduction largely through attrition in managerial, professional, clerical, technical, service, and maintenance staff, as well as through reduction of casual and temporary employees. To the extent that layoffs are necessary, we will make sure that affected individuals are provided support and guidance.
- We will also seek larger reductions in non‐salary expenditures. Instead of a 5% reduction for each of the next two years, we will ask units to budget a 7.5% reduction for 2009‐2010, and continue to plan for an additional 5% reduction the following year.
- Faculty, managerial, and professional employees with salaries below $75,000 will continue to be eligible for merit increases of up to 2%. But there will be no increases for those with salaries above $75,000, including all deans, directors, and University officers. Foregoing the increases announced previously will allow us to preserve more staff positions.
(Hat Tip: ABA Journal.)
The ABA Tax Section offers a teleconference and webcast today on This Treas. Reg. is Wrong! Substantive and Procedural Challenges and Standards of Review for Attacking Department of Treasury Tax Regulations from 1:00 - 2:30 p.m. EST:
This panel will discuss the issues raised or settled by the recent Third Circuit decision in Swallows Holding v. Commissioner, 515 F.3d 162 (3rd Cir. 2008), regarding the ability of courts to review and reject Department of Treasury Regulations. The focus of the panel will be on when practitioners might consider challenging the validity of Department of Treasury Regulations, what arguments might be available, and how likely such challenges would succeed.
- Steve Johnson (University of Nevada, William S. Boyd School of Law (moderator)
- Kristin Hickman (University of Minnesota School of Law)
- Philip Jelsma (Luce Forward Hamilton & Scripps, San Diego; Adjunct Professor, University of San Diego School of Law)
- Greg Polsky (Florida State University School of Law)
Tuesday, February 24, 2009
The Loyola University Chicago Law Journal has published a symposium issue on Tax Law in a Liberal Democracy: Exploring the Relationship Between Tax and Good Governance:
- Introduction, 40 Loy. U. Chi. L.J. i (2009)
- Jeffrey L. Kwall (Loyola Chicago), Loyola University Chicago School of Law: Celebrating 100 Years of Excellence (1908-2008) (Comments on Loyola's Tax Program), 40 Loy. U. Chi. L.J. iii (2009)
- Howard E. Abrams (Emory), Taxation of Carried Interests: The Reform That Did Not Happen, 40 Loy. U. Chi. L.J. 197 (2009)
- William B. Barker (Penn State) The Ideology of Tax Avoidance, 40 Loy. U. Chi. L.J. 229 (2009)
- Marjorie E. Kornhauser (Arizona State), Cognitive Theory and the Delivery of Welfare Benefits, 40 Loy. U. Chi. L.J. 253 (2009)
- Leo P. Martinez (UC-Hastings), Tax Policy, Rational Actors, and Other Myths, 40 Loy. U. Chi. L.J. 297 (2009)
- Ajay K. Mehrotra (Indiana), "Render Unto Caesar . . .": Religion/Ethics, Expertise, and the Historical Underpinnings of the Modern American Tax System, 40 Loy. U. Chi. L.J. 321 (2009)
- Lawrence Zelenak (Duke), The Conscientious Legislator and Public Opinion on Taxes, 40 Loy. U. Chi. L.J. 369 (2009)
Tax Prof David A. Brennen (Georgia), currently completing a two-year stint as Deputy Director of the Association of American Law Schools, is one of four finalists for the Kentucky Deanship. David will be making the first on-campus visit on February 26; the final candidate is scheduled to visit on March 9. (One of the other finalists is my former colleague, Cynthia L. Fountaine.)
Memphis announced today that it has selected Interim Dean Kevin Smith as its Dean -- David was one of the four finalists. David also apparently is a candidate for the Florida International Deanship (see The Faculty Lounge, Miami Herald), although the search process there is somewhat unusual (The Faculty Lounge, The Faculty Lounge II, PrawfsBlawg I, PrawfsBlawg II). For a clarification from Florida International, see here.
The Center for Computer-Assisted Legal Instruction (CALI) has issued a call for session proposals at its 19th Annual Conference for Law School Computing this summer, June 18-20, at the University of Colorado Law School, in Boulder, Colorado. The theme of this year's conference is Tools for Change. Since joining the CALI Board, I have attended the last four CALI conferences, and they have been superb. The conference provides the best (only?) opportunity for law school faculty, librarians, and IT staff to come together and share ideas. Registration and hotel reservations are now open. I hope to see you in Boulder!
Ernie Almonte, chairman of the AICPA, said the decision was the right one for the board to make: “Barry has made an enormous contribution to the CPA profession over the past 14 years, and the board is exceptionally pleased that he will continue to serve as president and CEO. Barry's continued stewardship of the AICPA will contribute greatly to the work of CPAs and in turn help their clients, companies and communities to succeed.” ...
In accepting the board's reappointment as president and CEO, Melancon said: “It is a great honor to serve our 350,000 members. Our members collectively adhere to the highest standards of ethics and values, and being a part of the leadership team that works for them is a privilege. We have a tremendous team at the AICPA that strives every day to meet the needs of the CPA profession. It is a challenge I welcome, and I am grateful for the support of the board, our members and our staff.”
Following up on last week's post: The Next Obama Tax Kerfuffle: Rahm Emanuel's Rent-Free Use of Capitol Hill Townhouse:
Chicago Tribune: Questions Raised About Rahm Emanuel's Housing Arrangement in D.C., by Andrew Zajac:
White House chief of staff Rahm Emanuel's Washington lodging arrangements, a rent-free basement room in a Capitol Hill home owned by Rep. Rosa DeLauro (D-Conn) and her pollster husband, have inspired debate among tax experts and in Republican-leaning parts of the blogosphere.
Tax experts are divided about whether Emanuel would have an IRS liability for the free room. The issue has aroused unusual online interest among tax experts, perhaps because arcane points of tax law rarely intersect with mainstream political events, said Paul Caron, an associate dean at the University of Cincinnati Law School and author of the TaxProf blog.
Caron said Greenberg's polling work for Emanuel and the DCCC muddies the argument that the room is a gift and thus either tax exempt or subject only to limited taxation. "The courts have been very clear. It's very hard to claim something is a gift when you have a business context," said Caron.
Joseph Dodge, a professor at Florida State University College of Law, argued that the room is not subject to tax either as a gift or as income. It's not a gift because it doesn't effectively cost DeLauro and Greenberg anything, Dodge said. Nor would it be taxable as income to Emanuel because of the couple's motive in making the room available, "which would be friendship or generosity," Dodge said.
Tax Notes Today (2009 TNT 33-2): Tax Treatment of Emanuel's Rent-Free Arrangement Divides Experts, by Sam Young:
Prof. Paul L. Caron of the University of Cincinnati College of Law, who maintains the popular TaxProf Blog, told Tax Analysts that in Dickman v. Commissioner (465 U.S. 330 (1984)), the Supreme Court "clearly held that the rent-free use of property (there, an interest-free loan) constitutes a gift for gift tax purposes."
The determination of whether a transfer is a gift is factual and based on the intent of the transferor. A statement given to the Hartford Courant on behalf of DeLauro characterized the rent-free occupancy as "hospitality between [Congress] members." Emanuel represented the 5th District of Illinois before being selected as Obama's chief of staff.
But that argument "falls apart since that is not how [DeLauro] in fact treated it," Caron said. That is, DeLauro filed no gift tax return. "To me, it is a straightforward issue -- the rent-free use of an expensive home for five years, owned by a person who provided hundreds of thousands of dollars of services for the lucky tenant, makes it very hard to argue that this is purely a gift," he concluded.
DeLauro denies that any taxes are owed. "Our house has no rental apartment and no part of the house was rented when Mr. Emanuel started staying with us in D.C.," DeLauro said in a statement sent to Tax Analysts. "There are no tax issues."
Prof. Joseph Dodge of the Florida State University College of Law also argues that there should be no tax impact at all. Dodge told Tax Analysts that the gift tax exists to back up the estate tax by preventing a taxpayer from depleting his estate. Therefore, only the transfer of income-producing property should result in gift tax. "If I let my son live in my vacation home, I'm not shifting any income to him," he said, but "if I loan you my house for a year, and you rent it out, the rents are probably a gift from me. My son can't rent it out unless I let him; it's my decision." "The failure to rent out personal use property -- failing to augment my estate -- has never been viewed as a concern of the estate or gift tax," Dodge added. "Those taxes are on property I actually have, not on property I could have had with maximum economic exploitation."
DeLauro's husband runs a polling firm for Democratic candidates, which has raised speculation that Emanuel's rent may have been in exchange for the advantage Greenberg gained by association with him. Regardless of whether Greenberg actually realized any benefit, the argument goes, any attempt by the couple to make use of the arrangement would negate the altruistic intent required for the rent to have been a gift.
The Data Research Group has launched Income Tax List, which allows you to search IRS income and tax data by zip code. The site also contains various lists, including:
The five richest zip codes with the highest average incomes:
- New York, NY 10153: $6,937,350 (31 returns)
- New York, NY 10152: $5,026,410 (29 returns)
- New York, NY 10274: $4,706,260 (366 returns)
- New York, NY 10179: $3,172,930 (27 returns)
- Miami Beach, FL 33109 $2,483,880 (259 returns)
(For what it's worth, Beverly Hill 90210 ranked 74th, with an average income of $499,050 with 10,497 returns.)
The five poorest zip codes with the lowest average incomes:
- New York, NY 10105: -$182,290 (318 returns)
- Tennessee Colony, TX 75880: $430 (21 returns)
- Gatesville, TX 76598: $870 (23 returns)
- Allenton, MO 63001: $1,250 (24 returns)
- Alden, IL 60001: $1,450 (11 returns)
Larry Solum (Illinois) is compiling his annual Entry Level Hiring Report. Please enter your school's information via Survey Monkey. He plans to report preliminary results next week. (For the 2008 report, see here.)
- Section Meeting Spotlight: Estate Planning for Boomers and Beyond
- Estate Planning for the Baby Boomers: Will They Have Estates to Plan?, by Amy Morris Hess (University of Tennessee College of Law) (pp. 1, 13-14)
- What a Difference a Generation Makes: Tax, Estate, and Retirement Planning for Generations X, Y and Beyond, by Elizabeth Lindsay-Ochoa (AXA Advanced Markets, New York) (pp. 14-16)
- Should a Mailbox Be Enough? A Proposal to Redefine Domestic Corporation Status, by Sara A. Giddings (Banscomb, Corpus Christi) (pp. 7-8, 12)
- Section 162(m)(5) May Not Be Effective in Limiting Executive Compensation, by Chad R. DeGroot (Bryan Cave, St. Louis) (pp. 9, 12)
Swain: Reforming the State Corporate Income Tax: A Market State Approach to the Sourcing of Service Receipts
John A. Swain (Arizona) hsa published Reforming the State Corporate Income Tax: A Market State Approach to the Sourcing of Service Receipts, 83 Tul. L. Rev. 285 (2008). Here is the abstract:
The state corporate income tax is about to undergo its most serious re-examination in over 50 years. The National Conference of Commissioners on Uniform State Laws has initiated a review of the Uniform Division of Income for Tax Purposes Act (UDITPA), which either has been adopted by most states or has been used as a model for similar statutes. UDIPTA employs a three-factor formula to apportion the income of multistate businesses. The property and payroll factors reflect the contribution of the production states, while the sales factor is intended to reflect the contribution of the market states. A weakness of UDITPA is its treatment of services. In computing the numerator of the sales factor, UDITPA attributes service receipts to the state in which the services are performed, regardless of where they are consumed. In the past, place of performance may have been a reasonable proxy for market location, but this is no longer the case. Globalization and advances in computer and communications technology now allow many services to be provided remotely. The Article demonstrates that the UDITPA service receipts attribution rule does not effectively implement the policy of reflecting the contribution of the market states. It also shows that a market-based rule both better effectuates that policy and is administratively feasible. The Article proposes guidelines that should govern revision of the service receipts rule. Finally, the Article considers several additional issues, concluding tentatively that the sourcing of receipts from intangibles should follow a similar approach, commenting on the nexus and throwback rule consequences of a market-based rule, and cautioning that institutional reforms may be necessary in order to ensure that uniformity is achieved and maintained under a new UDIPTA.
Monday, February 23, 2009
Tax Analysts, a nonprofit multimedia tax publisher, seeks an experienced senior editor:
Responsibilities include planning, editing, and taking overall responsibility for Tax Notes magazine, the company's flagship publication. Evaluates material submitted for publication. Keeps abreast of current events in tax law through pertinent literature, media, and contacts with government officials and others. Writes editorials, and conducts weekly editorial meetings. Provides guidance and editorial direction to the staff and works closely with sales and marketing on advertising efforts. Must be willing to work late hours and excel under daily deadlines.
We strive to stir up great tax policy debate -- and fuel it with the best news and commentary around. Because our publication has no advertising, no holds are barred in the aggressive pursuit of all angles of a given story -- an advantage that few other periodicals can offer.
The Center on Budget and Policy Priorities today released New Analysis Shows "Tax Expenditures" Overall Are Costly and Regressive; Findings Highlight Need to Restrain Tax Subsidies As Part of Solution to Long-Term Budget Problems, by Chye-Ching Huang & Hannah Shaw. Here is the abstract:
"Tax expenditures" — tax breaks that favor particular activities — for individuals totaled about $760.5 billion in 2007, topping what the federal government spent on either national defense or all non-defense discretionary programs. In most cases, they are also regressive. In light of their high cost and regressive nature, tax expenditures should be on the table when efforts to address the nation's long-term budget problems are mounted.
Exempting tax expenditures from fiscal discipline also would be inequitable. As the TPC analysis shows, tax expenditures deliver their largest benefits to upper-income families. In contrast, Social Security and Medicare benefits are spread far more evenly across the population. Protecting tax expenditures while imposing significant cuts on other parts of the budget would likely favor the well-off at the expense of the broad majority of Americans. It also would necessitate even deeper reductions in other parts of the budget than would otherwise be needed to restore fiscal stability.
This Article argues that, contrary to the consensus of economists and many legal scholars, the norm of "horizontal equity" in taxation has independent meaning as a default rule in favor of existing arrangements. Although it has long been said, and widely thought, that tax should be fair in its dealings with individuals who are situated similarly to one another, no one has been able to say convincingly just what that fairness comprises. As a result, the learned referees in the last major dispute over the significance of horizontal equity judged that fairness’s critic had decidedly won the day. Since then, there have been ever more critics, but no cogent, comprehensive defense.
My defense is both theoretical and practical. First, I argue that horizontal equity is a special aspect of the revenue function in taxation. Because it enshrines the status quo before enactment of a new tax law, horizontal equity can be reconceived as a commitment by the authors of tax legislation to honor the past and future policy choices of others, with whom they are jointly engaged in a project of deliberative democracy. Alternately, horizontal equity may be justified by welfare gains from a shared agreement to leave certain controversial questions of distributive justice undecided during the revenue-raising process. Both of these rationales leave open—indeed, they clear the air for—arguments about the ultimate ends law, and tax law in particular, should serve in society.
David A. Brennen (Georgia; Deputy Director, AALS) presents a public lecture today at Hamline on Diverging Perspectives of "Charitable": Federal Income Tax Versus State Property Tax Exemptions for Hospitals and Homes for the Elderly:
Many states are challenging property tax exemptions for charitable hospitals and elderly housing under the guise of preventing superfluous flows of tax benefits to the rich or middle class. State tax officials resort to "quid pro quo" or similar notions to justify claims that the financially well-off are not entitled to this government largesse. Federal law recognizes, though, that "charitable" includes benefits to the poor, in addition to hospital care to all and elderly housing. Using these examples (hospitals and elderly housing), this presentation will explore the impact on state exemption law of two perspectives of "charitable" -- the narrow almsgiving view of many states versus the broader societal view of federal law.
David has more on our sister Nonprofit Law Prof Blog.
The Internal Revenue Code (the Code) contains numerous special rules applicable to the income taxation of persons related by marriage, birth, adoption, or ownership. This Article suggests a new approach to their analysis. Many basic tax rules assume that taxpayers are self-interested and unaffiliated. Where this assumption is incorrect, the Code makes adjustments to its otherwise applicable rules. Most of the resulting related-party antiavoidance rules apply only in the context of specified formal relationships— marriage, parent/child, or owner/business.
The Article tests this thesis by comparing the income tax treatment of heterosexual married couples with that of gay couples in committed long-term relationships. Gay couples are not married for tax purposes, nor are they spouses within the meaning of the Code. Gay marriage therefore never by itself invokes any related-party rules. The Article explores a series of taxavoidance problems in the contexts of marriage and extended families. None of the relevant anti-abuse rules apply to gay spouses. As a result, gay couples should be able to arrange their affairs so as to pay federal income tax at significantly lower effective rates, on average, than identically situated heterosexual married couples.
The Article concludes that the only way to ensure that gay couples will be taxed no more favorably than heterosexual married couples is to list gay marriage as one of the proxy relationships that automatically invokes pertinent anti-abuse rules—in other words, to treat gay marriage as marriage for federal income tax purposes. In the absence of an attractive formal status that then invokes related-party anti-abuse rules, well-advised gay couples are, and will continue to be, permitted to pay systematically lower federal income taxes than heterosexual married couples—a result unlikely to be acceptable to a majority of Americans in the long run.
The IRS on Saturday announced that it has issued new withholding tables to implement the Making Work Pay Tax Credit of 6.2% of earned income, up to $400 for single taxpayers and $800 for married couples. Employers must start using these tables by April 1, but may do so earlier. As Kay Bell notes, this works out to an extra $10 per week in take-home pay for most taxpayers. Higher income taxpayers will not see an increase in their take-home pay, as the credit phases outb at $75,000 - $95,000 for single taxpayers and $150,000 - $190,000 for married couples.
For a pessimistic view of the value of the extra $10 per week, see Rick Santeli's now-famous rant on CNBC: