TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, November 20, 2009

Conference on Empirical Legal Studies at USC

The two-day Fourth Annual Conference on Empirical Legal Studies kicks off today at USC.  The tax panel is chaired by Scott Altman (USC):

This paper analyzes the impact on firm behavior of the Homeland Investment Act of 2004, which provided a one-time tax holiday for the repatriation of foreign earnings by U.S. multinationals. The analysis 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 domestic investment, employment or R&D - even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders. These results suggest that the domestic operations of U.S. multinationals were not financially constrained and that these firms were reasonably well-governed. The results have important implications for understanding the impact of U.S. corporate tax policy on multinational firms.

What can empirical data tell us about the United States Tax Court? What sections of the Internal Revenue Code are most frequently cited and what recent tax legislation has sparked the most change in the Tax Court’s jurisprudence? Contributing to the growing extant literature on citation networks, this Article presents an analysis of the citation practices of the United States Tax Court between 1990 and 2008. While previous citation studies appropriately rely upon case-to-case citations as their unit of analysis, we modify this approach to focus on statutory citations, which represent the best proxy for the underlying content of the decisions in the field of tax law. Building upon prior citation scholarship and leveraging techniques from computer science and informatics, we collected and analyzed more than 11,000 decisions and 244,000 statutory citations authored by the United States Tax Court between 1990 and 2008. Our analysis includes both a static and time-series analysis for the most cited Internal Revenue Code sections. We also offer a network analysis and subsequent analytics focusing both on the static reporting of which Code sections are most often cited and the dynamic patterns of change in citation practices over time. Although this data retrieval itself answers the call for greater empiricism in tax scholarship, we also argue that our findings support the idea that there are effectively two Codes: the legislated Code, made up of the sections that are the basis of legislative action but only infrequently make it into Tax Court opinions, and the litigated Code, made up of the sections most frequently cited by Tax Court judges. We then discuss the implications of this argument, as well as opportunities for further research.

This paper underscores the growing need to shed better light on paid preparers and their effect on the tax system and its administration. The paper undertakes an empirical analysis of U.S. individual tax returns based on (1) tax return characteristics (by line item and type of return), and (2) preparation mode (self or paid prepared return; if paid - whether by lawyer, CPA, enrolled agent or other) as the independent variables. The dependent variable applied is the compliance or noncompliance of these returns. In a second stage of the analysis where noncompliance is found, a taxonomy of the errors identified will be explored to examine whether certain types of errors are associated with the independent factors. By offering a taxonomy of errors and forming a web of associations between these errors and the independent variables, the paper seeks to explore both the motivations behind and facilitators of tax noncompliance as well as the strategies to curb them so as to more effectively foster taxpayer compliance. The analysis draws from 3,457 returns where the taxpayer claimed an Earned Income Tax Credit (EITC) for Tax Year 1999. These returns have all been subject to either face-to-face or correspondence audit and provide a uniquely thorough pool of raw data that is presently unavailable for the general population.


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