July 31, 2010
WSJ: Court Decision Returns IRS to Chief Victor in Son-of-BOSS Cases
Following up on Monday's post, 10th Circuit Reverses Taxpayer's Lone Victory in Son-of-BOSS Tax Shelter Case: Wall Street Journal, Court Decision Returns IRS To Chief Victor In Son-of-BOSS Cases, by Arden Dale:
The Tenth Circuit on Friday reversed a decision on appeal from the U.S. District Court for the District of Colorado in the case Sala v. United States, which involved a shelter used to generate tax losses to offset more than $60 million in income during the 2000 tax year.
The decision last week returned the IRS to the status of major victor in a string of Son-of-BOSS cases. Indeed, the earlier Colorado decision had been remarkable because it represented the only taxpayer win against the IRS after the tax authority started auditing the shelters in 2002, according to Paul L. Caron, the associate dean of faculty at the University of Cincinnati College of Law, and publisher of TaxProf Blog. ...
Designed to generate tax losses, the shelters grabbed public attention earlier in the decade, when accounting firms were found to have sold them to tax clients. In the nickname, with its organized crime overtones, BOSS stands for Bond and Option Sales Strategy.
Because of the recent decision, "all is now well in the Son-of-BOSS world," said Caron, who predicted that the IRS will "bat 1.000 from here on in in these cases."
N.Y. Judge Calls Husband's Pre-Divorce Filing of Back Taxes 'Despicable'New York Law Journal, N.Y. Judge Calls Husband's Pre-Divorce Filing of Back Taxes 'Despicable':
A Suffolk County, N.Y., judge has ruled that a contractor's filing of amended tax returns claiming $1.6 million of additional income on the eve of his divorce trial was simply a malicious attempt to prevent his wife from recovering marital assets, and therefore has refused to apportion the couple's approximately $500,000 to $1.2
"It is well settled that expenses (including unpaid taxes) incurred prior to the commencement of a divorce action constitute marital debt which, under normal circumstances, should be equally shared by the parties. However, in those rare instances where a party's conduct in creating a debt is so egregious, shocking, fraudulent or malicious, the Court can exercise its discretion and refuse to apportion the debt," Acting Supreme Court Justice Andrew A. Crecca (See Profile) wrote in Maria C. v. Dominick C., 04775/08.
"Under the facts and circumstances of this case," the judge concluded, "this is one of those rare instances." ...
Shortly before the divorce went to trial in March, the defendant-husband, Dominick C., unilaterally filed marital tax returns for the years 2004 through 2007.
In the amended returns, the husband admitted earning more than $1.6 million in unreported income over those four years.
The husband filed the returns on his own initiative, as the couple was not being audited or under investigation, and without his wife's signature. He included on the cover page a list of assets the government might consider attaching, including the couple's house. The husband stated the house's value ($1.2 million), the size of the mortgage and the name of the bank that held the loan.
After hearing testimony from a variety of fact and expert witnesses, including the husband's accountant and the wife's forensic accountant, the court determined that the husband had a single, illegitimate reason for belatedly reporting his business' income.
"The court sees no legitimate reason for this outrageous and despicable conduct, which the court finds is based solely on malice and revenge, with no other goal than to prevent his wife from any recovery in equitable distribution," the judge concluded.
"Accordingly, as a result of such shocking and egregious conduct on the part of the defendant-husband, the Court declines to apportion any tax liability to the plaintiff-wife in connection with the amended personal returns and directs that the defendant-husband should bear full responsibility for any such additional tax liability."
Sander & Yakowitz: Grades, Not Law School Rank, Determine Future SalaryRichard Sander (UCLA) & Jane Yakowitz (Brooklyn) have posted The Secret of My Success: How Status, Prestige and School Performance Shape Legal Careers on SSRN. Here is the abstract:
Rewards are distributed more unevenly within the legal profession than in virtually any other occupation. Most of those who study the careers of lawyers would agree that law school eliteness, law school grades, and social status each play a role in determining which lawyers capture the greatest rewards. But remarkably little effort has been made to directly compare these inputs in explaining career outcomes, to see which of the three matters most, and how they interact.
In this paper, we first examine general beliefs about the importance each of these three factors has upon lawyer careers – beliefs among academics as well as beliefs among the actual participants in the sorting process. We next present some specific findings about each of the three factors. Finally, we directly compare the three factors in regression models of career outcomes. The consistent theme we find throughout this analysis is that performance in law school – as measured by law school grades – is the most important predictor of career success. It is decisively more important than law school “eliteness.” Socioeconomic factors play a critical role in shaping the pool from which law students are drawn, but little or no discernible role in shaping post-graduate careers. Since the dominant conventional wisdom says that law school prestige is all-important, and since students who “trade-up” in school prestige generally take a hit to their school performance, we think prospective students are getting the wrong message
WSJ Law Blog, New Study: Forget the Rankings, Just Bring Home Straight A’s:
Go to the best law school you get into.
It’s advice that’s been passed down through the ages, from generation to generation. Law is a profession that trades, the thinking goes, on prestige. Clients like prestigious names like Wachtell and Cravath; the wealthiest firms like names like Harvard, Yale and Chicago. Get into one of those schools, and up go your chances of going to a big firm, kicking tail, making partner and grabbing that brass ring.
Or so the conventional wisdom has for decades dictated.
But is it true? ... [Sander] and Yakowitz found that “higher performance produces a much larger dividend than eliteness does.” They write:As an illustrative hypothetical, imagine an average student (GPA 3.25‐3.5) at 47th ranked University of Florida. Using the fifth column from Table 11 (AJD regressions on salary), we can predict how her earnings would be affected under various counterfactuals. If she had attended 20th ranked George Washington University, her grades likely would have slipped to the 2.75‐3.0 range, and her salary would drop considerably (by 22%, all other factors held constant.) Even if she had managed to get a spot at 7th ranked UC Berkeley, where the tier premiums are highest, her grades likely would have fallen into the 2.5‐2.75 range, and her salary would be 7% lower. On the other hand, if she had attended 80th ranked Rutgers, she probably could have improved her grades to land in the 3.5‐3.75 range, and earned a 13% higher salary.
- ABA Journal,Law School Grades More Important to Career than Elite School, Researchers Say
- Above the Law, Is Law School Prestige Wildly Overrated?
Dems, GOP Vie to be First to Repeal ObamaCare's 1099 Small Business Reporting Rule
Politico, Dems, GOP Maneuver on Repeal:
House Democrats proposed repealing a piece of the health care overhaul Friday, a move designed to thwart Republican efforts to do the same thing and declare an early victory in their efforts to repeal the whole law.
Democrats proposed repealing new IRS reporting requirements that small business has warned would be overly burdensome. But they attached a new tax on Americans conducting business overseas— essentially a poison pill for Republicans who are unlikely to support a new tax.
The Democrats hold the majority in the house, but it was brought up on a procedural rule requiring two-thirds support. It failed, 241-154, largely on party lines with Republicans in opposition.
It is nevertheless the first time Democrats have gone on record in support of repealing a piece of the health care law, which was passed just four months ago.
Neither party really likes the provision of the health law at issue, which would require businesses to file 1099 tax forms for all transactions with vendors that cumulatively total over $600.
Due for implementation in 2012, the 1099 provision would raise $19 billion over 10 years to pay for the health care overhaul.
- Associated Press, Paperwork Nghtmare: A Struggle to Fix New Law
- The Hill, House Republicans nix Democrats Effort to Repeal 1099 Requirement
- NPR, Health Care Fight Heats Up Over New Tax Report Repeal Effort
- Wall Street Journal, Move to Repeal Tax Rule Tied to Health Overhaul Fails
July 30, 2010
McGill Seeks to Fill Endowed Tax Chair
The Faculty seeks applications from scholars of international reputation in the field of taxation law.
The chair holder will provide intellectual leadership at the Faculty of Law and will be a leading researcher who will shape the course of tax law locally, nationally and globally. The chair holder will teach and supervise undergraduate students and graduate students at the master and doctoral levels in the Faculty of Law and will be committed to developing a comparative, integrated and dynamic approach to the teaching of the law of taxation.
Given the bilingual environment of McGill's Faculty of Law, the chair holder will be expected to evaluate written and oral work presented in both English and French.
The position is tenured and the Chair is fully endowed. The salary and the academic rank will reflect the successful candidate's qualifications and experience. The term for the chair is seven years and is renewable. The appointment would commence January or July 1, 2011. ...
Applications and nominations, accompanied by a complete curriculum vitae, are now invited and will be considered as of October 15, 2010. Applications should be addressed to Professor Geneviève Saumier, Chair, Staff Appointments Committee, Faculty of Law, McGill University. Applications should be sent by electronic mail to Linda Coughlin.
Federal Tax Collections Plummeted $400b in FY 2009
The Treasury Inspector General for Tax Administration yesterday released Trends in Compliance Activities Through Fiscal Year 2009 (2010-30-066), which reports that gross federal tax collections declined $400 billion in FY 2009 (to $2.35 trillion from $2.75 trillion in FY 2008):
The FY 2009 Collection function activities showed mixed results compared to FY 2008.Some declines may be attributed, at least in part, to the declining economy. The Collection function experienced declines in dollars collected on delinquent accounts, an increase in taxpayers with delinquent accounts assigned to the Queue, including amounts owed on these accounts, as well as an increase in gross accounts receivable. However, FY 2009 showed continued increases in the use of collection enforcement tools and Taxpayer Delinquency Investigations closed due to receipt of delinquent tax returns.
The Examination function hired approximately 2,000 revenue agents and tax compliance officers during the last fiscal year, which was the most hiring performed in the last 5 years. The IRS will not receive an immediate benefit from this hiring, and the Examination function compliance activities showed mixed results in FY 2009.
- Web CPA, IRS Sees Tax Collections Slump
Geithner’s GDP Whopper
FactCheck.org, Geithner’s GDP Whopper:
Treasury Secretary Timothy Geithner made a false claim about the size of government spending being proposed by the Obama administration.
On NBC’s "Meet the Press" July 25, he said the president is proposing spending "as a share of our economy" that is "lower" than it was during the Bush administration and "comparable" to what it was under Ronald Reagan. Neither claim is true.
The administration’s own estimates project spending next year that is higher as a percentage of the economy than in any year since the end of World War II. The average projected by Obama’s budget officials is significantly higher than the average under Reagan or Bush (father or son).
Here’s what Geithner said:
Geithner: [The president has] proposed to freeze discretionary spending, to keep the overall size of the government at a very modest level as a share of our economy. If you look again at what the president’s proposing, he keeps the overall size of government at a very modest level comparable to–lower than what was in the Bush administration, comparable to what President Reagan presided over. That’s very important.
That’s not true, as a glance at this chart shows. It reflects official historical spending figures as a share of the nation’s economic output, as measured by gross domestic product (or GDP), plus the very latest estimates of current and future spending produced by Obama’s own Office of Management and Budget.
NY Times Debate: Legalizing (and Taxing) Internet GamblingNew York Times Room for Debate, Should Internet Gambling Be Legalized?:
The House Financial Services Committee approved a bill on Wednesday that would lift the ban on Internet gambling by authorizing the Treasury Department to license and regulate Web-based nonsports betting operators. A companion measure pending before the House Ways and Means Committee would let the IRS tax winnings from online wagers.
While the legislation is a long way from becoming law, the prospect of taxing the winnings that have been estimated at $42 billion over 10 years would be a huge source of revenue for the government. Should Internet gambling be legalized?
- Raymond Sauer (Clemson University, Department of Economics), A Historical Tradition
- Earl L. Grinols (Baylor University, Hankamer School of Business), Too Many Negative Side Effects
- Michelle Minton (Competitive Enterprise Institute), Bans Don't Work
- John Kindt (University of Illinois, College of Business), Keep the Ban
- Annie Duke (professional poker player), Personal Freedom
- Les Bernal (Stop Predatory Gambling), A Predatory Business
- Robert Hahn (University of Manchester, Department of Economics), Leveling the Playing Field
- Larry Ashley (UNLV, Problem Gambling Treatment Program), Why Add More Options?
Rich and Famous Stay Hidden in IRS ProbeDow Jones, Rich and Famous Stay Hidden in IRS Probe, by Arden Dale:
The U.S. crackdown on hidden overseas bank accounts looks a little less aggressive when compared to what’s happening in some other countries.
German authorities aren’t just suing for bank-account details–they have gone right in and seized them from one Swiss bank. In France, a scandal involving secret accounts allegedly held by that country’s wealthiest woman has roiled the government.
Here at home, secret account holders are being charged or pleading guilty just about every month. What’s lacking, however, are the dramatic showdowns or high-profile suspects emerging elsewhere. At least, so far.
Bradley Birkenfeld, the whistleblower who helped expose widespread tax evasion in the Swiss banking industry and who is now serving a three-year sentence in a federal prison in Pennsylvania, said he gave big names to the government as he spilled the secrets of how his Swiss bank allegedly helped the wealthy hide their money. Among them, said Birkenfeld: celebrities and business moguls, including some Fortune 500 CEOs.
None of those names, though, has yet surfaced publicly.
That isn’t to say that the IRS and Department of Justice aren’t investigating high-profile people. Criminal investigations would be kept under wraps, and the identities of anyone famous–or not–who sought amnesty through an IRS program for voluntary disclosers would be kept confidential.
Joshua D. Blank, associate professor of the Practice of Tax Law at NYU Law, said he thinks it quite likely that some of the rich and famous have entered the IRS program. Their identities may never be known, he said. But, along with other tax attorneys, he predicted that some of the well-known will emerge in criminal actions down the line.
Colbert on the Expiration of the Bush Tax Cuts
|The Colbert Report||Mon - Thurs 11:30pm / 10:30c|
|The Word - Ownership Society|
ABA Issues Report on U.S. News Law School Rankings
On February 17, 2010, ABA President Carolyn Lamm asked the Section of Legal Education and Admissions to the Bar to examine rankings of law schools. She did so to follow through on a Resolution of the ABA House of Delegates that the ABA “examine any efforts to publish national, state, territorial, and local rankings of law firms and law schools.” ...
Of the adverse effects of U.S. News rankings on law students identified by the scholarship, three are of greatest concern to this committee:
- The current methodology tends to increase the costs of legal education for students. ...
- The current methodology tends to discourage the award of financial aid based upon need. ...
- The current methodology tends to reduce incentives to enhance the diversity of the legal profession. ...
These three adverse tendencies of the U.S. News rankings methodology have been widely known and discussed for many years, and have motivated extensive reform efforts by numerous individuals, groups, and organizations. These efforts have included, as the bibliography shows, campaigns attempting to persuade U.S. News to change the methodology, to persuade the public to reduce reliance on rankings, and to persuade law schools and organizations to refuse to cooperate with rankings by various means. While some of these efforts have produced minor changes or reforms at the margins, in our view none of them have been totally effective. We believe that, for better or worse, U.S. News rankings will continue for the foreseeable future to dominate public perceptions of how law schools compare, and that there is relatively little that leaders in legal education can do to change that in the short term.This is not to belittle the importance of constant vigilance seeking to reform the rankings and to call attention to their adverse effects. It is our hope that various rankings methodologies might someday recognize the diverse missions of American law schools and employ factors that create incentives in keeping with the interests of law students, the legal profession, and the public. But once a single rankings system comes to dominate a particular field, it is very difficult to displace, difficult to change, and dangerous to underestimate the importance of its methodology to any school or firm that operates in that field. This, we believe, is the most important lesson from the law school experience for those law firms who may ranked by U.S. News in the future.
- ABA Journal, ABA Group: US News Law School Rankings ‘Not Entirely Benign,’ But We’re Stuck with Them
- National Law Journal, ABA Panel: 'U.S. News' Rankings Bad, but What Are You Going to Do?
- Shilling Me Softly, Facepalm! Will the ABA Ever Get Its Priorities Straight?
ConvictionBelow is the trailer for Conviction, scheduled to be released in October 2010. The movie tells the story of Betty Ann Waters:
On May 12, 1983, Kenneth Waters was wrongfully convicted of first-degree murder for the death of an Ayer, Massachusetts woman. He was sentenced to life in prison based on the testimony of two former girlfriends who claimed he admitted to the crime. Kenneth's younger sister, Betty Anne, devoted her life to proving his innocence. She returned to school to earn her GED, then her bachelors, a master's in education, and eventually a law degree from Roger Williams University in Rhode Island. She accomplished this while raising two boys alone and working as a waitress part-time. While in law school she began investigating her brother's case. She began to correspond with the Innocence Project in New York. Attorney Barry Scheck agreed to assist her in her efforts to exonerate Kenneth. Betty Anne convinced the court to have her brother's DNA tested against blood samples found in a box of evidence from his trial, which she learned during her investigation was in the basement of the courthouse where he was tried and convicted. The samples were tested and led to his exoneration in March 2001.
Bartlett: Keep the Bush Tax Cuts for NowBruce Bartlett (The Fiscal Times), Keep the Tax Cuts for Now:
Congress could have used the expiration of the Bush tax cuts to reform the tax system, but extending the tax cuts may be the only viable option for now.
Inside the U.S. News Rankings
July 29, 2010
House Ethics Subcommittee Charges Rep. Rangel With 13 CountsA subcommittee of the House Ethics Committee today adopted 13 counts against former Ways & Means Chair Charles Rangel (D-NY):
- Subcommittee Statement of Alleged Violation (41 pages)
- Statement of Charles Rangel in Response (32 pages)
Press and blogosphere coverage:
- Associated Press
- Blog of Legal Times
- New York Daily News
- New York Times
- The Hill
- USA Today
- Wall Street Journal
- Washington Post
- Web CPA
Becoming a Law Professor: A Candidate's GuideBrannon P. Denning (Cumberland), Marcia L. McCormick (St. Louis) & Jeffrey M. Lipshaw (Suffolk) have posted the Introduction and Table of Contents from their forthcoming book, Becoming a Law Professor: A Candidate's Guide (ABA, 2010), on SSRN. Here is the abstract:
This is the Table of Contents and the Introduction to a forthcoming book from the American Bar Association. The authors provide detailed advice and resources for aspiring law professors, including a description of the categories of law faculty (and what they do), possible paths to careers in the legal academy, and "how to" guides for filling out the AALS's Faculty Appointments Register, interviewing at the Faculty Recruitment Conference (the "meat market"), issues for non-traditional candidates, dealing with callbacks and job offers, and getting ready for the first semester on the job.
Johnson: It's Hard to Predict the Future, Especially About Taxes
Following up on last week's post, WSJ: Washington's Tax Oracles and Revenue Estimates (July 21, 2010): Calvin H. Johnson (Texas) has published a letter to the editor in today's Wall Street Journal, It's Hard to Predict the Future, Especially About Taxes:
I think that the Journal is on to something on revenue estimates from spot changes to the Internal Revenue Service code ("Washington's Tax Oracles," Review & Outlook, July 21). Taxpayers flock to a new loophole in ways current statistics available to the Joint Committee on Taxation cannot pick up, so the revenue loss from a new opening exceeds the estimate. Taxpayers also find ways around loophole closing.
But you have the effect mixed up. Overestimating the gain from closing loopholes means Congress does not raise revenue as much as it needs to. It declares it will win, and goes home too early. Underestimating the losses from opening a new loophole means that Congress explodes the deficit when it just thinks it is giving a little item for some constituent. The effect of not taking into account tax planning means a greater deficit and more of a head-in-the-sand attitude. The errors lead to lower taxes than we need to cover the deficit and bigger loopholes. The errors thus, if true, create not a bigger government, but less responsibility in paying for it.
A Faculty Critique of University Budget Cuts
Eva von Dassow, a professor of Classic and Near Eastern Studies, reacts to proposed budget cuts at the University of Minnesota:
For more, see Inside Higher Ed.
ATR: Obama's Broken Tax PledgeAmericans for Tax Reform, Gibbs Misleads Public on Obama’s Broken Tax Pledge:
Tax Foundation, How Would President Obama's Tax Plan Raise Tax Payments for a Couple Earning $250,000 or Less?
White House spokesman Robert Gibbs seems to have forgotten that his boss has already broken his central campaign promise – a “firm pledge” that “no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
Responding to a question during his daily press briefing today, Gibbs said, “The President believes raising taxes on the middle class during this economic time would not make a lot of economic sense.”
But President Obama has already broken his “firm pledge” at least eight times:
- 156% Federal Tobacco Tax Hike (took effect April 1, 2009)
- 10% Tax on Indoor Tanning Services (took effect July 1, 2010)
- The “Medicine Cabinet Tax” (takes effect Jan. 1, 2011)
- The HSA Withdrawal Tax Hike (from 10% to 20%) (takes effect Jan. 1, 2011)
- The“Special Needs Kids Tax” ($2,500 cap on FSAs) (takes effect Jan. 1, 2013)
- The Obamacare Medical Prosthetics and Devices Tax (takes effect in Jan. 1, 2013)
- The Medical Itemized Deductions Cap (from 7.5% to 10%) (takes effect Jan. 1, 2013)
- The Obamacare Individual Mandate Excise Tax (up to $2,085 or 2.5% of AGI) (takes effect Jan. 1, 2014)
A Multinational Analysis of Tax Rates and Economic ActivityLawrence C. Smith Jr. (Louisiana Tech University, Department of Economics), L. Murphy Smith (Texas A&M University, Mays Business School) & William C. Gruben (Texas A&M International University, A.R. Sanchez, Jr. School of Business) have posted A Multinational Analysis of Tax Rates and Economic Activity on SSRN. Here is the abstract:
The relationship between taxes, particularly the income tax, and economic activity is a factor in the economic progress and development of a national economy. This study examines the relationship between the corporate income tax rate and economic activity in 30 countries, the members of the Organization of Economic Cooperation and Development. Results indicate that lower tax rates are associated with more favorable economic activity, including growth in GDP, lower unemployment, and higher savings. These findings suggest that at the micro-level, corporate managers should consider tax rates when deciding to locate or not locate business operations within a given country, especially if the goal is to locate where the economy is dynamic. At the macro-level, before making changes to tax law, policy makers should carefully consider how tax rates affect economic activity. For example, policy makers in the US Congress, at the time of this writing, are considering whether to allow the Bush tax cuts to expire in 2010. If the Congress allows that to happen, the outcome would effectively be the largest tax increase in US history.
Tax Consequences of the Mother of All Yard Sale Bargains ($200 Million for $45)New York Daily News, What a Deal! Photographer Ansel Adams' Work Uncovered at a Yard Sale:
Rick Norsigian made one of the best yard sale deals ever. Ten years ago, the California painter bought two boxes of photographic plates for $45, after he bargained the owner down from $75. Today, they are worth an estimated $200 million.
So what was in those boxes? Sixty-five glass negatives made by Ansel Adams, the iconic American nature photographer, CNN reported. Experts thought the negatives were lost in a 1937 darkroom fire that destroyed 5,000 plates.
Treas. Reg. § 1.61-14(a) provides that “[t]reasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession.” The leading case is Cesarini v. United States, 296 F.Supp. 3 (D. Ohio 1969), in which a husband and wife who purchased a used piano at a 1957 auction for $15 in 1957 and discovered $4,467 in cash in the piano in 1964 were required to report the $4,467 in income in 1964. But Mr. Norsigian's case is distinguishable and he would not have to report the $200 million of gain (less his $45 basis) until he sells the photographic plates. See Joseph Bankman, Thomas D. Griffith & Katherine Pratt, Federal Income Tax: Examples and Explanations (Aspen, 5th ed. 2008):
[T]he circumstances in Cesarini should be distinguished from situations in which a taxpayer discovers that something that he had bought was worth more than he originally paid for it. In the latter situation the taxpayer would not have an income inclusion until the property was sold or exchanged -- in other words, until the gain was "realized." ...
In year one, Ellie pays $300 for an antique dresser at an estate sale. ... [I]n year three, ... Ellie discovers that the dresser is a rare antique, worth $10,000. Later, in year five, Ellie sells the dresser for $12,000. ...
[Answer: $11,700 of gain in year five.]
- J. Gordon Hylton, The “Who Owns the Baseball” Issue Just Will Not Go Away (Oct. 8, 2009)
- Ball Busters: How the IRS Should Tax Record-Setting Baseballs and Other Found Property Under the Treasure Trove Regulation, 33 Vt. L. Rev. 43 (2008)
- The Tax Ramifications of Catching Home Run Baseballs, 59 Case W. Res. L. Rev. 191 (2008)
- Joseph M. Dodge, Accessions to Wealth, Realization of Gross Income, and Dominion and Control: Applying the “Claim of Right Doctrine” to Found Objects, Including Record-Setting Baseballs, 4 Fla. Tax Rev. 685 (2000)
(Hat Tip: Lee Sussman.)
- CNN, Controversy Over 'Lost' Ansel Adams Photos Turns Negative
- NPR, Ansel Adams Heirs Challenge Garage-Sale Negatives
Update #2: Legal Blog Watch, Tax Professor Casts Ray of Sunshine on Yard Sale Bargain Hunters.
Drinking, Driving, and Deducting: TP Takes Casualty Loss for Car He WreckedFollowing up on my prior posts:
- Tax Court Allows Driver Cited for DUI in Accident to Deduct Car Damage as Casualty Loss Because He 'Only' Blew a .09 (Dec. 11, 2009)
- Tax Court Lets DUI Driver Write Off Car Damage (Dec. 16, 2009)
Drinking and Driving: Taxpayer Allowed to Take Casualty Loss for Car He Wrecked, 80 CPA J. 50 (July 2010):
A recent controversial Tax Court case, [Rohrs v. Commissioner, T.C. Summ. Op. 2009-190 (Dec. 10, 2009)], dealt with the question of whether a person who is driving under the influence may in some circumstances be entitled to take a casualty loss deduction for damages resulting to his motor vehicle. Section 165(a) allows a deduction for losses not compensated by insurance or otherwise. Generally, damages to a motor vehicle may not be the subject of a casualty loss when the damage is due to a willful act or willful negligence, under Reg. § 1.165 -7(a)(3). But is driving a motor vehicle while only slightly intoxicated considered willful negligence by the Tax Court? It certainly is considered willful by the IRS and most public commentators on the case, and this was the issue dealt with by the Tax Court. ...The case has generated several critical comments: Arden Dale (Tax Court Lets DUI Driver Write Off Car Damage, Wall Street Journal, Dec. 16, 2009) quoted Paul L. Caron, professor of law at the University of Cincinnati and author of the popular TaxProf Blog as saying he found it hard to believe that a court "in this day and age would treat someone driving under the influence of alcohol as not engaged in a 'willful act or willful negligence' under the tax code." The authors could not sum up the case any better. It is certain that comparative casualty loss deductions will be claimed in the future as a result of the Tax Court's decision. The authors hope the IRS will quickly publish regulations that clearly define willful negligence.
Chris Tucker Owes $15.2m in Taxes
TMZ reports that actor Chris Tucker (Rush Hour) owes back taxes of $11.6 million to the IRS and $3.6 million to California, caused in part by bad real estate investments. Other celebrity tax troubles:
- Wes Bentley, actor (American Beauty), $125,617 lRS tax lien, $78,266 California tax lien
- Dave Bing, Detroit mayor, former NBA star, $103,627 Michigan tax lien
- Rob Lowe, actor (West Wing), $269,956 IRS tax lien
- Lil Wayne, rapper, $1,138,760 IRS tax lien
Forbes: The Ten Richest U.S. PresidentsForbes, The Ten Richest Presidents:
(Hat Tip: Don't Mess With Taxes.)
Who were the nation's 10 richest presidents? Here's our best assessment taking into account a number of factors, including absolute wealth in office (some nearly went bust afterward) and, to help adjust for two centuries of both inflation and economic growth, comparative wealth within the economy of their times.
- George Washington
- Herbert Hoover
- Thomas Jefferson
- John Kennedy
- Andrew Jackson
- Theodore Roosevelt
- Zachary Taylor
- Franklin Roosevelt
- Lyndon Johnson
- James Madison
Sen. Kerry & Yacht-Gate: Learned Hand's PerspectiveFollowing up on my prior posts:
- Sen. John Kerry Skips Town on Sails Tax (July 23, 2010)
- Sen. Kerry Sails Around the Tax Issue (July 27, 2010)
- Sen. Kerry Abandons (Tax-Dodge) Ship, Agrees to Pay $500k MA Tax on Yacht (July 28, 2010)
(Hat Tip: Al Golbert.)
No one is ever likely to mistake me for the president of the John F. Kerry Fan Club. I worked hard to prevent Kerry's election to the Senate in 1984, I have voted faithfully for his opponents ever since, and when he ran for president in 2004 I was impolite enough to describe him as a "tedious blister."
But I didn't join in the big horselaugh that everyone had at Kerry's expense after learning that he had avoided nearly half a million dollars in Massachusetts sales and excise taxes by keeping his new yacht tied up in Rhode Island. And I'm not gloating over his decision yesterday to put a stop to the media feeding frenzy by voluntarily sending the Department of Revenue a check for $500,000, "whether owed or not."
By mooring the yacht in Rhode Island, which abolished its sales tax on boats 17 years ago, Kerry appeared to have saved himself a huge amount of money. That was perfectly OK with me. Kerry may be a tedious blister, but even tedious blisters are entitled to hold down their taxes. Vice President Joe Biden calls it "patriotic" to pay higher taxes, but a far more sensible view was expressed by Learned Hand, one of the most admired and influential federal judges in American history." Anyone may so arrange his affairs that his taxes shall be as low as possible," Hand wrote in a 1934 opinion. "He is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes." In a 1947 case Hand amplified the point. "There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."
Granted, Kerry has never been averse to mere cant; his Senate career could be fairly described as an endlessly flowing river of the stuff. And Lord knows it is a temptation to cry "Hypocrite!" at a senator who is always ready to disparage tax cuts, yet deftly manages to cut his own.
But the temptation should have been resisted. What was the point of browbeating Kerry into paying higher taxes? Or rubbing his nose in his own history of laments about "tax-cuts-for-the-rich" and how "abusing offshore tax loopholes is wrong"? It would have been far better to seize the moment to make Kerry see that by arranging to enjoy his yacht without paying the Bay State's onerous taxes, he was acting not badly or selfishly, but rationally. Maybe Kerry could finally have absorbed the fundamental economic reality that human beings respond to incentives -- and when taxes are too high, taxpayers and their money have an incentive to go elsewhere. Even fabulously rich taxpayers like Kerry and his wife. ...
No one should be taking pride or pleasure in having keelhauled Kerry into forking over $500,000 he likely never owed. I'm no fan of the senator, but he showed good sense in seeking to keep his taxes low. If only he would do the same for the rest of us.
July 28, 2010
Tax Gusher: Gulf Oil Spill Deduction Will Save BP $10 Billion in U.S. TaxesWashington Post, BP to Cut U.S. Tax Bill by $10 Billion Because of Losses in Gulf Spill:
BP said Tuesday that it plans to cut its U.S. tax bill by $9.9 billion, or about half the amount pledged to aid victims of the disaster, by deducting costs related to the oil spill. ...
The credit for BP could mean, however, that taxpayers will indirectly foot part of the bill for the $20 billion fund that BP established to compensate people and businesses harmed by the disaster.
On Tuesday, White House press secretary Robert Gibbs said U.S. taxpayers would not be responsible for the cost of the spill. When asked whether BP should be claiming a credit, Gibbs said, "I don't think anybody would prefer that they do that." Gibbs would not say whether the president would press BP on the tax deduction. He said, though, that "there are tax laws in this country that have been written for quite some time."
Lawmakers called for BP to renounce any claim for a refund. ...
Robert Willens, a corporate tax expert, said it's unlikely that BP will give up its tax credit, even if faced with public opposition. The company voluntarily established the $20 billion escrow account for victims of the spill and never promised the government that it would not seek any deductions associated with the spill, he said.
This month, Goldman Sachs promised not to ask for tax credits associated with the $535 million it paid in penalties to the Securities and Exchange Commission to settle a fraud charge. But as Willens says, that was specifically negotiated in Goldman's agreement with the SEC.
"The cost associated with the cleanup and the damage and all that -- that's just another cost of doing business from the tax perspective," [said Douglas Shackelford, a tax professor at the University of North Carolina]. "It's viewed no different from paying salaries or other costs they might incur."
- FireDogLake, Oil “Disappearing” the Way BP’s Tax Liability Disappeared
- Going Concern, BP's Tax Break Could Bring Congressional Belly Aching
- Gothamist, BP Gets $10 Billion Tax Credit For Oil Spill
- McClatchy, BP to Claim $10 billion U.S. Tax Credit for Gulf Oil Spill Costs
- New York Times, BP’s Blueprint for Emerging From Crisis
- Project on Government Oversight, BP Tax Deduction Explainer
- Wall Street Journal, BP Seeks Tax Cut on Cleanup Costs
Update: Dan Shaviro (NYU), Unjust $10 Billion Tax Credit for BP?:
Doug Shackelford is quoted near the end of the story, shedding some needed light on the subject. First he notes that only the arbitrariness of annual accounting gives rise to the apparently shocking credit for taxes already paid. If BP paid income taxes on multiple years of taxable income at the same time - as surely would be the sensible rule if not for problems of administrative convenience, steady cash flow to the government, etcetera - the same thing would happen without the specter of a horrifying "credit" and "refund." Or, if they'd made $32 billion in January through November and then lost the same amount from the oil spill in December, no one would be surprised by their reporting zero income for the year.
Second, Shackelford notes that "[t]he cost associated with the cleanup and the damage and all that -- that's just another cost of doing business from the tax perspective ... It's viewed no different from paying salaries or other costs they might incur." This is correct. If BP really loses the $32 billion, of course the normal rule is (and should be) that it gets a deduction, including with carryovers to other taxable years if necessary. So the issue, at least on its face, is a red herring.
KKR: Living the Tax Dream You Can'tFollowing up on my prior post, KKR's Tax Motivation in Going Public (July 15, 2010): Fortune: KKR: Living the Tax Dream You Can't, by Allan Sloan:
(Hat Tip: George Mundstock.)
[KKR] has set up a corporate subsidiary that can increase the stated value of its assets based on the gain realized by insiders who sell some or all of their stake in the company. This written-up value is tax-deductible to the corporation over 15 years, with the tax savings flowing through to the partnership. (It's what tax techies call a 754 election.)
This nifty little move reduces the partnership's taxes. Does KKR distribute those savings to its owners equally? Nope. It passes on 85% of its savings to the selling insiders, even if it has to borrow the cash to make the payments. (I should say "will pass on"; insiders haven't yet sold any units.) ...
Here's the math. Say Henry Kravis sells $1 million of units, generating $1 million of taxable income. He pays $150,000 in federal taxes, assuming all his proceeds are long-term capital gains. Let's say half that gain -- $500,000 -- becomes deductible to KKR's corporation at a 35% rate. This saves KKR $175,000 in taxes over 15 years.
Of this, $149,000 -- the aforementioned 85% -- goes to Kravis. The payments to Kravis beget further deductions for KKR, begetting further payments to Kravis, and so on. You end up with about $206,000 in payments to Kravis. Adjust for the fact that they're spread over 15 years, and they're equivalent to about $150,000 today. So the public firm would be giving Kravis tax-sharing payments about equivalent to his tax bill, assuming, as I said before, that all his profits are capital gains. ...
TIGTA: Tax Liens Up 200%, With 26% IRS Error Rate
The Treasury Inspector General for Tax Administration today released Actions Are Needed to Protect Taxpayers’ Rights During the Lien Due Process (2010-30-072):
The IRS is not always following statutory requirements regarding the timely notification of taxpayers when liens are filed and does not always follow its own regulations for notifying taxpayers’ representatives of the filing of lien notices. ...
A Federal tax lien is created on balance-due cases in which the taxpayer has received a notice demanding payment and has neglected or refused to pay. The IRS files a Notice of Federal Tax Lien (lien notice) to protect its claims against taxpayers who owe delinquent taxes. These lien notices establish the IRS’s priority among secured creditors for the taxpayers’ property. The IRS must notify the affected taxpayers in writing, at their last known address, within five business days of the lien filings. However, as noted in previous TIGTA audits, the IRS has not always complied with this statutory requirement and it does not always follow its own internal guidelines for timely notifying taxpayer representatives of the filing of lien notices.
“This is a serious matter,” said J. Russell George, Treasury Inspector General for Tax Administration. “Because of this problem, some taxpayers’ rights to appeal the lien filings may have been jeopardized, and others may have had their rights violated when the IRS did not notify their representatives of the lien filings,” he added.
More on George Steinbrenner and the Estate TaxFollowing up on my prior post, By Dying in 2010, Did George Steinbrenner Save His Family $600m in Estate Tax? (July 13, 2010):
Where there's a will, there's a way -- to keep George Steinbrenner's millions all in the family.
In his last will and testament, a copy of which was obtained by The Post yesterday, the legendary Yankee owner went to great lengths to keep the taxman at bay.
The Boss' will stipulates that an undisclosed portion of his estimated $1.1 billion sports, shipping and racehorse-breeding fortune will go into a trust for his widow, Joan, 74.
And it assigns Steinbrenner's lawyer, Robert Banker, to decide whether that trust pays federal estate tax for this year, or not until after Joan Steinbrenner dies.
Although there currently is no federal estate tax for 2010, that could change if Congress acts to close the loophole and enacts such a tax retroactively, putting Steinbrenner's estate on the hook for $500 million or more.
But under the law, Banker would have nine months from Steinbrenner's July 13 death to decide if the estate should pay estimated estate tax for a 2010 filing -- or at the rate in effect whenever Joan dies. Banker can take another six months before deciding to make that move permanent. "That would give him maximum flexibility to deal with the estate tax," said Peter Valente, a top estate lawyer at the Blank Rome firm. "They have a lot of time to deal with this."
- Fiscal Times, The Estate Tax: Can George Steinbrenner Change the Debate?:
George Steinbrenner may not be everyone’s idea of a responsible family man. But the New York Yankee owner did his family a solid last month by dying this year. Because 2010 was the year of estate tax jubilee—the oddest legacy of the Bush administration’s tax cuts—not a penny of the estimated $1.15 billion he left behind can be touched by Uncle Sam. Had the Boss departed for the great sky box in the sky just seven months earlier or five months later, his heirs would have collected at least $500 million less.
Depending on how you look at it, Steinbrenner’s clean getaway was either a model of enlightened tax policy or a betrayal of everything the U.S. tax code stands for. That debate goes before Congress right now, as policymakers figure out how to handle the expiration of the previous administration’s tax cuts. That there is a debate at all is a triumph of political salesmanship over enlightened self-interest and of emotion over, well, plain arithmetic.
Stunningly, though, some two-thirds of Americans—including 55 percent of Democrats—say the tax should be repealed, an extraordinary result at a time when the annual deficit is running well over a trillion dollars.
Liberal Bias in Law School?Following up on my prior post, Ideological Diversity and Law School Hiring (July 20, 2010):
- Richard Epstein (Chicago), Liberal Bias in Law School?:
There is no question that if law professors were arrayed on a one-dimensional liberal to conservative line, the majority would be toward the liberal end. The interesting questions are two.
First, just what would the distribution look like? ...This is hard to gauge without some detailed work, but on average I would say that there are more left-wing democrats than center-left democrats. ... On the conservative side there is also a break of a different order, between social conservatives and libertarians. ... [M]y own sense is that a larger fraction of the right of center law professors are active in scholarship than on the left, which changes the public discourse.
Second, there is one factor that mutes these differences in many instances. Law is a profession, and you have to know such things as the civil rules of procedure and corporations. The subject matter requires technical knowledge. There are right and wrong answers. The gap therefore among law professors may be large on such questions as do we believe in constitutional originalism. But by the same token, the technical and professional anchor tends to bring the two sides closer together, for the great benefit of the profession. That is perhaps why it is often hard to figure out where academics stand on the political spectrum from reading their legal writings.
Professor Epstein has a post over at Ricochet. He agrees that there’s liberal bias, but notes that its effect is muted somewhat in the more technical areas of the law (a point that I also made in our debate). ...
Professor Yoo, commenting on the Epstein post, is less sanguine. He notes that the Berkeley study may understate the number of conservative law professors (a point that Elie and I also raised), and he views this possibility as exacerbating rather than ameliorating the problem of liberal bias, due to the problem of self-censorship by right-leaning law profs. ... And some conservatives never even make it into the academy, according to Yoo. ...
But the liberal Liz Wurtzel — John Yoo’s college pal and former colleague on the Harvard Crimson, by the way — is unconcerned. First, she questions whether conservatives are actually unwelcome in law schools. ... And if there is a liberal bias, perhaps it is warranted, Wurtzel suggests. Shouldn’t the fact that intellectuals tend to be drawn to liberal ideas tell us that liberal ideas are smarter?
Sen. Kerry Abandons (Tax-Dodge) Ship, Agrees to Pay $500k MA Tax on YachtFollowing up on my prior posts:
- Sen. John Kerry Skips Town on Sails Tax (July 23, 2010)
- Sen. Kerry Sails Around the Tax Issue (July 27, 2010)
Sen. Kerry announced yesterday that he would pay over $500,000 in Massachusetts taxes on his $7 million yacht ($437,500 in state use tax, $70,000 in annual state excise tax): "We’ve reached out to the Massachusetts Department of Revenue and made clear that, whether owed or not, we intend to pay the equivalent taxes as if the boat’s home port were currently in Massachusetts. That payment is being made promptly."
Farewell, San Diego!I have left San Diego after seven glorious weeks to return home to Cincinnati. This was my seventh summer teaching at the University of San Diego School of Law, my second as the Herzog Summer Visiting Professor in Taxation. My thanks to the kind folks at USD for having me back again, and to my 78 Tax I students (including one who won $24,079 at the World Series of Poker) who worked so diligently (and laughed at most of my jokes). It gets harder and harder each year to leave "America's Finest City" and our many friends there.
A special treat this summer was spending time with George and Barley Mundstock, who were visiting from Miami (pictured on the right at my favorite SoCal restaurant). I also enjoyed hosting, for the third summer, my late father's 85-year old girl friend and 60-year old sister. I had a blast squiring them around San Diego. (I am told that, if this blog thing does not work out and I need a new side gig, I have a bright future as an escort for elderly women.)
But the highlight for me was spending the final two weeks with my son, who just completed his freshman year of college and a one-month internship serving in several orphanages with Back2Back Ministries in Monterrey, Mexico. It was a great two weeks with him in San Diego, getting buff at the local Y (where I met my boyhood idol Bill Walton), taking in the local sites and attractions, seeing movies (good, indifferent, and bad), and attending a wonderful church. The capper was my son's eagerness to serve at the local Habit for Humanity, where he logged sixty hours over the two week period (giving me the time to focus on my teaching job, which after all is the reason I am blessed to be in SoCal each summer).
More on the ABA's Proposal to Dilute Law Faculty TenureFollowing up on my prior posts:
- ABA Considers Dramatic Changes This Weekend in Law School Accreditation Standards, Including Dilution of Tenure (July 25, 2010)
- Law School Tenure in Danger? (July 26, 2010)
Press and blogosphere coverage:
- ABA Journal, ABA Committee Proposal to Eliminate ‘Tenure’ Word Raises Law Profs’ Ire
- Above the Law, ABA Takes on Law Schools… Over Tenure
- Law Librarian Blog, Is the ABA Trying to Dilute Tenure for Law Faculty and Job Security for Legal Skills Profs?
- National Law Journal, Law Faculty Upset Over ABA's Proposed Tenure Shift
IRS Pursues Billionaire McCombs for $45m in Variable Prepaid Forward Contracts Case
Following up on last week's post, Tax Court Rejects Billionaire Anschutz's Use of Variable Prepaid Forward Contracts to Avoid $144m Capital Gain: Forbes, IRS Demands $45 Million From Billionaire McCombs, by Janet Novack:
The IRS is demanding $45 million in back 2002 and 2003 taxes from San Antonio billionaire Billy Joe “Red” McCombs for his use of a tax strategy similar to one a judge disallowed last week for billionaire Philip Anschutz. [Anschutz Co. v. Commissioner, 135 T.C. No. 5 (July 22, 2010).]
In a previously unreported lawsuit filed in May in U.S. Tax Court, the 82-year-old McCombs is contesting the IRS' assertion that he should have reported $213.4 million in long-term capital gains in 2002 from the sale of 11.3 million shares of Clear Channel Communications Inc. -- the company he cofounded in 1972. He's also disputing an additional $3.3 million in 2003 capital gains in connection with the same purported sale. In all, the IRS asserts, McCombs had $245 million in taxable income for 2002 and 2003, rather than the $18 million he reported and owed $53 million in income tax, not the $8 million he paid.
The case involves a complicated strategy, which was widely peddled by Wall Street as a way for rich folks like Anschutz and McCombs to raise cash from highly appreciated stock positions, while deferring capital gains tax. “It's like a who's who of business that entered into these things,'' observed Robert Willens, an independent tax analyst in New York who was a managing director in the equity research department at Lehman Brothers for 20 years. The Anschutz U.S. Tax Court decision was the first on the strategy, and the Anschutz Co. has already said it will “vigorously appeal” the adverse ruling.
Prior TaxProf Blog coverage:
- IRS Targets Billionaire's Variable Prepaid Forward Contract Tax Strategy (June 9, 2008)
- Johnston: Anschutz and a 21st Century Tax System (May 10, 2010)
Chicago Lawyer Catches Foul Ball in One Hand While Holding 7-Month Old Son in Other Hand
(Hat Tip: Above the Law.)
July 27, 2010
Will Obama's Deficit Commission Call for $26.7 Trillion Tax Increase?In advance of tomorrow's fourth meeting of the National Commission on Fiscal Responsibility and Reform: Obama Commission Will Call for Trillions in Tax Hikes (Townhall), by Floyd & Mary Beth Brown:
Obama debt commission member, Republican Sen. Judd Gregg of New Hampshire, launched a scary trial balloon on ABC News. Gregg suggested the debt commission will likely recommend a massive $26.7 trillion tax increase. Here are Gregg's actual words:
"Everything has to be on the table - there's no question about that... Erskine Bowles, one of the co-chairmen of the commission, has suggested a 75-25 split -- 75 percent of the savings being in spending, and 25 percent in revenues... I think it's likely that there will have to be a revenue component, but it should be significantly, dramatically -- and a 3-1 ratio is pretty dramatic -- dramatically less than the initiatives in the spending side of the ledger."
According to an analysis by Americans for Tax Reform if Bowles wants $3 in spending cuts for every $1 in tax hikes then the tax increases will be larger than anyone expects:
Bowles and Gregg can only be talking about cutting $3 in promised Social Security and Medicare benefits in exchange for $1 in tax increases. In other words, 1/4 of the unfunded liabilities of Social Security and Medicare would be paid for with tax hikes. So how big is that? According to the 2009 Social Security and Medicare Actuaries' Report, the long-run insolvency of the Social Security and Medicare systems is $106.8 trillion (with a "t") over the infinite horizon. To close this gap with one-quarter tax hikes is, therefore, to raise taxes by $26.7 trillion.
Faculty Retention at North CarolinaOne of the striking features of my post on Public Law School Faculty Salaries was the low faculty salaries at North Carolina, compared to higher ranked (e.g., Illinois, Michigan, Texas, Virginia) and even some lower ranked (e.g., Florida, Ohio State) public law schools. This article (from Al Brophy) thus does not come as surprise, Faculty Retention Plummets as Salaries Stay Frozen:
By the end of the year, [UNC] was looking at a 41% retention rate from raids from other schools in which it countered or could not afford to counter, one of the lowest rates in several years. The medical schoolwas hit particularly hard -- of 58 Carolina faculty members who presented offers from other universities and whom UNC tried to keep but couldn't, 24 were from the medical school.
Most of those who leave for greener pastures are associate professors who have achieved tenure by proving their star power but who are young enough to be vulnerable to universities who will up the ante on salary, benefits and the other trappings of academia. Though there are many factors in a professor's decision to leave, and retention seems to be cyclical -- often rebounding shortly after a nosedive like this one -- the inability to offer regular salary increases at UNC may be having a cumulative effect, said Provost Bruce Carney. ...
Some faculty who entertain offers, the University doesn't try to keep -- about one-fourth of the total this year. The others fall into two categories: UNC counteroffers to try to hold onto them, or it simply doesn't have the money to fight.
IRS Continues to Use 'Tax Protester' Label Despite Congressional ProhibitionSection 3707 of the IRS Restructuring and Reform Act of 1998 prohibits the IRS from designating taxpayers as "illegal tax protesters (or any similar designation)." I.R.C. § 7803(d)(1)(A)(v) requires the Treasury Inspector General for Tax Administration to annually audit the IRS's compliance with § 3707. The TIGTA today released Fiscal Year 2010 Statutory Audit of Compliance With Legal Guidelines Prohibiting the Use of Illegal Tax Protester and Similar Designations (2010-30-073):
Congress was concerned that some taxpayers were being permanently labeled and stigmatized by the Illegal Tax Protester designation. The concern was that this label could bias IRS employees and result in unfair treatment of the taxpayer. ...
We found that, out of approximately 80.6 million records and cases, there were 196 instances in which employees had labeled taxpayers as “Tax Protester,” “Constitutionally Challenged,” or other similar designations ... We believe the 196 instances we did identify in the various systems previously listed are prohibited by law.
NY Times: Profits Surge, Jobs Don'tNew York Times, Industries Find Surging Profits in Deeper Cuts:
Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production. ... As companies this month report earnings for the second quarter, news of healthy profits has helped the stock market — the Standard & Poor’s 500-stock index is up 7% for July — but the source of those gains raises deep questions about the sustainability of the growth, as well as the fate of more than 14 million unemployed workers hoping to rejoin the work force as the economy recovers. ...
In some ways, the ability to raise profits in the face of declining sales is a triumph of productivity that makes the United States more globally competitive. The problem is that companies are not investing those earnings, instead letting cash pile up to levels not reached in nearly half a century. ... [E]ven at corporations where both the top and bottom lines are expanding, the focus remains on keeping profits high, not rebuilding work forces decimated by the recession.
New Issue of Journal of Taxation of InvestmentsThe Journal of Taxation of Investments has published its Summer 2010 issue (Vol. 27, No. 4), with these articles:
- Walter Schwidetzky (Baltimore) & Rolfe Eicke (Ernst & Young), Income Taxation in the United States and Germany: The Rugged Individualist Meets the Social Activist, 27 J. Tax'n Inv. 3 (Summer 2010): "Different countries find different solutions to raising revenues and taxing their citizens. The United States rarely looks outside of its own borders for answers. Yet other countries may have looked at a given issue and come up with intelligent answers that could helpfully inform U.S. decisions. The converse is, of course, also the case. One of the striking things about doing comparative tax analysis is how differently, but legitimately, different countries can answer the same question. There also times when one country’s answer is demonstrably superior to that of another country. This article, which will be continued in the next issue of the Journal, compares German and U.S. income taxation of individuals, primarily individuals who are employees or self-employed professionals. Part 1 of this article provides some relevant background information on the German and U.S. legal systems; discusses the relevant constitutional issues, including the impact of decisions of the European Court of Justice on German tax law; reviews overarching doctrines that apply to the two tax systems. Part 2, which will appear in the next issue of the Journal, will explain and analyze how the two countries get to taxable income, including a review of how each country taxes investments."
- Nicholas C. Lynch (Georgia Southern) & Charles R. Pryor (Western Illinois), Cost Segregation Studies: A Tax-Saving Tool All Practitioners Should Be Ready to Offer, 27 J. Tax'n Inv. 27 (Summer 2010): "During periods of recession, when credit may be unavailable for making needed working capital improvements, companies constantly look for alternative means to increase their operating cash flow. A cost segregation study (CSS) is a valuable tool that can enable a qualifying taxpayer to realize significant increases in cash flow and tax savings over multiple periods. Any taxpayer in possession of residential or non-residential depreciable property that was purchased, constructed, inherited, or improved after 1986 may qualify for a CSS. This article provides a detailed analysis of a cost segregation study, including discussions of which types of taxpayers qualify for a CSS and which costs may be classified as Section 1245 property versus Section 1250 property, an explanation of how a CSS should be performed, and a detailed analysis of the many tax advantages that a CSS offers. It also includes an in-depth discussion of the technical layout of the various methods of conducting a CSS as well as the many ways to increase a study’s overall return."
- Leon Gabinet (Case Western), Same-Sex Divorce: DOMA and the Internal Revenue Code, 27 J. Tax'n Inv. 45 (Summer 2010): "At the present time, same-sex marriage is permitted in six states, while civil unions or domestic partnerships are permitted in five others. In the near future, other states will probably follow suit and enact civil union or domestic partnership legislation. Despite differences in nomenclature, same-sex marriage, civil union, and domestic registered partnership laws uniformly provide that their participants are to be treated as spouses for all state law purposes. They thus bear the same burdens and they enjoy the same benefits as spouses in a traditional heterosexual marriage. This article examines one aspect of the problem—the tax issues which will inevitably arise when participating couples in same-sex unions are divorced or legally separated. It is still too early to tell whether same-sex marriage or civil union will result in the same rate of divorce as is the case in heterosexual marriages. But surely there will be divorces, separations and, where there are children, support and custody issues. As in the case of traditional marriages, the local divorce courts will be called upon to order alimony or spousal support payments, the division of property, and support of children adopted or born into the same-sex union."
- Michael McGowan & Andrew Howard (both of Sullivan & Cromwell, New York), Ongoing Uncertainty Regarding Entity Classification for U.K. Tax Purposes: Swift v HMRC, 27 J. Tax'n Inv. 77 (Summer 2010): "The question as to whether a non-U.K. entity such as a Delaware limited liability company (LLC) should be treated as transparent or opaque for U.K. tax purposes can make a significant difference to the amount and timing of tax incurred by a U.K. taxpayer investing in it. The U.K. tax tribunal in Swift v HMRC, a recent first-instance decision, came to the conclusion that a Delaware LLC should be treated as transparent for U.K. foreign tax credit purposes. In so doing, it avoided economic double taxation. However, the decision is surprising because it had previously been thought that in most cases a LLC would be treated as opaque. The LLC in this case does not seem to have had any particularly unusual features. The decision itself may be appealed but it illustrates the uncertain tax treatment that a U.K. investor in an LLC will face and provides a discussion of the issues that need to be considered in resolving that uncertainty. There is also a longstanding question as to whether an LLC can disrupt a U.K. tax group and the decision is relevant to this. This article sets out some of the issues that a U.K. taxpayer considering an investment in an LLC will need to consider by reference to the decision in this case. U.K. taxpayers face similar issues when considering investment in other non-U.K. entities that are not clearly equivalent to English companies."
McCaffrey & Schneider: The Generation-Skipping Tax in 2010 and Beyond
Carlyn S. McCaffrey (Weil, Gotshal & Manges, New York) & Pam H. Schneider (Gadsden Schneider & Woodward, Philadelphia) have published Time Traveling and Generation-Skipping in 2010 and Beyond, 128 Tax Notes 407 (July 26, 2010). Here is the abstract:
In this article, McCaffrey and Schneider look at the GSTT, its prospects, and the complications that the 2010 suspension of its application and its future reinstatement are likely to cause. The one-year reprieve from the GSTT creates several difficult questions.
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Sen. Kerry Sails Around the Tax Issue
Following up on last week's post, Sen. John Kerry Skips Town on Sails Tax:
- Wall Street Journal, John Kerry -- A One-Man 'Benedict Arnold' Corporation; Mr. Kerry Sails Around the Tax Issue, by John Fund:
"Let's not get silly here." That was Senator John Kerry's response Friday to questions about his new $7 million yacht, Isabel, which last week was berthed in Rhode Island rather than in Mr. Kerry's home state of Massachusetts. In doing so, Mr. Kerry will save almost $500,000 a year in taxes. ...
[T]here's a smell of hypocrisy. In addition to sailing around the tax issue, Mr. Kerry chose to build his boat in New Zealand at a time when Bay State boat builders are having trouble keeping their work force employed. ...
It sounds like a perfect storm of political controversy for Mr. Kerry. The senator is the main sponsor of a bill that would squeeze U.S. lifestyles by cutting back on carbon emissions. At the same time, he has decided to treat himself to a new yacht, built overseas and carefully berthed outside the state he represents.
- FOX News. Kerry May Need to Pay $500k Tax on Yacht:
There are new details in the controversy over Sen. John Kerry's brand new boat. Kerry may still be on the hook for a half million dollars in excise taxes because he docked his yacht in Massachusetts less than six months after buying it.
- Boston Herald, John Kerry Bails on Taxing Questions:
Sen. John Kerry, hounded by questions over whether he is dodging state and local taxes on his ultra-luxe $7 million sailing yacht, yesterday slammed his car door on a pack of reporters demanding to know if he would pony up to the cash-strapped commonwealth.
Future of Capitalism, Explaining Kerry's Yacht-Tax Dodge:
If Great Point LLC is owned or controlled by Pennsylvania-based Teresa Heinz Kerry rather than by Massachusetts-based John Kerry, it may be that no Massachusetts use tax on the boat is owed.
And if you think mooring the yacht in Rhode Island rather than in Massachusetts is a tax dodge, the senator's spouse's decision to be a Pennsylvania resident rather than a Massachusetts one for tax purposes has its own advantages. The Massachusetts state income tax is 5.3%, while Pennsylvania's is 3.07%, according to the Tax Foundation. The Massachusetts estate tax is up to 16%, while the Pennsylvania inheritance tax maxes out at 4.5%. The lost income to Massachusetts as a result of Teresa Heinz Kerry's decision to be an official resident of Pennsylvania probably dwarfs the $500,000 or so at stake in the debate over where the yacht is moored.
(Hat Tip: Joshua Blank.)
Universities Fail to Report Taxable IncomeBloomberg, Universities Fail to Report Taxable Income, IRS Says:
Nonprofit colleges and universities may be failing to report the full extent of their taxable income to the IRS, according to Lois Lerner, the agency’s director of exempt organizations. The IRS found in a survey sent to 400 schools in October 2008 that about a third of the respondents aren’t filing forms detailing their taxable income even though many operate businesses unrelated to teaching and research. The survey led to the audit of Harvard University and more than 30 other colleges.
Those schools that do file never pay taxes because they claim losses that wipe out any profits, Lerner said the survey found. “We’re going to be looking at that in the audit to see how colleges and universities are allocating gains and losses,” Lerner said yesterday on a panel at the National Association of College and University Business Officers annual meeting in San Francisco.
Ring: The Promise of International Tax ScholarshipDiane M. Ring (Boston College) has posted The Promise of International Tax Scholarship and its Implications for Research Design, Theory and Methodology, 54 St. Louis U. L.J. ___ (2010), on SSRN. Here is the abstract:
What should international tax scholars be doing? Over the past two decades, international tax has grown both as a practice area and as a field of study. Scholars have begun devoting significant attention to the development, design, and implementation of international tax law. This activity is accompanied by a reflection on the scholarship and its goals, method and content. A review of modern international tax scholarship reveals that as the field has matured, international tax scholars have increasingly turned to other disciplines, especially social sciences, to draw upon their insights, ideas, and research to improve understanding of international tax policy. But this intersection with the social sciences (and the humanities) forces us to confront some distinct differences between the approach of the legal academy to research and scholarship and the approaches reflected in other fields. As the tax academy increasingly reaches into other disciplines, we question what constitutes the core of our own discipline and what we can uniquely contribute. Ultimately, international tax scholars have a strong claim to a vital role. The importance of non-legal disciplines to the development of international tax policy, combined with the perceived inaccessibility of international tax to those working outside the field, renders international tax distinctive if not unique. The burden rests upon the tax community to establish a robust, broad and comprehensive research structure capable of integrating guidance from other disciplines. International tax scholars need to look beyond the traditional bounds of their field – but they cannot abdicate the territory to other disciplines. The real challenge is how to manage both strands effectively.
Rebollo: The Civil Arrest and Imprisonment of Taxpayers
Anthony E. Rebollo (Richardson Plowden & Robinson, Columbia, SC) has published The Civil Arrest and Imprisonment of Taxpayers: An Analysis of the Writ of Ne Exeat Republica, 7 Pitt. Tax Rev. 103 (2010). Here is the Introduction:
Section 7402 of the Internal Revenue Code (the “Code”) addresses the ability of federal district courts to review and decide matters relating to federal taxation. As a longstanding, fundamental procedural provision of tax law, one might assume that there is little to say about § 7402 at this point. Yet contained within the statute is a reference to ne exeat republica (“NER”), an obscure writ that is ancient, infrequently used and, historically, a stranger to tax law. When issued, however, a writ of NER can have dire consequences.
The specific reference to NER in § 7402 raises a number of questions, starting with the most basic: “What is a writ of NER?” In short, a writ of NER is used to obtain “equitable bail” and, absent the payment thereof, to effect a “civil arrest.” This Article analyzes the use of writs of NER in the context of federal tax cases.
After briefly reviewing the basic definitions of the term “NER” (Part II), the Article examines the origins of specific references to NER in federal statutes (Part III). Next, the Article describes when and why NER first appeared in the Code (Part IV) and analyzes tax cases where writs of NER have been considered, as well as internal pronouncements by the Service regarding the use of such writs (Part V). The article then reviews the historical uses of writs of NER in early English and Anglo-American law (Part VI), demonstrating that a “disconnect” exists between the original uses of the writ and the use of the writ in tax cases (Part VII). Finally, the Article considers “debtors’ prison” and “right to travel” concerns associated with the use of NER in federal tax cases (Part VIII), and concludes with a discussion about whether writs of NER should still be used as a tax compliance measure (Part IX.)
July 26, 2010
Law School Tenure in Danger?
Following up Sunday's post, ABA Considers Dramatic Changes This Weekend in Law School Accreditation Standards, Including Dilution of Tenure: Inside Higher Ed, Law School Tenure in Danger?, by Scott Jaschik:
The ABA is moving ahead with changes in its accreditation system that faculty members fear could erode tenure protections for many professors and further weaken job security for clinical faculty members, many of whom don't have tenure to start with.
A special committee of the ABA last week released the latest version of proposed guidelines on academic freedom -- just days before an ABA committee met Saturday to discuss (but not alter) the draft language. In the weeks before the draft was released, many faculty leaders had urged the ABA panel not to do the two key things its draft does:
- Remove language from the ABA standards that has been interpreted by faculty members as requiring law schools to have a tenure system. (The ABA panel that wrote the revisions now says that tenure was never a requirement and that it is removing references to tenure for reasons of clarity -- although that interpretation of current policy is being met with much skepticism.)
- Remove specific language requiring law schools with clinical professors and legal writing professors to offer them specific forms of job security short of tenure.
The ABA panel recommending the changes has stressed that the accreditation requirements still insist that law schools protect academic freedom, and that many law schools would not necessarily change their tenure or other job protection procedures. The report accompanying the most recent draft characterizes the protections for clinical faculty members that would be eliminated as "intrusive mandates" that "are not the proper providence of an accreditation agency" and that eliminating them would "provide approved law schools with latitude and flexibility to articulate and implement policies to attract a qualified faculty and protect faculty academic freedom."
Many law professors think otherwise. They are angry not only over the recommendations, but also over the fact that the new draft came out immediately after so many groups had issued lengthy statements in favor of preserving existing protections. "They are trying to ramrod through an ill-advised proposal," said Michael A. Olivas, a professor of law at the University of Houston. The proposal is "the worst of all worlds, disguised as administrative tinkering.
NY Times: The Two-Track Lawyer Market
Following up on last week's post, Class of 2009 Employment Data: Jobs Down, Salaries Flat:
New York Times, The Two-Track Lawyer Market:
One of the most-watched statistics in any profession is the average salary. [NALP] does indeed report a figure for average new lawyer’s salary — somewhere around $90,000, depending on how you weight the pay at big firms — but few knowledgeable observers put much stock in it. A look at the distribution of salaries for first-year lawyers helps explain why:
Salaries for first-year lawyers seem to congregate in two camps: those who earn about $45,000 to $65,000 a year (representing about 34% of reported salaries), and those who earn about $160,000 a year (representing about 25% of reported salaries). Very few newly minted lawyers actually receive “average” or even median pay.
The Volokh Conspiracy, The Bimodal Distribution of Lawyer Pay, by Ilya Somin (George Mason):
There is no doubt that only a minority of new lawyers will get 160K starting salaries and that most will earn a great deal less than that. This is not a new finding by any means. Still, the NALP data does not change the fact that most lawyers earn quite impressive incomes. It is important to remember several key points that have been absent from most of the discussion of the data so far.
First, these are merely entry-level first year salaries. ...
Second, the data for the Class of 2009 are taken from a year that saw the worst economic downturn in some 30 years. ...
Furthermore, the NALP data for the class of 2009 show that the median graduate has a salary of about $72,000; in other words, 50% of first year lawyers can expect to make that much or more. Even if you adjust the figure downward a little to reflect reporting rates skewed in favor of large firms, you still get a level of perhaps $65,000 based on the formula that NALP used to recalculate the mean salary (reducing the initial estimate by about 9%). That’s not bad for an entry level salary in the middle of a deep recession.
I certainly don’t wish to suggest that law is the best career path for everyone, or even for more than a minority of college graduates. Some can certainly make more money elsewhere, though there are not many professions that offer comparable salaries to liberal arts graduates with few or no math and science skills. Even among those who can’t earn as much in a different field, it might be reasonable to go into a profession that has more interesting work or shorter hours. In my view, too many people choose law school as a sort of default option without fully considering the alternatives. That said, recent complaints about lawyer pay are overblown, and the NALP data does not change that fact.
Since I am a law professor, some will be tempted to dismiss my comments on this issue on the ground that I have a self-interest in encouraging more people to go to law school. Perhaps so. But I have advocated many policy reforms that are not in the interest of either lawyers or law professors, including reducing the size and complexity of government (which would depress demand for both lawyers and legal academics) and abolishing the legal requirement that people must attend law school before entering the legal profession. In any event, the validity of any argument is independent of advocates’ motives for making it.
InstaPundit, Law School Graduates Face a Bimodal Salary Curve, by Glenn Reynolds (Tennessee): "[Y]ou’ve got two humps — a lower one, where the salaries for most law school graduates cluster, and a much higher one, centered around what those who go to big firms make. The important thing, in calculating the risk/return ratio of time and money on law school, is figuring out which of the two you’re likely to end up in."
(Hat Tip: Brad Mank.)
Welcome to the Tax Blogosphere: Miller & ChevalierTax Appellate Blog:
The Tax Appellate Blog is a new blog dedicated to covering important tax cases pending before the various federal courts of appeals that are of interest to practitioners and others who follow the development of federal tax law. We will try to post regularly as developments warrant, and we welcome commentary from the broader tax law community. We also plan to provide links to the pleadings and other pertinent documents in those cases. So, welcome aboard.
An Empirical Study of the Use of Legal Scholarship by the Federal Courts of AppealsDavid L. Schwartz (Chicago-Kent) & Lee Petherbridge (Loyola-L.A.) have posted The Use of Legal Scholarship by the Federal Courts of Appeals: An Empirical Study on SSRN. Here is the abstract:
Chief Justice Roberts recently explained that he does not pay much attention to law review articles, reportedly stating that they are not “particularly helpful for practitioners and judges.” Chief Justice Roberts’s criticism echoes that made by other judges, some of whom, like Judge Harry Edwards, have been much more strident in the contention that legal scholarship is largely unhelpful to practitioners and judges. Perhaps inspired by criticisms like those leveled by Chief Justice Roberts and Judge Edwards, legal scholars have sought to investigate the relevance of legal scholarship to courts and practitioners using a variety of means. One avenue of investigation has been empirical, where several studies, using different, and sometimes ambiguous, methodologies have observed a decrease in citation to legal scholarship and interpreted the observation to mean that legal scholarship has lost relevance to courts and practitioners.
The study reported here examines the hypothesis that legal scholarship has lost relevance to courts. Using an original dataset that is substantially more comprehensive than previous studies and empirical techniques, it examines citation to legal scholarship by the United States circuit courts of appeals over the last 59 years. It finds a rather surprising result. Contrary to the claims of Justice Roberts and Judge Edwards, and contrary to the results of prior studies, this study finds that over the last 59 years – and particularly over the last 20 years – there has been a marked increase in the frequency of citation to legal scholarship in the reported opinions of the circuit courts of appeals. Using empirical and theoretical methods, this study also considers explanations for courts’ increased use of legal scholarship.
Cockfield & Arnold: What Can Trade Teach Tax?Arthur J. Cockfield (Queen's University, Faculty of Law) & Brian J. Arnold (Goodmans, Toronto) have published What Can Trade Teach Tax? Examining Reform Options for Art. 24 (Non-Discrimination) of the OECD Model, 2 World Tax J. 139 (June 2010). Here is the abstract:
This paper examines the relationship between tax and trade agreements with respect to the protection against discrimination and suggests that trade and tax should remain separate because there is relatively little that trade can offer tax in terms of policy guidance with respect to income tax discrimination issues. Although international trade agreements contain broad non-discrimination provisions that are potentially applicable to tax measures, in general tax measures are carved out of trade agreements and are dealt with exclusively under bilateral income tax treaties. As an alternative to subjecting income tax systems to the non-discrimination provisions of trade agreements, the paper discusses the possibility of certain limited changes to the Commentary on Article 24 of the OECD model tax treaty, to expand the protection against discrimination.