Tuesday, January 25, 2011
Although corporate pyramids are currently commonplace world-wide and although there have been “noteworthy pyramiders” in American business history, this controversial form of corporate organization is now a rarity in the United States. The conventional wisdom is that corporate pyramids disappeared in the U.S. when New Deal policymakers began taxing dividends paid to corporate shareholders. This version of events is more fable than truth. The introduction of the intercorporate dividend tax did not foster a rapid dismantling of corporate pyramids. Instead, pyramidal arrangements were already rare in the U.S., other than in the utilities sector, and the demise of utility pyramids was prompted by the Public Utilities Holding Company Act of 1935 rather than tax reform. (This version should be referred to in preference to the version that appeared in print in the Business History Review, as this version incorporates a number of editorial changes not incorporated into the print version.)
The faculty senate at the University of Michigan voted overwhelmingly on Monday to reject an administration proposal that would allow the university to extend the pre-tenure probationary period to 10 years. ...
The faculty senate voted twice, 54-1, with one abstention, on two measures related to the proposal, which would alter university bylaw 5.09 and allow the university to extend the probationary period before tenure from 8 years to 10 years. ...
If Michigan extends the pre-tenure period, which is still possible, it would go against national norms for tenure outlined by the American Association of University Professors. Such a move by Michigan could transform a reasonably coherent tenure system nationwide into "a free-for-all," said Cary Nelson, president of the AAUP, because other administrations would likely follow suit. "For most traditional disciplines the six-year probationary period works well," Nelson said in an e-mail. "Exceptions can continue to be made for illness and family responsibilities in individual cases. In any case, the faculty senate's will about university policy should carry the day." ...
[T]he proposed change would not be mandated for all divisions. Instead, it would give the various schools and colleges within the university the option to lengthen the pre-tenure probationary period. In practice, individual units at the university have established their own timelines. The law school makes a tenure determination in six years, while the school of literature, science and the arts does so in seven; the business and medical schools can make their calls in as many as eight years. ...
The change also has been couched by supporters as a way to encourage junior faculty members, particularly in the sciences, to take on more ambitious or interdisciplinary research projects. Another intended benefit of the change is to help younger faculty members better maintain work-life balance and start a family. ...
For faculty members hired as assistant professors at Michigan, tenure is not a certainty. Between 1982 and 2004, 54.6% of those hired as assistant professors received tenure,
- University of Michigan Record, Provost Looks at Increased Tenure Probationary Time Frame
This Article analyzes the impact on older Americans of the major changes enacted in the Patient Protection and Affordable Care Act. It begins with Medicare’s treatment of prescription medications, explaining the origin of the coverage gap known colloquially as the "doughnut hole" and then examining how this gap will be filled over the coming decade. It also considers changes affecting employer-provided drug plans for retirees and the new income-based surcharges on higher-income enrollees. The Article next analyzes long-term care, addressing first the new voluntary entitlement program known as Community Living Assistance Services and Supports (CLASS) and then the newly mandated disclosures regarding nursing homes. It then considers the expansion of Medicare’s preventative services and the changes to Medicare’s managed care program. Finally, the Article addresses early retirees who are not yet age-eligible for Medicare.
We review Canada’s system of international taxation and evaluate it from an economic perspective. While Canada’s international tax rules have not seen fundamental reform in almost 40 years, the economic environment has changed markedly over this period. We discuss the implications for the tax system of the rise of multinational corporations, of greater openness in world capital markets, and of the increasing importance of low-tax jurisdictions and low-tax investors for the organization and financing of cross-border investments. We discuss a number of incremental reforms that have recently been proposed and analyze their likely impact on capital market neutrality, competitiveness of Canadian-resident corporations, and the potential for erosion of the domestic tax base.
- AOL, Letting Sleeping Dogs Lie in Your Bed Can Kill You
- Baltimore Sun, Could Cuddling in Bed With Your Doggy be Hazardous to Your Health?
- Chicago Now, Sleeping With the Enemy: Your Pets
- CNN, Sleep With Your Pet, Risk Catching His Bugs
- Right Coast, Scientists Say You Should Not Sleep With Your Dogs
- USA Today, Sleeping Next to Pets Could be Harmful
- Time, Sleeping With the (Adorable) Enemy: Cuddling All Night With Pets Could Be Very Unhealthy
As the photo on the right shows, I'm a gonner!
- 3d Cir. Joins 7th Cir. in Reversing Tax Court and Upholding Innocent Spouse Reg (Jan. 20, 2011)
- Hickman: Dismayed by Mayo? Check Out the Mannella Dissent (Jan. 20, 2011)
Steve Johnson (UNLV), More on Mannella:
The most fun part of Mannella to ruminate about is Judge Ambro's dissent. He agreed with the majority that Chevron is the controlling standard and that, at Step One of the Chevron analysis, the statute does not speak directly to the time frame for making § 6015(f) claims for relief of joint and several liability. At Chevron Step Two (reasonableness), however, Judge Ambro would have invalidated the reg imposing a two-year limit on such claims. Although death at Step One is the more common approach when a court chooses to invalidate an agency position under Chevron, Judge Ambro's dissent reminds us that Step Two has some teeth also -- surviving Step One does not guarantee a regulation will be upheld.
Judge Ambro's Step Two concern is that Treasury failed to explain its reasons for imposing the two-year limit. There are some previous tax cases discussing "failure to explain" in the context of challenges to tax regulations, but there aren't a lot. E.g., American Standard, Inc. v. United States, 602 F.2d 256, 268-69 (Ct. Cl. 1979) (discussing the issue under APA § 553(c)). And, some commentators have adressed it. E.g., Patrick J. Smith, Omissions From Gross Income and the Chenery Rule, 128 Tax Notes 763 (Aug. 16, 2010); Patrick J. Smith, Mayo and Chenery: Too Much of a Shift in Rationale?, 129 Tax Notes 454 (Oct. 25, 2010). The Mannella dissent undoubtedly will cause taxpayers' counsel to raise the "failure to explain" rationale more frequently in future cases. This is good because, first, this aspect of the law deserves some clarification and, second, it reminds tax lawyers that they ignore general administrative law concepts only at peril to their clients.
Judge Ambro's argument is worth considering, but much more analysis will be required before one could declare the argument right or wrong. Administrative law usually more closely resembles tall wheat in a stiff wind than an iron rod embedded in concrete, that is, administrative law rules exist but they are wavy and fluid rather than fixed. Context is the wind that gives shape to those rules and their application. Here are some of the matters that one would like to explore in thinking about Judge Ambro's argument:
- The dissent several times cites the Supreme Court's 1983 State Farm case as authority with respect to the obligation of an agency to explain its rationale. In several ways, however, the context of State Farm differs from that of Mannella. Moreover, State Farm was refined by the Supreme Court's 2009 Fox Television decision, which is no model of clarity. Fox was a 5 to 4 decision in which a total of six opinions were written.
- "Failure to explain" appears in ad. law cases under several headings: (i) APA § 553(c) (requiring agencies -- including Treasury -- to incorporate "a concise general statement of their basis and purpose" into the regs the agencies promulgate); (ii) APA § 706(2)(A) (allowing courts to set aside agency actions found to be arbitrary and capricious); (iii) administrative common law; and (iv) as part of the Chevron Step Two reasonableness analysis (as in Mannella). In deciding which precedents are applicable, one would want to think about whether "failure to explain" has the same substantive contents in the various contexts.
- Concerned that "failure to explain" not be treated in an overly technical fashion, some tax and nontax cases recognize an exception to an explanation requirement when it is obvious why the regulation was promulgated. Arguably, that could be the case in Mannella. Why are statutes of limitations ever adopted with respect to claims against the government? The usual SOL considerations involve finality and evidentiary staleness, of course, and related administrability concerns also operate. Cf. the Supreme Court's Jan. 11, 2011 Mayo decision, in which the Court unanimously upheld a different tax regulation under Chevron, noting administrability as a factor supporting the reg's reasonableness. Could it be said that these purposes were "obvious," so didn't have to be explicitly identified by Treasury in the notices and administrative record accompanying the § 6015(f) reg?
It will be fun to see what future cases and commentary do with these and other questions as to "failure to explain."
My comments above relate to the contention in Judge Ambro's dissent that the § 6015(f) regs are invalid as to the two-year limit on claims because Treasury failed to explain its reasons for that limit. I address here some other aspects of Mannella.
1. The Supreme Court's 2000 Brown & Williamson decision has been read by some as establishing or reaffirming a "major questions" exception to Chevron deference, that is, matters that are too fundamental or too political should be decided by Congress, not by agencies. There's a debate in Ad. Law circles about whether such an exception exists and, if so, what the contours of the exception may be. I am attracted to such a principle and would apply it to tax as well as other areas. This is why, notwithstanding unanimous contrary case law, I don't believe the "check the box" regulations should receive Chevron deference.
Even if one accepts, as I do, that there should be such an exception, it clearly would not apply to the Mannella/Lantz situation. The Mannella majority quoted the Third Circuit's 2008 Swallows Holding decision to the effect: "Drawing [a] temporal line [to claim a tax deduction] is a task properly within the powers and expertise of the IRS." Right. Chevron is about filling statutory gaps. One can argue that Congress itself should be forced to fill in the big gaps (like whether entity classification is elective or mandatory), rather than be allowed to punt the decision to an agency. Filling small gaps (like the timing issues in Swallows and Mannella) is an appropriate role for Treasury.
Of course, a major problem with the "major questions" exception is the "eye of the beholder" quality of "major," the absence of criteria by which to divide big from little. One persuaded differently from me could maintain that whether § 6015(f) should have any SOL is a big choice. It may be that debate along these lines cannot rationally proceed until courts or commentators offer criteria of bigness. However, here's one argument for Mannella involving a little, not big, matter. The Mannella majority notes that courts typically fill in SOLs when Congress omits an SOL from the statute. If courts can legitimately do that, why can't Treasury, especially since Chevron emphasized that filling statutory gaps is more properly a job for agencies than courts?
2. Relatedly, Mannella implicates another line of cases. There are many tax and nontax decisions -- although they tend to be older cases -- that say that an agency cannot add requirements that are not in the statute. E.g., the Supreme Court's 1936 Koshland decision and the Tax Court's 1993 Hughes Int'l Sales Corp. decision. How do Mannella and Lantz fit with those cases? I think the answer lies along the lines described above. It is too late in the day to argue that regs can't add any substantive requirement whatsoever to the statutue. Cases like Koshland and Hughes probably stand today for nothing more than "an agency can't add requirements to the statute unless they are matters of detail rather than fundamental matters."
3. The Supreme Court decided Mayo eight days before the Third Circuit decided Mannella. There are two points at which the decisions are in some tension. (a) Chief Justice Roberts' opinion for the Court in Mayo emphasized statutory text and structure in the Chevron Step Two analysis. Mannella, quoting a prior Third Circuit case (which had quoted a 1985 Supreme Court decision), also identified legislative history as a relevant touchstone. No surprise -- depends on whether the opinion is being written by a textualist or purposivist judge. (b) Mannella recites the "specific authority regs get more deference than general authority regs" chestnut that Mayo buried.
4. The Mannella majority and dissent clashed about the burden and standard of proof at Chevron Step Two. It is true, of course, that the agency's interpretation need only be reasonable to survive Step Two scrutiny. The Mannella majority interpreted that to mean that the taxpayer has the burden to "clearly demonstrate that Congress intended that requests for relief under § 6015(f) not be subject to a two-year filing deadline." (Page 23) The dissent questioned the "presumption of validity" used by the majority, arguing: "But [the agency's] first call must be reasonable." (Dissent page 4) Who then bears the burden? Does the agency have the burden of establishing that its position is at least reasonable, or does the challenger bear the burden of overcoming a presumption of validity? In most cases, location of the burden will not matter much to the outcome. In some cases, it might.
5. The Mannella dissent argued that SOLs are considered substantive, not procedural rules. This distinction might have mattered in this context before Mayo because procedural regs under § 6015 are specific authority while nonprocedural regs under § 6015 arguably are general authority. Mayo renders that moot for present purposes. One may note, however, that the "are SOLs procedural or substantive" question comes up in many different contexts, and the answer is not always "substantive." For example, in transferee liability cases, the substantive basis of liability usually is a matter of state law (state fraudulent conveyance law), while procedures -- including the SOL under § 6901(c) -- are matters of federal law.
6. Mannella did not resolve the case for the IRS. The court was only passing on the IRS's motion for summary judgment. The Third Circuit remanded the § 6015(f) portion of the case to the Tax Court to consider the taxpayer's equitable tolling argument. Presumably, the Third Circuit did so because of the harsh consequences of applying the two-year limitation. And, as a matter of policy, it might be better to evaluate fairness through a case-specific doctrine like equitable tolling than by allowing any § 6015(f) claim to be brought at any time, without limit (or, more accurately, allowing timing to be considered as only one of potentially many aspects of fairness). One will be interested to see what the taxpayer can muster on this issue on remand. My guess at this early juncture is that the equitable tolling argument is unlikely to be a winner for the taxpayer.
7. The Mannella dissent several times cites Prof. Beerman's "End the Failed Chevron Experiment Now" article. A growing number of commentators agree with Beerman. I'm one of them. I think that, as long as Chevron exists, tax agencies should be subject to it like all other agencies, but Chevron itself has failed and should be abandoned, again for all agencies not just tax agencies. So there is some irony in the fact that Mayo (and to a lesser extent circuit court cases like Mannella, Lantz, and Swallows) are bringing the tax maverick into the larger Chevron herd at the time that Chevron itself is increasingly viewed as discredited.
Monday, January 24, 2011
The IRS has multiple roles in the tax system. It is perhaps best known as the tax collector for the federal government, but it has service roles, as well. The IRS facilitates compliance with the tax laws not only by promulgating forms and answering taxpayer questions, but also by providing interpretations of the law that help guide taxpayers. In its service capacities, the IRS is something of a neutral party. However, the IRS is also often a litigant in disputes with taxpayers about the meaning or application of federal tax laws. What happens when the IRS, or the Department of which it is a part, the Department of the Treasury, releases guidance that purports to apply to a case in litigation?
This question is not merely academic. In a number of cases, the IRS has issued Revenue Rulings, its most authoritative form of guidance, in apparent attempts to influence the outcome of court cases. And sometimes the Treasury Department has promulgated regulations—even ones that purport to apply retroactively—to try to alter case outcomes. The Article considers whether deference to tax guidance should be reduced if the guidance was issued during pending litigation to which it arguably applies, and what should be the level of deference in that circumstance. It argues that Chevron deference should apply to Treasury regulations that have gone through the notice-and-comment process, while Skidmore should apply to Revenue Rulings, and that the timing of the ruling and potential unfairness the timing engenders should be taken into account under the applicable deference standard.
- Accounting Today, Oprah Hates Writing Checks to the IRS
- L.A. Times, Oprah Winfrey Tells Piers Morgan She Hates Writing Checks to the IRS
- Washington Examiner, Oprah Talks to Piers Morgan About Paying Taxes: Its a Tequila Signing Ceremony
The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips. Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app. ...
The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:
- Get Your Refund Status
- Get Tax Updates
- Follow the IRS on Twitter
For more information, see IRS Goes Mobile With IRS2Go on the IRS web site. Or check out the IRS's YouTube video:
Actor Alec Baldwin has joined a list of elite New Yorkers targeted by tax collectors who think they're fibbing about where they really live to dodge New York City income taxes.
Facing shrinking revenues, the state has ramped up its pursuit of suspected tax dodgers, hiring 189 new auditors and -- for the first time -- making filers swear under oath on tax forms as to how many days they "spend in New York City." If it's more than 183 days and the filer has a residence in the city, the tax bill goes up.
Baldwin, star of NBC's "30 Rock," owns a three-bedroom co-op on Central Park West, a house in the Hamptons and a pad near his daughter in Los Angeles. He spends lots of time in the city doing the show, but claims the Hamptons as home base. That made him one of hundreds of people slapped with an audit in 2009. ...
Such audits require taxpayers to assemble an arsenal of documents -- credit card receipts, bank, telephone and computer records -- to prove where they were on specific days. ... Brad Maione, a spokesman for the state Department of Taxation and Finance, said officials completed 2,273 audits involving residency challenges in the fiscal year ending March 30, 2009. That's 9% above the previous year. ...
Not everyone loses, though. Billionaire hedge-fund investor Julian Robertson, who owns a co-op in the city but claims to work fewer than 184 days here, was challenged over residency for the year 2000. At a hearing, he produced an assistant who kept detailed records contending Robertson spent just 182 days in the city. The panel voted 2-to-1 to give him the benefit of the doubt -- saving him $27 million. [TaxProf Blog coverage here, here, and here.]
Consider what Baldwin wrote in the Huffington Post four years ago in a piece he titled Tax Cuts and the Republican Legacy:
These tax cuts are not only to make Bush's wealthiest supporters richer, they are intended to hurt less powerful Americans by killing many of the social programs they depend on. That is the legacy of this Republican-controlled Congress. To hurt those who aren't wealthy enough to write Bush-Cheney a big check. I urge all Americans to keep that in mind during this election cycle. A Republican-controlled Congress is killing important social programs that we all depend on, so that Bush's friends can avoid paying a reasonable share of their taxes. ....
So, according to the News, Baldwin might be claiming residency in the Hamptons to evade New York City taxes. But four years ago, the "30 Rock" star encouraged people to give generously to Democrats in the midterm elections so that Republicans could be ousted from Congress and taxes raised.
There are serious discussions underway in the legal education community about whether the LSAT, which is now a mandatory requirement for admission to law school, will become a voluntary requirement. An ABA committee is considering proposing changes to the ABA's current law school accreditation standards that would allow law schools to make the LSAT optional. ...
U.S. News is watching closely whether, when, and how the LSAT requirement is changed since law school admissions data counts for 25% of our annual Best Law Schools rankings. The combined median LSAT of all full-time and part-time students entering into a J.D. program is one of the key components of our rankings. The U.S. News law school rankings methodology weights the LSAT at 12.5% of the overall ranking. In addition, the median undergraduate grade-point average of all entering J.D. students is weighted 10% of the overall ranking, and the overall acceptance rate counts for 2.5%. We believe that comparing law schools on their students' LSATs and undergraduate GPAs is the most direct way of determining which schools have enrolled the "best and brightest" students—and therefore will remain important criteria in determining which are the nation's top law schools. ...
It's likely that a very large proportion of law students will continue to take and submit the LSAT, even if it's made optional at some schools. It is important to note that the LSAT has been proven to be the best and most reliable predictor of first year success at law school. With that in mind, U.S. News will continue to conduct the annual law school rankings, and the LSAT will remain a heavily weighted factor.
The benefits of the mortgage interest deduction are not evenly distributed among the states. ... [T]he per capita tax benefit from the mortgage interest deduction for Californians is more than two and a half times that for Texans. Marylanders get nearly five times the benefit of citizens in neighboring West Virginia.
We always knew the mortgage interest deduction was unfair -- favoring those in high tax brackets with big houses over renters and low-income homeowners. But until we did the calculations -- as far as we know, the first of their kind -- we did not suspect the geographic dispersion of tax benefits would be so large. ...
In addition to the wide disparity in benefits, the other striking feature about the mortgage interest deduction is how well the subsidy correlates with Democratic strength. ... [The fourteen] states with the highest per capita benefit were states captured by Obama in the 2008 election [Maryland, District of Columbia, California, Connecticut, Virginia, New Jersey, Massachusetts, Colorado, Washington, Nevada, Hawaii, New Hampshire, Minnesota, Delaware]. In the six states with the lowest per capita benefits [West Virginia, Mississippi, North Dakota, South Dakota, Arkansas, Oklahoma], Republican challenger John McCain won the vote. ... Obama won the popular vote in 22 out of the top 26 jurisdictions, compared with 8 out of the 25 states with the lowest per capita benefits.
Unfairness of Federal Mortgage Interest Deduction:
Per Capita Benefits, Top and Bottom States, 2008
These new estimates give a glimpse into the future politics of tax reform and deficit reduction. As tax reform moves forward, we can expect Democratic senators to be the most lukewarm to proposals for limiting the mortgage interest deduction to less expensive homes. And if it is a choice between cutting the mortgage interest deduction and cutting tax subsidies for energy companies, that will be an easy decision for the senators from Oklahoma.
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From Barack Obama (Harvard and Chicago) to Bill and Hillary Clinton (Yale), many of our national leaders today emerge from the rarefied air of the nation’s top law schools. The ideas taught there in one generation often wind up shaping national policy in the next.
The trouble is, as Walter Olson explains in this book, our elite law schools keep churning out ideas that are catastrophically bad for America. Rights to sue anyone over anything in class actions? Hatched in legal academia. Court orders mandating mass release of prison inmates? Ditto. The movement for slavery reparations? Court takeovers of school funding, at taxpayers’ expense? It’s not by coincidence, Olson argues, that these bad ideas all tend to confer more power on the law schools’ own graduates. In the overlawyered society that results, they are the ones who become the real rulers. And the worst is yet to come, the book demonstrates, as a fast-rising movement in the law schools demands that sovereignty over U.S. legal disputes be handed over to international law and transnational courts.
Some imagine that the law schools possess a finer, purer moral sensitivity than the everyday America outside their walls. (“Welcome to the Republic of Conscience!” Yale Law dean Harold Koh announced to incoming students.) But as this book shows, the pipe dream of training philosopher-monarchs not only leads to one policy disaster after another, but distracts law schools from the most useful function they can serve: training competent, ethical and suitably humble lawyers for tomorrow.
- ABA Journal, Book Argues Ideas Hatched in Law Schools Are ‘Catastrophically Bad for America’
- Leiter's Law School Reports, Breaking News: Right-Wing Crazies Do *Not* Like Liberal Ideas (From Law Schools or Anywhere Else)
[A] recent U.S. district court case [was] won by the IRS against David Watson, a CPA in West Des Moines, Iowa. At issue: a common tax-cutting maneuver available to the owners of millions of closely held businesses.
The case, David E. Watson P.C. v. United States [No. 4:08-cv-442 (S.D. Iowa Dec. 23, 2010)], revolved around Mr. Watson's low pay as the sole owner and shareholder of a so-called S Corporation. ... According to the decision, the firm made profit distributions of $203,651 and $175,470 to Mr. Watson through his Sub-S for 2002 and 2003, respectively, the years in question.
Mr. Watson, who had a graduate degree in tax and 20 years' experience, received only $24,000 of salary for each of those years, far less than the $40,000 a year earned by recent graduates in accounting with no experience, according to one expert for the IRS.
The agency cried foul, saying his pay was far too low. Why object? Unlike profit distributions, all salary is subject to a 2.9% Medicare tax and some is subject to a 12.4% Social Security, or FICA, tax. ... By reporting low pay Mr. Watson didn't save any income taxes, but he did save nearly $20,000 in payroll taxes for the two years, the IRS said, pegging Mr. Watson's true pay at $91,044 for each year.
Judge Robert W. Pratt agreed, ruling that the CPA owed the extra tax plus interest and penalties.
Mr. Watson plans to appeal the decision. "The IRS can disallow a tax deduction for unreasonably high compensation, but the law doesn't give it the authority to raise pay in order to collect extra payroll taxes," he says. Independent tax expert Robert Willens in New York says this will be a hard argument to win. ...
Recent IRS statistics suggest why the agency might focus on Sub-S pay. Over the past decade and a half, when executive paychecks exploded, the salaries of Sub-S owners declined as a percentage of total income, from 52% in 1995 to 39% in 2007, according to the latest data available. (The remaining income is taxable to the owners as well, but doesn't incur payroll taxes.) During the same 12-year period, Sub-S income doubled, while salaries increased only 26%. The average pay for a Sub-S owner was recently was $38,400, according to Martin Sullivan, an expert with Tax Analysts, a nonprofit publisher near Washington.
What is a fair ratio of profits to pay? There isn't one answer, experts say. A company with substantial capital or assets, such as a manufacturer, often is able to justify lower pay than one selling personal services like a law or accounting firm. Says Mr. Willens: "I would tell a client that for personal services, 70% would be the absolute floor and might not get the job done," he says.
In Mr. Watson's case, his revised compensation came to only about 40% of his total return from the company. The upshot: Pay can vary—but it can't be too low.
- Tax Update Blog, WSJ Spotlights Area CPA S Corp Court Loss (Jan. 22, 2011)
- Tax Update Blog, Court Sets 'Reasonable' Comp for CPA S Corp Shareholder (Dec. 30, 2010)
- Tax Lawyer's Blog, S Corp Wages and Distributions: Basic Tax Planning (May 5, 2009)
- Tax Update Blog, John Edwards Shelter Targeted by IRS (Mar. 12, 2005)
- TaxProf Blog, WSJ Charges Kerry-Edwards with Tax Hypocrisy (July 14, 2004)
- Thinking Like, S Corps Help Owners Save on Taxes: John Edwards Saved $600k With His S Corp
Despite arguments to the contrary, law school can still lead to a lucrative career, but only if you plan properly and set your sights on one of the top 35 schools.
Each year, I counsel law school applicants with the single-minded goal of helping them gain entrance to the highest-ranked school possible. How applicants navigate the application process is far more important than how they perform in law school because lucrative positions are widely available for students at the nation's top 35 law schools, even those with average grades.
There's little doubt that this is the case at the nation's top three law schools: Yale, Stanford, and Harvard. But this is also the case at top 35 schools like Georgetown and Fordham. On the other hand, students at third- and fourth-tier law schools may struggle to find law-related jobs in the public or private sector. While attending these schools may make sense for those looking to transfer after their first year or those with a niche interest, it should not be considered a pathway to a six-figure starting salary.
Contrary to the hyperbole, law school is not a route to financial ruin -- as long as you attend a school with sufficient brand equity to land the "Big Law" position you want. It's not a question of winning the "Big Law sweepstakes," but of winning the Law School sweepstakes. If you're committed to excelling during the admissions process, you are unlikely to end up $250K in debt and unemployed after law school.
- ABA Tax Section Names 2011 Nolan Fellows
- Fulbright & Jaworski Receives Janet Spragens Pro Bono Award
- LSAT Test-Takers Down 10%, Law School Applications Down 12%
- ABA Tax Section Midyear Meeting
- Top 5 Tax Paper Downloads
- Caplin & Drysdale Shifts Tax-Exempt Guns to NASCAR-Rival
- Emory Conference on Aging as a Feminist Concern
- CTJ: Tax Justice Digest
Sunday, January 23, 2011
2. [327 Downloads] High Volatility, Negative Correlation, Roth IRA Conversions, and the Codified Economic Substance Doctrine, by Gregg D. Polsky (North Carolina)
4. [140 Downloads] Regulating the Political Speech of Noncharitable Exempt Organizations after Citizens United, by Ellen P. Aprill (Loyola-L.A.)
- Caplin & Drysdale Press Release
- Caplin & Drysdale's IRS Complaint
- Forbes, Lawyer Asks: Why Is National Hot Rod Association Tax-Exempt?
- Washington Examiner, If It Walks Like a Duck and Talks Like a Duck ....
- Richard Kaplan (Illinois), Feminist Legal Theory and the Financing of Long-Term Care
- Nancy Knauer (Temple), LGBT Elders: Rethinking Equality Across the Lifespan
- A Tale of Two Tax Commissions: Georgia vs. Vermont
- Bad and Less Bad: Business Tax Cuts vs. Grocery Tax Cuts
- Lawmakers in 4 States [HI, ME, NY, WI] Want to Make Tax Reform More Difficult
- Ohioans Battle Stormy Conditions
- The Specter of the So-Called "Fair Tax" Rises Again in Missouri
- Will the Tax Cheaters' Lobby Stop the IRS from Catching Foreign Tax Evaders?
Saturday, January 22, 2011
- Chad R. DeGroot (Bryan Cave, St. Louis)
- Stacey Delich-Gould (Cahill Gordon & Reindel, New York)
- Melissa L. Galetto (Skadden, Arps, Slate, Meagher & Flom, Washington, D.C.)
- Vanessa A. Scott (Southerland Asbill & Brennan, Washington, D.C.)
- Lisa M. Stern (Proskauer Rose, New York)
- Mark E. Wilensky (Roberts & Holland, New York)
Named for the late Jack Nolan, the fellowship is awarded to young lawyers who are actively involved in the Section and have shown leadership qualities. Each one-year fellowship includes waived Meeting registration fees and assistance with travel to some Section meetings. For a list of prior winners, see here.
The Janet Spragens Pro Bono Award, named after the late American University Law professor who greatly contributed to ensuring representation for low-income taxpayers, is presented each year to an individual lawyer or law firm that has demonstrated outstanding and sustained commitment to pro bono (free) legal services, particularly with respect to federal and state tax law. ...
Fulbright provides support for the U.S. Tax Court Pro Bono Programs in Texas and New York. The program encourages lawyers to offer pro bono consultation services to unrepresented or pro se, taxpayers at calendar calls. Lawyer volunteers mediate disputes between the IRS and Tax Court petitioners. A number of Fulbright & Jaworski’s tax attorneys have participated in the programs sponsored by the State Bar of Texas and the New York County Lawyer’s Association.
For a list of prior winners, see here.
- Low Income Taxpayers -- Leslie Book (Villanova), Kathryn J. Sedo (Minnesota), William N. Timm, Jr. (Georgia State)
- Pro Bono: Tax Counseling for the Exploding Population of Elderly -- Francine J. Lipman (Chapman)
- Sales, Exchanges & Basis: Non-§ 1031 Current Developments -- Erik M. Jensen (Case Western)
- Sales, Exchanges & Basis: § 1031 Current Developments -- Bradley T. Borden (Brooklyn)
- Section Program: Current Developments in Individual, Corporate, Partnership and Estate & Gift Taxation -- Elaine Hightower Gagliardi (Montana), Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston), Daniel L. Simmons (UC-Davis)
- Tax Policy & Simplification: Options for Corporate Tax Reform in 2011 -- Rosanne Altshuler (Rutgers), Reuven Avi-Yonah (Michigan), Michael Graetz (Columbia), Edward Kleinbard (USC)
- Tax Policy & Simplification: Coordinating Federal and State Tax Policy -- Brian Galle (Boston College), Roberta Mann (Oregon), John Swain (Arizona)
Photos from last night's Tax Prof dinner:
Friday, January 21, 2011
- Champaign News-Gazette, Jimmy John's Founder Contemplates Moving Headquarters Out of Illinois
- Chicago Examiner, Jimmy John's Anounces May Move Headquarters From Illinois to Florida
- Chicagoist, How Fast Can Jimmy John's Leave Illinois?
- Conglomerate, State Budgets: Raise Taxes or Slash Spending (or Both)?
- Crain's Chicago Business, Jimmy John's Might Flee Illinois Over Higher Taxes
- NBC Chicago, Gourmet Sandwiches on the Go: Founder May Take His Free Smells Elsewhere
- Reason, Smells Like Goodbye: Jimmy John's Bails Out of Illinois?
- South Florida Business Journal, Jimmy John’s Founder May be Florida Bound
(Hat Tip: Andrew Morriss.)
The presentation focuses on contingency planning for ways to raise revenue in the impending budget crisis. The Shelf Project is a collaboration to create and develop proposals to raise revenue, when the Congress is ready, in ways that improve the fairness and efficiency of the tax system, and without either a federal sales tax or increases in income tax rates. By way of illustration, the Shelf Project has proposed disallowing deduction of the costs of tax planning and litigation. It has also proposed repeal of the Roth IRA so as to increase national savings.
This document ... provides a listing of Federal tax provisions (other than those providing time-limited transition relief after the repeal of an underlying rule) that are currently scheduled to expire in 2010-2020 (with references to the applicable section of the Internal Revenue Code of 1986 or other applicable law). Expiring Federal tax provisions providing temporary disaster relief are separately listed in Part II of the document.
For purposes of compiling this list, the staff of the Joint Committee on Taxation considers a provision to be expiring if, at a statutorily specified date, the provision expires completely or reverts to the law in effect before the present-law version of the provision. Certain provisions terminate on dates that refer to a taxpayer’s taxable year and not a calendar year. For these provisions, the expiration dates listed in this document apply with respect to calendar year taxpayers. The expiration dates of such provisions may differ, however, with respect to fiscal year taxpayers or taxpayers with short taxable years.
Empirical evidence from the EU suggests that [the 2% employee payroll tax cut in the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 (Pub. l. No. 111-312)] got it right (as between general reductions in the employees’ and employers’ payroll taxes). The evidence gathered in a two-year policy experiment conducted in nine EU Member States also suggests that the CBO estimates of employment gains from employers’ payroll tax cuts cannot be supported (if they are targeted generally).
In addition, EU macro-economic simulations based on these findings also suggest that the best way to use payroll tax incentives to increase employment is to use them to directly reduce the cost of labor. This can be accomplished either (1) under mechanisms used in the HIRE Act or (2) by targeting specific categories of workers (the unemployed) for an employees’ payroll tax cut that would be tethered to (used in conjunction with) an employers’ tax incentive to significantly reduce the cost of labor.
This paper endeavors to bring EU analysis into the US payroll tax debate. Five options are considered:
- Employers’ payroll tax holiday
- Employees’ payroll tax holiday
- Targeted employers’ payroll tax holiday
- Targeted employees’ payroll tax holiday
- Tethering an employers’ payroll tax holiday to a targeted employees’ payroll tax holiday
The initial onset of globalization generated optimism regarding the possible creation of a global legal universe capable of transcending the borders of demos-centered constitutional states. This optimism, however, remains unfulfilled. Constitutional democracy, meanwhile, as currently understood, is undergoing an institutional self-transformation. This Article rethinks the constitutional order in the age of globalization. The approach detailed here addresses legal globalization by inspecting the constitutional welfare state in light of contemporary global tax competition. This argument emphasizes that globalization in general and global tax competition in particular expose the limits of the constitutional state's governing ability. Specifically, the institutional responses to global tax competition from constitutional states reveal the existential challenge to constitutional democracy created by globalization: the undermining of the legitimacy of constitutional order by the dissolution of "constitutional authorship." A closer inspection shows that intrinsic to those institutional responses is the common feature that the relationship between the governing authority and its citizens in these strategies inevitably dissolves. The resulting disembodiment of "constitutional authorship" has led to the current existential crisis of constitutional democracy.
With the advent of economic globalization, U.S.-based multinational enterprises have developed increasingly complex international tax-reduction strategies that frequently rely on provisions of one or more of the sixty-odd bilateral income tax treaties to which the United States is a party. The appropriate interpretation of U.S. tax treaties often is uncertain, a situation that on the one hand invites aggressive tax planning by multinational enterprises, and on the other hand poses challenges for federal courts that must determine whether such planning has crossed the line from legitimate to abusive.
In an article to which this short paper is a response, Professor Michael Kirsch calls for tax treaty guidance in the form of new Treasury regulations. This paper articulates three criteria that are essential to effective tax treaty guidance and argues that treaty guidance in the form of Treasury regulations would not satisfy those criteria. The article then briefly suggests some other possible forms that effective tax treaty guidance might take.
- Exempt Organization Committee Luncheon -- Frances R. Hill (Miami)
- Foreign Activities of US Taxpayers: Foreign Tax Credit Panel -- Robert J. Peroni (Texas)
- Individual and Family Taxation: Elder Law Taxation -- David Rice (Pomona)
- State & Local Taxes: Current Developments in State & Local Taxation -- Richard D. Pomp (Connecticut)
- Teaching Taxation: Tax Policy Responses to the Current Economic Climate and the Long-Term Fiscal Crisis -- Tracey Kaye (Seton Hall), Edward Kleinbard (USC), Rebecca Kysar (Brooklyn), Daniel N. Shaviro (NYU)
- Young Lawyers Forum & Diversity: To Recognize Or Not to Recognize Gain or Loss on Corporate Formation -- Don Leatherman (Tennessee)
- Yale (1 in U.S. News)
- Harvard (2)
- Stanford (3)
- Michigan (9)
- Pennsylvania (7)
- UC-Berkeley (7)
- Chicago (5)
- Virginia (10)
- Columbia (4)
- NYU (6)
This article analyses the policy, historical development and current application of permanent establishment rules for travellers. It is readily accepted that pedlars and itinerant merchants do not give rise to permanent establishments but after many years of the agency permanent establishment rules apparently requiring that the agent have a fixed place of business in the country concerned, the OECD has recently concluded to the contrary for travelling salesmen. The article argues that the OECD should have followed the historical trend as that matches the OECD’s proclaimed policies for adopting the permanent establishment as the international threshold for taxing business income more closely.
Thursday, January 20, 2011
Joseph Bankman (Stanford Law School) presents Reforming the Tax Preference for Employer Health Insurance (with John Cogan (Stanford University, Hoover Institution), R. Glenn Hubbard (Dean, Columbia Business School) & Daniel Kessler (Stanford University, Graduate School of Business)) at NYU today as part of its Colloquium Series on Tax Policy and Public Finance. The co-convenors of the colloquium are Daniel Shaviro (NYU) and Mihir Desai (Harvard Business School).
Update: Dan Shavir blogs the workshop here.
Following up on my prior posts (links below) on Mayo Foundation for Medical Education & Research v. United States, No. 09-837 (U.S. Jan. 11, 2011); and . Mannella v. Commissioner, No. 10-1308 (3d Cir. Jan. 19, 2011): Kristin Hickman (Minnesota), Dismayed by Mayo? Check Out the Mannella Dissent:
The majority opinion in Mannella offers a rather straight-forward and unremarkable application of Chevron review to uphold Treas. Reg. § 1.6015-5(b)(1), save for two minor observations:
- Like the Seventh Circuit in Lantz, the Mannella majority reserves consideration of legislative history to the more deferential Chevron step two. At least part of the argument against a two-year limitations period for equitable relief claims under § 6015(f) relies upon legislative history. Consistent with a number of Supreme Court opinions, other circuits are more willing to consider legislative history at Chevron step one.
- The Mannella majority, in so many words, finds § 6015(f) ambiguous for its silence regarding a potential limitations period. Numerous judicial opinions applying Chevron caution courts against automatically equating statutory silence with ambiguity.
In short, the circuit courts do not always agree on the proper scope of Chevron step one, and those who support the Tax Court’s conclusion that Treas. Reg. § 1.6015-5(b)(1) fails at Chevron step one may yet find a sympathetic panel in another circuit.
Particularly for members of the tax community lamenting the demise of the National Muffler standard from last week’s Supreme Court decision in Mayo, however, the Mannella dissent is worth a careful read. After agreeing with his colleagues regarding the ambiguity of § 6015(f), Judge Ambro nevertheless would have invalidated Treas. Reg. § 1.6015-5(b)(1) at Chevron step two on the ground that Treasury failed in promulgating the regulation to explain why it felt a two-year limitations period was necessary. In so doing, Judge Ambro relied on two key lines of administrative law jurisprudence worth noting.
- In Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983), the Supreme Court held that the arbitrary and capricious standard of Administrative Procedure Act § 706(2)(A) requires agencies to articulate their reasons for choosing the particular interpretation adopted instead of another permissible alternative. Parties often argue, and courts sometimes agree, that agency regulations are arbitrary and capricious under State Farm irrespective of whether the interpretation in question is substantively permissible under Chevron. In other cases, however, as Judge Ambro has done here, courts have folded the State Farm inquiry into Chevron step two analysis and declined to defer to a potentially reasonable interpretation for lack of sufficient explanation. In the words of Judge Ambro, “Here, however, the IRS has not advanced any reasoning for its decision to impose a two-year limitations period on taxpayers seeking relief under subsection (f), leaving us no basis to conduct the analysis mandated by Chevron step two. … Because the IRS has not articulated its reasoning, we cannot discern whether the two-year limit falls into the permissible, or the arbitrary and capricious, category.”
- In SEC v. Chenery Corp., 318 U.S. 80 (1943), the Supreme Court held that courts should not create their own justifications for an agency’s choices and instead should limit their evaluation to the reasons offered by the agency in the administrative record. Judge Ambro criticized the Seventh Circuit in Lantz particularly for offering its own justifications for Treas. Reg. § 1.6015-5(b)(1) rather than merely evaluating Treasury’s reasons (or lack thereof) articulated in the administrative process.
It is perhaps notable that Judge Ambro was on the panel in the Swallows Holding case, in which the Third Circuit also rejected the Tax Court’s application of Chevron and upheld another Treasury regulation; he does not seem reflexively inclined to apply Chevron aggressively to invalidate Treasury regulations. Rather, Judge Ambro’s opinion is entirely consistent with mainstream Chevron jurisprudence, and also with the Supreme Court’s suggestion in Mayo that tax cases are not an exception from general administrative law norms.
We examine how corporate tax avoidance incentives play an incremental role in explaining why firms organize subsidiaries in the state of Delaware. We also quantify the extent to which Delaware-based subsidiaries reduce corporate effective tax rates. Findings suggest that firms are more likely to have subsidiaries in Delaware if they also have subsidiaries in other states with tax rules conducive to a common tax avoidance strategy involving Delaware corporations. This empirical result suggests that taxes influence the decision to organize subsidiaries in Delaware incremental to legal and or governance factors. In addition, the tax benefits of incorporating and operating subsidiaries in the state of Delaware are economically meaningful. For a typical firm, we document a reduction in the state effective tax rate of approximately two percentage points. This represents a reduction in state taxes of nearly 50% of the average state effective tax rate of 4.6%.
National Law Journal, Federal Judge Bars Law Grad From Using 'J.D.' After His Name:
A federal judge in Ohio has prohibited a Columbia Law School graduate from using the initials "J.D." after his name.
U.S. District Judge Patricia Gaughan on Jan. 14 denied a motion to reconsider filed by Bruce Andrew Brown. A 1984 Columbia Law School graduate, Brown was disbarred from practicing law in New York in 1992 and was convicted of 44 felonies related to the unauthorized practice of law. Gaughan stood by her decision last month that said Brown's use of "J.D." after his name was akin to using the "Esq." designation.
What taxpayers really want is to have their tax position upheld. That makes the best reason to get a tax opinion to help secure your position. An opinion—especially one prepared not at tax return time but while you are still effecting the purchase or transaction involved—can help put you in the best possible light on both the facts and the law.
See also What Good Is a Tax Opinion, Anyway? 128 Tax Notes 1071 (Sept. 6, 2010).
The hearing will examine the economic and administrative burdens imposed by the current structure of the Federal income tax. It will explore the cost of complexity borne by American families, the cost of a corporate tax system that is increasingly out-of-step with the rest of the world, and the broader cost to the U.S. economy of a tax system that fails to maximize job creation and impedes economic growth.
Here are the witnesses scheduled to testify (with links to their testimony):
- Nina E. Olson (National Taxpayer Advocate)
- Robert A. McDonald (Chairman of the Board, President & CEO, Procter & Gamble; Chairman, Fiscal Policy Initiative of the Business Roundtable)
- Warren S. Hudak (President, Hudak & Co., New Cumberland, PA)
- Kevin A. Hassett (Director of Economic Policy Studies, American Enterprise Institute)
- Martin A. Sullivan (Contributing Editor, Tax Analysts)
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Historical Overview of the Federal Tax System (JCX-1-11):
This document ... provides a summary of the Federal tax system, briefly describes its historical development over the period of time beginning in 1975, and provides an appendix of selected historical data on Federal tax rates, Federal tax receipts, components of adjusted gross income, and other features of the Federal tax system.
Update: Press coverage of the hearing:
Analyzing how tax policy impacts people.
The Urban-Brookings Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, provides non-partisan, credible information on tax policy and the outcomes of different tax proposals.
During heated debate over the future of Bush-era tax cuts, people heard vastly different views of what ending or continuing various cuts would mean for the country’s future. In a highly polarized political environment, many people did not know whom to believe. The Tax Policy Center was there to help. The Center provides non-partisan, expert but common language analysis of the likely implications of tax policies and proposals, making it a key resource for journalists, policymakers, and citizens. The Center developed its own innovative model to analyze distributional burdens of the federal tax system and to estimate the results of proposed policy changes. During the 2008 presidential race, thousands viewed the center’s analysis of the tax proposals of both candidates. In 2010, the Center analyzed tax reform options for the President’s fiscal commission and a parallel private effort. It also published 60 papers, research reports, and commentaries and was cited hundreds of times by media outlets, pundits, and blogs. Its blog TaxVox was named one of the nation’s most influential blogs by The Wall Street Journal.
The Tax Policy Center will use its $1 million award to establish an operating reserve, increase its research and analysis output, upgrade its micro-simulation computer modeling, and strategically position itself for the future.
- Low Income Taxpayers Representation Workshop -- Keith Blair (District of Columbia), Sandy Freund (Rutgers-Newark), Michelle Kwon (Texas Tech), Jan Pierce (Lewis & Clark), Kathryn J. Sedo (Minnesota)
The Internal Revenue Code imposes numerous excise taxes on goods and services. In addition to excise taxes the primary purpose of which is revenue production, excise taxes also are imposed to promote adherence to other policies (e.g., penalty excise taxes). Many trust funds established by the Federal Government are financed with dedicated excise tax receipts. This document provides a description of present-law Federal excise taxes, and when applicable, background information on trust funds financed with excise tax revenues.
Revenues from certain Federal excise taxes are dedicated to trust funds (e.g., the Highway Trust Fund) for designated expenditure programs, and revenues from other excise taxes (e.g., alcoholic beverages) go to the General Fund for general purpose expenditures. The largest excise taxes in terms of revenue (for fiscal year 2009) are those for gasoline motor fuels ($25.1 billion), domestic cigarettes ($11.0 billion), diesel motor fuel ($8.5 billion), and domestic air ticket ($7.3 billion).
Part I of the document discusses excise taxes dedicated to trust funds. Part II discusses·General Fund excise taxes. Part III provides background information, projected excise tax receipts, and information on the projected fiscal status of various trust funds. Appendix A includes a summary rate schedule for the principal excise taxes that are presently imposed, and Appendix B provides background information on the expired Hazardous Substance Superfund taxes and related trust fund.
Wednesday, January 19, 2011
Professor De Broe will discuss interpretation issues arising under Article 15 of the OECD Model Tax Convention involving the taxation of income from cross-border employment. Prior to joining the faculty at Leuven, Professor De Broe was a partner in the Brussels office of Stibbe. He is a member of the executive committee of the IFA and the author of numerous articles on Belgian, international, and European tax law, including a manual on cross-border leasing between Belgium and the United States
(Hat Tip: Myreon Hodur.)
Swedish taxpayers looking to shield earnings from the country's tax authorities may have an unlikely tax haven at their disposal across the Atlantic: the United States.
While Sweden and the United States have a tax treaty obligating the tax agencies in both countries to exchange information with each other, the Swedish Tax Authority (Skatteverket) hasn't received any information from its US counterpart since 2005.
As a result, Swedish tax authorities have been unable to cross-check information about income earned in the United States for the last five years, leaving the door wide for companies and individuals based in Sweden to cheat on their Swedish taxes.
In Notice 2010-62, the Treasury and the IRS requested comments on certain aspects of the economic substance legislation contained in the Health Care and Education Reconciliation Act of 2010. These comments, which have been prepared by members of the ABA Section of Taxation and by members of the AICPA, generally address the need for prompt guidance on the implementation of the statutory provisions, comment on the interim guidance set forth in Notice 2010-62, and make recommendations to promote fair and consistent application of the economic substance legislation. Both of our organizations are separately submitting these comments to Treasury and the Service.