February 28, 2011
Law School Rankings by BigLaw JobsThe National Law Journal reports today that 27.3% of the law school class of 2010 landed jobs at the 250 largest law firms, down from 30.3% last year. The NLJ ranks the Top 50 law schools by the percentage of the graduating class landing jobs at BigLaw firms. Here are the Top 26 (along with each school's U.S. News ranking):
- Chicago (59.0%) (U.S. News #5)
- Cornell (58.3%) (#13)
- Columbia (55.2%) (#4)
- Pennsylvania (53.3%) (#7)
- Harvard (49.7%) (#2)
- Virginia (46.8%) (#10)
- UC-Berkeley (45.6%) (#7)
- Northwestern (44.4%) (#11)
- NYU (43.3%) (#6)
- Michigan (42.5%) (#9)
- Stanford (41.6%) (#3)
- Duke (38.0%) (#11)
- Georgetown (37.6%) (#14)
- UCLA (35.19%) (#15)
- Yale (33.8%) (#1)
- Boston College (33.6%) (#28)
- Boston University (30.0%) (#22)
- Vanderbilt (29.8%) (#17)
- USC (28.7%) (#18)
- Texas (26.7%) (#15)
- Fordham (25.7%) (#34)
- George Washington (24.8%) (#20)
- Notre Dame (23.8%) (#22)
- Emory (21.2%) (#22)
- Washington U. (19.0%) (#19)
- Illinois (18.0%) (#21)
The exact same law schools made up the 2010 Top 26 (with some reshuffling within the Top 26).
Fleischer Presents Taxing Founders' Stock Today at StanfordVictor Fleischer (Colorado) presents Taxing Founders' Stock today at Stanford Law School's Rock Center for Corporate Governance, co-sponsored by the Northern California Tax Roundtable. Joe Bankman (Stanford) and Heather Field (UC-Hastings) will be the commentators. Here is the abstract:
Founders of a start-up usually take common stock as a large portion of their compensation for current and future labor efforts. Getting paid in founders’ stock allows entrepreneurs to defer paying tax and—more importantly—allows them to pay tax at the long-term capital gains rate. Politicians, entrepreneurs, and many academics claim that the favorable tax treatment of founders’ stock is an effective method of subsidizing entrepreneurship.
This Article questions the prevailing view that we should tax founders at a low rate. The economic efficiency case for a tax preference for founders’ stock is weak. Tax policy is an ineffective policy instrument for subsidizing entrepreneurship; tax has an effect on entrepreneurial entry, but the effect is small. Tax is less important than geographic, cultural, and business factors. And tax is less important than other elements of the legal infrastructure, such as immigration policy, employment law, and securities law.
The case for reform is compelling. Taxing founders at a low rate is a conspicuous loophole in the fabric of our progressive income tax system, uniquely undermining our shared commitment to equal opportunity and distributive justice. Founders’ stock is often bequeathed to heirs who receive a step up in basis, allowing founders to avoid the income tax altogether, leaving a legacy of dynastic wealth subject only to the rather dodgy application of the estate tax.
While it would be normatively desirable to eliminate the tax subsidy and instead tax gains from founders’ stock at the same rate as labor income, fixing the problem is not easy. I offer possible solutions that policymakers might consider as part of a broader tax reform and deficit reduction effort.
The VAT Reader: What a Federal Consumption Tax Would Mean for AmericaTax Analysts today published The VAT Reader: What a Federal Consumption Tax Would Mean for America. The 352-page book is free, avaialable in both pdf and hard copy. The contributors are:
- Martin A. Sullivan, Introduction: Getting Acquainted With VAT (p.7)
- Kathryn James, Exploring the Origins and Global Rise of VAT (p.15)
- Sijbren Cnossen, A VAT Primer for Lawyers, Economists, and Accountants (p.23)
- Alan Schenk, Prior U.S. Flirtations With VAT (p.52)
- William G. Gale & Benjamin H. Harris, A VAT for the U.S.: Part of the Solution (p.64)
- Bruce Bartlett, The Conservative Case for a VAT (p.83)
- Douglas Holtz-Eakin, The Case Against VAT (p.96)
- Jane G. Gravelle, The Distributional Case Against a VAT (p.102)
- Michael J. Graetz, VAT as the Key to Real Tax Reform (p. 112)
- Alan D. Viard, Responding to VAT: Concurrent Tax and Social Security Reforms (p.123)
- C. Clinton Stretch, Combining a VAT With Corporate Tax Reform (p.130)
- Harley Duncan & Jon Sedon, Coordinating a Federal VAT With State & Local Sales Taxes (p.139)
- Peter R. Merrill, VAT Treatment of the Financial Sector (p.163)
- Joel Slemrod, Does a VAT Promote Exports? (p.186)
- Bert Mesdom, VAT & Cross-Border Trade: Do Border Adjustments Make VAT a Fair Tax? (p.192)
- Richard T. Ainsworth, VAT Fraud and Technological Solutions (p.204)
- Mark Houtzager, Technology: The Crucial Pillar of VAT Implementation (p.224)
- Philip Robinson & Jeffrey Saviano, Facilitating Better VAT Compliance (p.230)
- Pierre-Pascal Gendron, VAT Treatment of Nonprofits and Public-Sector Entities (p.239)
- Debra Morris, VAT Treatment of Charities and Public Bodies in the United Kingdom (p.248)
- Ine Lejeune, The EU VAT Experience: What Are the Lessons? (p.257)
- Martin A. Sullivan, VAT Lessons From Canada (p.283)
- Susan C. Morse, How Australia Got a VAT (p.291)
- Paul Previtera & Brandon Boyle, Japan’s Consumption Tax: Lessons for the U.S. (p.312)
- Xu Yan, China’s VAT Experience (p.319)
- Reuven S. Avi-Yonah, The Political Pathway: When Will the U.S. Adopt a VAT? (p.334)
Luke Presents Partnership Tax Restraints on Tax Attribute Markets at GeorgiaCharlene Luke (Florida) presents Partnership Tax Restraints on Tax Attribute Markets: Time for an Entity-level Solution? at Georgia today as part of its Faculty Colloquium Series. Here is the abstract:
This Article considers partnership tax law in terms of two long-standing doctrinal standards: the owner of an income-producing asset pays the tax produced by the asset, and the earner of income pays the tax on the income. Partnership tax rules more closely aligned with the owner-pays standard appear to be more robust than the rules more aligned with the earner-pays standard. For example, compare the strongest rules relating to ownership of built-in gains and losses—§ 704(c)—with the weakest relating to allocation—the substantiality requirement. That the weaker rules have closer ties to the “earner pays” standard is perhaps not surprising given the difficulty in tracing partnership items back to individual partners. Similar tracing difficulties are, however, also present in assigning ownership of underlying partnership assets. The multiplicity of rules relating to assignment of ownership of partnership assets—the hot asset rules and book revaluation election—may, however, mask that the same tracing difficulty is present.
The tracing ambiguity and the tax attribute shifting opportunities it creates could be resolved by eliminating special allocations. Such an approach would, however, also eliminate the flexibility goal still viewed as a fundamental component of partnership tax. This Article suggests another approach: an entity level tax. The proposed tax could be structured so as to continue flexibility while designating an earner and owner to which income could be more readily traced. The proposed tax is not envisioned as a double tax but would instead be designed as a withholding mechanism, though one requiring that any credit for the withheld tax be stapled to the partnership income producing the tax. The proposed tax would bring new complexity to an already complex regime. The complexity of the rules necessary to safeguard flexible allocations and to prevent the use of partnerships as tax attribute markets emphasizes the fundamental incompatibility between the two goals.
Death of Duke Snider: Baseball Great, Tax ScofflawFrom the New York Times obituary of Brooklyn and Los Angeles Dodger Hall of Famer Duke Snider, who died yesterday at the age of 84:
Snider returned to Brooklyn on a sad note on July 20, 1995, when he appeared in federal court, a couple of miles from where Ebbets Field once stood, as a criminal defendant.
Snider and another Hall of Famer, the former Giant first baseman Willie McCovey, pleaded guilty to tax fraud for failing to report thousands of dollars earned by signing autographs and participating in sports memorabilia shows. “We have choices to make in our lives,” Snider said. “I made the wrong choice.”
The following Dec. 1, he was sentenced to two years’ probation and fined $5,000.
Sullivan: Passthroughs Shrink the Corporate Tax by $140 Billion/YearFollowing up on last week's post, Geithner: End Pass-Through Treatment of LLCs, Partnerships & S Corps (Feb. 25, 2011): Martin A. Sullivan (Tax Analysts) has published Passthroughs Shrink the Corporate Tax by $140 Billion, 130 Tax Notes 987 (Feb. 28, 2011):
Over the past three decades, the number and the importance of passthrough entities have grown enormously, because of the growth of S corporations and limited liability companies that file as partnerships. Although Congress added subchapter S to the code in 1958, it was not until the Tax Reform Act of 1986 lowered the top individual rate below the corporate rate that S corporations gained mass appeal. The growth of LLCs was made possible by a 1988 IRS revenue ruling that treated Wyoming's LLCs as partnerships for tax purposes and by the subsequent adoption of LLC rules in all U.S. states.
Figure 1. Number of Subchapter S Corporations and LLCs, 1980-2008
[T]he rise of S corporations and LLCs has  taken a big bite out of the taxable corporate sector. Figure 3 shows the share of various indicators of business activity between 1980 and 2007. The taxable corporate sector's share has declined significantly.
Figure 3. Subchapter C Corporations' Declining Share of Business Activity, 1980-2007
Once the economy recovers from the recession, the government is expecting to collect about $400 billion per year from the corporate tax. Using Figure 3 as our guide, we can estimate the impact on corporate revenues of the rising use of passthrough entities. ... If the corporate sector's share of business stayed at the same level as it was in 1990, it would be about 35% -- an increase in corporate revenue of $140 billion. ...
The disparate treatment of C corporations and passthrough entities makes clear that any corporate tax reform that does not address that issue is not much of a reform. Our best thinkers on the subject understand this. ... Unfortunately, our leaders are not ready to consider this type of rational reform. ...
Corporate tax reformers are left in the awkward position of trying to improve a fundamentally unsound tax. If we broaden the corporate tax base by trimming tax incentives (for example, accelerated depreciation), should those same tax incentives be trimmed for passthrough entities? Many would like to keep tax reform confined to the corporate sector. But politics aside, isn't it reasonable to suggest that passthrough businesses that are relatively lightly taxed pay more to reduce taxes on C corporations?
All Tax Analysts content is available through the LexisNexis® services.
IFA International Tax Colloquium and Tax Writing CompetitionThe inaugural International Tax Colloquium of the U.S. branch of the International Fiscal Association took place last Friday at the 2011 Annual Conference in Atlanta. The chair of the sessions was Brigitte W. Muehlmann (Suffolk), and here were the presenters and their papers:
- Jon E. Bischel (St. Thomas) & Frank L. Brunetti (Fairleigh Dickinson), Basic Approaches to Tax Treaty Negotiation
- Yariv Brauner (Florida), Cost Sharing and the Acrobatics of Arm’s Length Taxation
In addition, Kevin L. Preslan (J.D. 2011, Cleveland State) won the 2010 IFA USA Branch Writing Prize for his paper, Turnabout is Fair Play: The U.S. Response to Mexico’s Request for Bank Account Information:
The paper provides a comprehensive analysis of a dispute related to a 2009 request by the Mexico Ministry of Finance for information concerning interest paid by U.S. banks to residents of Mexico, discussed alternatives, and proposes a compromise that is similar to the one recently agreed between the U.S. and Switzerland.
Mr. Preslan’s faculty sponsor was Deborah A. Geier.
Forbes: Are Amazon.com’s Days of Tax-Free Selling Numbered?Forbes, Are Amazon.com’s Days of Tax Free Selling Numbered?:
Are Amazon.com’s days as a haven for sales-tax shirking shoppers numbered?
Retail analyst David Strasser, a managing director at Janney Montgomery Scott, suggests that they could be. “There’s a lot of momentum building,’’ he said Friday. “(Amazon founder) Jeff Bezos has built a company strategically around avoiding sales tax. But they’re going to have to deal with this,” he added.
Wait a minute. Hasn’t Amazon successfully fended off pesky state tax collectors for 16 glorious years? Yes, but the battle has entered a new stage as Amazon builds warehouse/fulfillment centers in more locations, states grow hungrier for revenue, and a rising sales tax rate (it now averages 9.64% nationwide) puts retailers who do collect tax at an ever bigger disadvantage.
LoopholesFrom the son of Tax Prof John Miller (Idaho):
TaxProf Blog Weekend RoundupSaturday:
- Taxability of Former Duke Lacrosse Players' $60m (?) Settlement
- More on Tax Lawyers Who Make $1,000/Hour
- What Lawyers Earn (by County)
- WSJ: Governors Get a Jump on Corporate Tax Reform
- Oscar Swag Bags to Result in $100k Income to Celebrity Presenters
- Top 5 Tax Paper Downloads
- A-Rod Uses Loophole to Pay $1,200 Property Tax on $6 Million Condo
- Taxes and Asteroids
February 27, 2011
Oscar Swag Bags to Result in $100k Income to Celebrity PresentersTonight's Oscars have lost a bit of their buzz because of the tax consequences of the swag bags received by the celebrity presenters -- worth a record $100,000 this year. From IRS and Hollywood Reach Accord on Gift Bags:
The IRS [has] launched an outreach campaign to the entertainment industry regarding the taxability of gift bags and promotional items, following its agreement with the.Academy of Motion Picture Arts & Sciences resolving outstanding tax responsibilities with respect to Academy Awards gift baskets:
Q: What are the federal income tax consequences to a person who accepts a gift bag in recognition of involvement in an awards show?
A: In general, the person has received taxable income equal to the fair market value of the bag and its contents and must report that amount on his or her federal income tax return.
Q: What are the federal income tax consequences to a person who makes selections at a free shopping room in recognition of involvement in an awards show?
A: In general, the person has received taxable income equal to the fair market value of the selections that he or she made at the free shopping room, and must report that amount on his or her federal income tax return.
Q: Can the recipient take a charitable contribution deduction if he or she contributes the gift bag to charity?
A: If the gift bag is donated to a qualified charitable organization, the recipient may be able to take a tax deduction for his or her charitable contribution, subject to applicable limitations and requirements. But this does not change the taxability of the value of the items. The fair market value must still be reported on the celebrity recipient’s federal income tax return.
Top 5 Tax Paper DownloadsThis week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list, with some minor reshuffling within the Top 5:
1. [569 Downloads] The Fundamentals of Wealth Transfer Tax Planning: 2011 and Beyond, by John A. Milller (Idaho) & Jeffrey A. Maine (Maine)
2. [331 Downloads] The Politics and Policy of the Estate Tax -- Past, Present, and Future, by Michael J. Graetz (Columbia)
3. [301 Downloads] Overview of Statutory Framework for Federal Wealth Transfer Taxation, by Bridget J. Crawford (Pace)
4. [253 Downloads] Optimal Capital Structure, by Jules H. Van Binsbergen (Stanford University, Graduate School of Business), John R. Graham (Duke University, Fuqua School of Business) & Jie Yang (Georgetown University, McDonough School of Business)
5. [250 Downloads] Exploring the Role Delaware Plays as a Domestic Tax Haven, by Scott D. Dyreng (Duke University, Fuqua School of Business), Bradley P. Lindsey (College of William and Mary, Mason School of Business) & Jacob R. Thornock (University of Washington, Michael G. Foster School of Business)
A-Rod Uses Loophole to Pay $1,200 Property Tax on $6 Million CondoFrom the New York Daily News:
Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side. Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River. Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said. For Rodriguez, a full tax bill would be at least $60,000 annually, the latest city assessment records show.
- ABC New York, A-Rod Gets Grand Slam Tax Break on New Condo
- CBS New York, A-Rod Gets Steal of a Deal Thanks to NYC Tax Loophole; Star to Pay 50 Times Less Than Going Rate for West Side Digs
- Daily Mail, Outrage as A-Rod 'Exploits' Tax Loophole on $6m NYC Apartment
- Gothamist, A-Rod's Big, Fat, Upper West Side Condo Tax Break
Taxes and AsteroidsA blogosphere kerfuffle has erupted over this Volokh Conspiracy post:
I think there’s a good case to be made that taxing people to protect the Earth from an asteroid... is an illegitimate function of government from a moral perspective.... [I]t’s O.K. to violate people’s rights (e.g. through taxation) if the result is that you protect people’s rights to some greater extent (e.g. through police, courts, the military). But it’s not obvious to me that the Earth being hit by an asteroid (or, say, someone being hit by lightning or a falling tree) violates anyone’s rights.
- Jonathan Adler, What Bias Looks Like
- Brad DeLong, Empirical Proof that America's Libertarians Are Completely Insane...
- Mark Kleiman, Left Hand, Meet Right Hand
- Ilya Somin, Libertarianism and Asteroid Defense
- Brad DeLong, Insanity Continues Over at the Volokh Conspiracy...
- Ilya Somin, Brad DeLong Misrepresents My Position on Libertarianism and Asteroid Defense
- Brad DeLong, Higher-Order Insanity from the Volokh Conspiracy
- Robert Murphy, Empirical Evidence That Brad DeLong Is Completely Obtuse
- Brad DeLong, Robert Murphy Joins the "It's Immoral to Tax Americans to Destroy an Asteroid" Caucus
(Hat Tip: Brian Leiter.)
February 26, 2011
Taxability of Former Duke Lacrosse Players' $60m (?) SettlementDetroit News, Ex-Duke Lacrosse Star Insists Tax Bill a 'Mistake':
Nearly four years after receiving an undisclosed settlement from Duke University, Reade Seligmann, one of three lacrosse players exonerated in a racially-charged rape case, owes the IRS almost $6.5 million in taxes, according to public records.
The 24-year-old New Jersey native's lawyer disputes the tax bill, however.
According to a tax lien filed Feb. 17 in New York City, Seligmann owes $6,492,377 in income taxes from 2007. That's the same year Seligmann reached the settlement with Duke.
The amount of the settlement has never been disclosed and is an enduring mystery in one of the most divisive scandals in college sports history. Tax lawyer Jeffrey Freeman of Birmingham, Mich., said someone would have to make about $20 million in one year to generate a $6.5 million tax bill.
The Detroit News asked Seligmann lawyer Richard Emery if the former Duke player received $6.49 million from the university or if the amount represented the taxable portion of the settlement. He also was asked if the Duke settlement was the basis of the tax lien. Emery said "no" and that the amount was inaccurate.
In general, people don't have to pay taxes on settlements stemming from personal injuries, said Freeman, who specializes in civil and criminal tax cases. People generally have to pay taxes on settlements stemming from emotional distress, depression and other symptoms.
- Daily Mail, Were the Duke Lacrosse Players Wrongly Accused of Rape Paid $20 Million Each in Secret Settlement?
- New York Daily News, IRS Claims Former Duke Lacrosse Player Reade Seligmann Owes Millions, Lawyer Says Bill Is Mistake
More on Tax Lawyers Who Make $1,000/Hour
I always tell my students that if they are smart enough to be tax lawyers and if they find it at all interesting, they should do it. The actual practice of the taxation of M&A is much more interesting IMHO than the corporate law of M&A. ...OTOH while tax is more intellectually challenging than any other area of law I can think of, it is extremely dry in the way math can be. Not dry as boring, but dry in the sense of being abstract and arithmetical.
What Lawyers Earn (by County)Bill Henderson (Indiana-Bloomington) and the ABA provide a database on What Lawyer's Earn:
In this, the first installment of a periodic series, we look at the geography of lawyer salaries, showing where the jobs are and what they pay. Using actual salary data reported to the U.S. Bureau of Labor Statistics on employed lawyers—whether they are associates or government attorneys or corporate counsel—we've mapped out average lawyer pay by county.
Note that the payroll data do not include equity partners and solo practitioners.
- San Jose-Sunnyvale-Santa Clara CA ($192,020, 4,130, 189, 2)
- San Francisco-San Mateo-Redwood City CA ($167,130, 9.790, 149, 3)
- New York-White Plains-Wayne NY-NJ ($166,130, 51,580, 580, 9)
- Santa Ana-Anaheim-Irvine CA ($157,950, 6,380, 206, 2)
- Los Angeles-Long Beach-Glendale CA ($155,120, 25,350, 359, 4)
- Modesto CA ($153,540, 530, 1, 0)
- Wilmington DE-MD-NJ ($153,520, 2,120, 25, 1)
- Washington DC-MD-VA ($152,230, 37,970, 146, 7)
- Oxnard-Thousand Oaks-Ventura CA ($150,850, 1,000, 31, 1)
- Chattanooga TN-GA ($148,350, 710, 10, 0)
WSJ: Governors Get a Jump on Corporate Tax ReformWall Street Journal editorial, The State Business Tax Revolt: Governors Get a Jump on Corporate Tax Reform:
President Obama says he wants corporate tax reform but hasn't proposed how to do it. Maybe he should take a look at the states, where as many as 10 new Governors are moving ahead to reform and reduce business taxes. The motive is to attract more businesses and create more jobs, while avoiding the fate of California and New York.
Take Iowa, which has the highest state corporate rate at 12%. Add that to the federal rate of 35%, and the Tax Foundation says the Hawkeye State may have the highest levy in the developed world. Governor Terry Branstad, back for a second stint in Des Moines after 12 years, wants to cut the top corporate rate in half to 6% because "we just can't compete with this high tax rate anymore." Mr. Branstad has been sending letters trying to recruit Illinois businesses, where the small business tax rose by 67% and the corporate rate by 30% to 9.5% in January.
Iowa's corporate tax suffers from the same defects that hobble the federal system. It imposes an onerous rate on those companies that get stuck paying it, but the legislature has carved out so many credits and loopholes for politically favored firms that the tax doesn't raise much revenue. So even though Iowa has the highest statutory rate, it ranks 36th in per capita collections. It's all pain for little gain. ...
These Governors can only do so much because the biggest hurdle to new investment is the federal tax of 35% that is the second highest in the world and far above the international average. The President's own tax commission concluded that this tax sends jobs abroad. What is Mr. Obama's Treasury Department waiting for?
February 25, 2011
The Ides of March: U.S. News to Release New Law School Rankings on March 15Robert Morse (Director of Data Research, U.S. News & World Report) has announced that the new law school rankings will be released online on March 15 (last year's price: $19.95) and in hard copy at newstands on April 5 (last year's price: $9.99) (both for $24.95). Here are the current 2011 rankings:
- Overall and Peer Reputation Rankings of 188 Law Schools
- Tax Rankings of 22 Law Schools
- Tax Rankings of 11 Graduate Tax Programs
George Washington Law Revue 2011: F*** YouGeorge Washington law student parody of Cee Lo Green's music video, F*** You (language warning):
(Hat Tip: Above the Law.)
CTJ: Boeing Gets $35 Billion Federal Contract, Pays Zero Federal Income TaxesCitizens for Tax Justice, Boeing’s Reward for Paying No Federal Taxes Over Last Three Years? A $35 Billion Federal Contract:
Despite reporting nearly $10 billion in domestic pre-tax profits between 2008 and 2010, the Boeing Corporation, which was granted a contract worth as much as $35 billion to build airplanes for the federal government earlier this week, did not pay a dime of U.S. federal corporate income taxes during this three-year period.
Tom Campbell Named Dean at ChapmanChapman University School of Law today announced that it has named Tom Campbell as its new dean. He is a former Stanford law professor (1983-89), member of the U.S. Congress (1989-93, 1995-2001) and California state senate (1993-95), and UC-Berkeley business school dean (2002-08) and professor (2009-). From the Orange County Register:
"I fell in love with Chapman," said Campbell, who graduated magna cum laude from Harvard Law School and has a Ph.D. in economics from the University of Chicago. "This opportunity is great and might not come again. This is huge."
Chapman School of Law has climbed steadily up the rankings since opening its doors in 1995, and cracked the top 100 in U.S. News and World Report's most recent ranking, landing at 93. ...
Chapman University President James Doti said that despite its rapid ascent, the law school is remains relatively unknown – and is turning to Campbell after a national search to help change that. "One thing Tom Campbell will bring is recognition," he said, noting that Haas under Campbell's deanship went from 15th to second in the Wall Street Journal's ranking of business schools. "I'm quite confident in Tom recruiting the best and the brightest faculty, and the best and the brightest students." ...
Chapman has about 550 graduate law students, and there are no plans to increase that number. However, both Campbell and Doti said they hope to attract more high-profile faculty to the law school. Campbell also emphasized the desire to increase the noteworthy legal research done at the school. "The greatest law schools – what separates them from the rest is research," he said. ...
Campbell's appointment follows the 2008 hiring of prominent constitutional scholar Erwin Chemerinsky to launch a new law school at UC Irvine. Chemerinsky applauded the selection of Campbell. "He is tremendously talented and experienced, as a law professor, an elected official, and as a dean," Chemerinsky said via email. "I very much look forward to working with him as we are both seeking to create top law schools here in Orange County."
Geithner: End Pass-Through Treatment of LLCs, Partnerships & S CorpsBloomberg News, Geithner Seeks to Broaden U.S. Corporate Tax Overhaul Debate:
The Obama administration is seeking to widen the scope of its proposal to overhaul the corporate tax code, urging Congress to also change rules that allow some businesses to take advantage of tax laws governing individuals.
U.S. Treasury Secretary Timothy Geithner told the Senate Finance Committee Feb. 15 that Congress should “revisit” long- standing rules that give businesses a choice of paying taxes as a corporation or through a structure such as a partnership through which they can report business income on individual tax returns.
The recommendation, which Geithner repeated in a meeting with reporters this week at Bloomberg News in Washington, would affect income earned by the nation’s largest law firms, investment partnerships and so-called S corporations. It would more than double, to about $3 trillion, the amount of business income potentially affected by tax-law changes.
Tax Court Denies Deduction for TV News Anchor's Clothing ExpensesThe Tax Court yesterday denied business expense deductions claimed by a TV news anchor for her wardrobe and other personal expenses and sustained accuracy-related penalties. Hamper v. Commissioner, T.C. Summ. Op. 2011-17 (Feb. 25, 2011) (citations omitted):
On Schedules A of her Federal income tax returns for the years at issue, petitioner claimed deductions for unreimbursed employee business expenses of $20,713, $18,604, $22,602, and $21,759, for 2005, 2006, 2007, and 2008, respectively. ....
During the years at issue petitioner was employed as a morning and noon television news anchor. As a television news anchor petitioner is required to maintain a specified professional appearance as described in the Women's Wardrobe Guidelines (guidelines). The guidelines provide that the "ideal in selecting an outfit for on-air use should be the selection of 'standard business wear', typical of that which one might wear on any business day in a normal office setting anywhere in the USA." ... The general guideline is that petitioner maintain a professional and conservative appearance. ...
Although a business wardrobe is a necessary condition of employment, the cost of the wardrobe has generally been considered a nondeductible personal expense pursuant to § 262. The general rule is that where business clothes are suitable for general wear, a deduction for them is not allowable. Such costs are not deductible even when it has been shown that the particular clothes would not have been purchased but for the employment. .
There are recognized exceptions to the general rule where, for example, the clothing was useful only in the business environment in which the taxpayer worked. The rules for determining whether the cost of clothing is deductible as an ordinary and necessary business expense are: (1) The clothing is required or essential in the taxpayer's employment; (2) the clothing is not suitable for general or personal wear; and (3) the clothing is not so worn.
During the years at issue petitioner purchased clothing for her position as a news anchor. She wears her business clothing only at work and maintains her business clothing separately from her personal clothing. She explained that the requirement to wear conservative clothing makes her business clothing unsuitable for everyday wear.
Petitioner purchased most of her business clothing and accessories from typical clothing stores such as Nordstrom's, Kohl's, Victoria's Secret, Macy's, Old Navy, JCPenney, Sportmart, Casual Corner, DSW, Ann Taylor Loft, Dick's Sporting Goods, Marshall's, Charlotte Russe, and other local clothing stores.
Petitioner's clothing purchases for work consisted of such items as traditional business suits, lounge wear, a robe, sportswear, active wear, lingerie, cotton bikini and cotton thong underwear, and evening wear. She also deducted expenses for an Ohio State jersey, jewelry, bedding, running and walking shoes, and dry cleaning costs.
Petitioner used a self-described criterion for determining whether a clothing expense was deductible. She would ask herself "would I be buying this if I didn't have to wear this" to work, "and if the answer is no, then I know that I am buying it specifically" for work, and therefore, it is a deductible business expense.
Hynes v. Commissioner [74 T.C. 1266 (1980)], involved a taxpayer in circumstances very similar to petitioner's. The taxpayer in Hynes worked as a television news anchor and deducted business expenses for wardrobe, laundry and dry cleaning, haircuts and makeup, hotels and meals, and car expenses and depreciation. The taxpayer purchased a particular wardrobe that was restricted in terms of color and pattern that he was able to wear on the air. The Court reasoned that the restriction on the taxpayer's selection of business attire, however, was not significantly different from that applicable to other business professionals who must also limit their selection of clothing to conservative styles and fashions. The Court further reasoned that the fact that the taxpayer chose not to wear the business clothing while away from the station did not signal that the clothing was not suitable for private and personal wear. ...
Similarly, petitioner does not satisfy the requirement that her clothing not be suitable for everyday personal wear. Although she is required to purchase conservative business attire, it is not of a fashion that is outrageous or otherwise unsuitable for everyday personal wear. Given the nature of her expenditures, it is evident that petitioner's clothing is in fact suitable for everyday wear, even if it is not so worn. Consequently, the Court upholds respondent's determination that petitioner is not entitled to deduct expenses related to clothing, shoes, and accessory costs, as these are inherently personal expenses. Additionally, because the costs associated with the purchase of clothing are a nondeductible personal expense, costs for the maintenance of the clothing such as dry cleaning costs are also nondeductible personal expenses.
[The court also denied her claimed deductions for business gifts, cable television, car expenses, cell phone, contact lenses, cosmetics, gym memberships, haircuts, Internet access, makeup, manicures, meals, self-defense classes, satellite radio, subscriptions to newspapers and magazines (Cosmopolitan, Glamour, Newsweek, and Nickelodeon), and teeth whitening.]
- Daily Mail, TV News Anchor Lands in Tax Court After Trying to Claim Her Cotton Thongs and Gym Classes as 'Business Expenses'
- New York Daily News, Sad Thong Song: Ex TV Anchor Anietra Hamper Loses Tax Case After She Tried to Expense Thongs, More
- Tax Update Blog, Hey, It's Not Cheap to Look Good on HDTV
Wood: Taxing Prisoners Freed From Wrongful Convictions
Although wrongful incarceration and similar recoveries are becoming common and can proceed under several different legal theories, their tax treatment has received relatively little attention. In ILM 201045023, the IRS treated a recovery as excludable from income based on personal physical injuries, prompting many in the popular press to suggest that the tax issues surrounding those recoveries are resolved
All Tax Analysts content is available through the LexisNexis® services. Prior TaxProf Blog coverage:
- Why Do We Tax Recoveries by Prisoners Freed From Wrongful Imprisonment? (Oct. 28, 2010):
- IRS's Wrongful Imprisonment Ruling Stirs Controversy (Nov. 18, 2010)
Iowa Law Review Symposium Today on The Future of Legal EducationThe Iowa Law Review hosts a symposium today on The Future of Legal Education:
Keynote Speech: Dean Erwin Chemerinsky (UC-Irvine)
Panel 1: Creating and Recreating the Ideal Law School: A Response to Dean Chemerinsky’s Keynote Speech
Moderator: Professor Thomas P. Gallanis (Iowa)
Dean Gail B. Agrawal (Iowa)
Dean Erwin Chemerinsky (UC-Irvine)
Professor Judith Resnik (Yale)
Panel 2: The Economic Viability of the Juris Doctor Degree
Moderator: Associate Dean Todd E. Pettys (Iowa)
Dean Richard A. Matasar (New York Law School)
Dean Cyndi Nance (Arkansas)
President David E. Van Zandt (The New School)
Panel 3: Who Is Responsible for Preparing Law Students?
Moderator: Assistant Dean Collins B. Byrd, Jr. (Iowa)
Joel W. Barrows (Assistant U.S. Attorney, Southern District of Iowa)
Kelly M. Hnatt (Partner, Willkie Farr & Gallagher)
Associate Dean Larry E. Ribstein (Illinois)
Panel 4: The Importance of Diversity in Law Schools
Moderator: Professor Angela Onwuachi-Willig (Iowa)
Dean Kevin R. Johnson (UC-Davis)
Associate Dean Catherine E. Smith (Denver)
Dean Kent D. Syverud (Washington University)
Panel 5: Perspectives from the Bench
Moderator: Professor Christina Bohannan (Iowa)
Hon. David Baker (Iowa Supreme Court (2008-10)
Hon. Deanell Reece Tacha (U.S. Court of Appeals, 10th Circuit; Dean, Pepperdine)
Hon. Michael J. Melloy (U.S. States Court of Appeals, 8th Circuit)
Panel 6: American Bar Association and Control of Law Schools
Moderator: Dean Richard A. Matasar (New York Law School)
Professor Judith C. Areen (Georgetown)
Dean Michael A. Fitts (Pennsylvania)
Dean Jay Conison (Valparaiso)
U.S. Effective Corporate Tax Rate Among Highest in WorldCato Institute, New Estimates of Effective Corporate Tax Rates on Business Investment:
This bulletin presents estimates of effective corporate tax rates on new capital investment for 83 countries. “Effective” tax rates take into account statutory rates plus tax-base items that affect taxes paid on new investment, such as depreciation deductions, inventory allowances, and interest deductions. Our calculations also account for other taxes that affect investment, such as retail sales taxes on capital purchases and asset-based taxes.
We find that the U.S. effective corporate tax rate on new investment was 34.6% in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6%, and the average rate for 83 countries was 17.7%.
CNN: GM's Sweetheart Tax DealFollowing up on my prior post, Rasmusen Presents The Lawlessness of the GM NOL Ruling (Feb. 14, 2011): CNN, GM's Sweetheart Tax Deal:
The U.S. Treasury is giving up $14 billion in tax revenue because of a sweetheart deal it's giving General Motors.
The automaker is expected to post its first profitable year since 2004 when it reports fourth-quarter results on Thursday. But GM won't have to worry about being hit with a big tax bill because billions in previous losses will provide shelter for years to come.
That break will reduce GM's U.S. tax bill by an estimated $14 billion in the coming years, and its global taxes by close to $19 billion, according to a company filing. ...
While it's unclear why GM was allowed to carry over its losses, some experts insist that GM got preferential treatment.
"A lot of things were done differently here," said Heidi Sorvino, head of the bankruptcy practice at Lewis Brisbois Bisgaard & Smith. She said that the tax break was just another example of how GM's bankruptcy process was unlike any previous bankruptcies.
Officials with the Treasury Department and GM insist that the tax break was not special treatment, and that any company going through bankruptcy could have gotten the same breaks.
Treasury spokesman Mark Paustenbach said GM's ability to hang onto the tax breaks it had before bankruptcy "depends on the application of long-standing tax rules to GM's particular facts. The Treasury Department did not publish any guidance during the economic downturn that changed these rules either in general or for corporations that received government assistance."
- GM's Special $45 Billion NOL Provides Lucrative Tax Shelter (Nov. 3, 2010)
- GM's Tax Shelter Not Available to Other Car Makers (or Other Taxpayers) (Aug. 1, 2009)
(Hat Tip: David Herzig.)
February 24, 2011
Christians Presents International Tax Dispute Resolution Today at NYUAllison Christians (Wisconsin) presents Hard Law, Soft Law, and No Law: The World of International Tax Dispute Resolution at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) and Mihir Desai (Harvard Business School). Here is part of the Introduction:
The aim of this article is to demonstrate that the soft institutional structure of international tax law has a high social cost, namely, in obscuring public observation of international tax law as it develops, and therefore obscuring the allocation of global wealth across nations in practice. Part I describes the context of international tax disputes: how and why they arise, whose interests are at stake, and how these interests are represented in the resolution process. Part II analyzes how nations have designed international tax dispute resolution using hard law and non-law processes and outcomes. Part III demonstrates the intermediating role played by "soft law" in international taxation and argues that this regime does not adequately compensate for the obscurity it helps create in international tax law. The article concludes that some ground might be gained by altering some of the norms supporting the existing paradigm, but that necessary reform will be resisted by those who benefit from this status quo.
Update: Dan Shaviro blogs the workshop here.
Three Law Schools Freeze TuitionNational Law Journal, Three Law Schools Freeze Tuition Rates:
Annual law school tuition increases of between 3% and 10% are usually a given, but at least three schools have announced tuition freezes for the coming academic year.
The University of Miami School of Law froze tuition this year and will again keep tuition the same at $37,418 for all current students next academic year. Incoming students will pay an additional $1,500 in tuition.
- Ave Maria ($35,948)
- Maryland ($23,744 in-state; $35,023 out-of-state)
- New Hampshire ($39,900)
Blank Presents A Behavioral Theory of Tax Privacy Today at IndianaJoshua D. Blank (NYU) presents Not Seeing Is Believing: A Behavioral Theory of Tax Privacy at Indiana-Bloomington today as part of its Tax Policy Colloquium Series. Here is the abstract:
The debate over whether tax privacy promotes individual tax compliance is as old as the income tax itself. It dates back to the Civil War and resurfaces often, especially in times of economic distress, when the government seeks innovative ways to collect tax more effectively. For nearly 150 years, both sides of the debate have fixated on the question of how a taxpayer would comply with the tax system if he knew other taxpayers could see his personal tax return. Neither side, however, has addressed the converse question: how would seeing other taxpayers’ returns affect whether a taxpayer complies? This Article probes that unexplored question and, in doing so, offers a new theory of tax privacy: that tax privacy enables the government to manipulate taxpayers’ perceptions of its tax enforcement capabilities by producing images of its tax enforcement strengths without creating images of its tax enforcement weaknesses. Because salient images may implicate well-known cognitive biases, this “manipulation function” of tax privacy can cause taxpayers to develop an inflated perception of the government’s ability to detect tax offenses, punish their perpetrators and compel all but a few outliers to comply. Without the curtain of tax privacy, by contrast, taxpayers could see images of tax enforcement weaknesses that would contradict this perception. After applying this new theory of tax privacy to both deterrence and reciprocity models of taxpayer behavior, I argue that the manipulation function of tax privacy likely encourages individuals to report their taxes properly and that it should be exploited to enhance voluntary compliance.
Borden: A Middle-Class Movement May Destroy the Middle ClassTax Prof Bradley Borden (Brooklyn), Getting What You Ask For: How a Middle-Class Movement May Destroy the Middle Class (Huffington Post):
Last fall the Tea Party flexed its muscles and helped send many new faces to Congress. Now the news is filled with talk of budget-cutting, and House Republicans threaten to shut down government. They propose cuts that reduce spending by $100 billion. This would be good news if our deficit were that small and the cuts didn't adversely affect those who support them.
Cutting $100 billion comes nowhere near to closing a budget gap that exceeds $1 trillion. If the actions do not include tax law fixes, public services such as transportation infrastructure, social security, Medicare, police and fire protection, and public education will be on the chopping block. Cutting those services primarily and negatively affect the middle class.
Health Care Spending Growth Could Lead to 70% Marginal Tax Rates by 2060Katherine Baicker (Harvard University, Department of Health Policy & Management) & Jonathan S. Skinner (Dartmouth College, Department of Economics) have posted Health Care Spending Growth and the Future of U.S. Tax Rates on SSRN. Here is the abstract:
The fraction of GDP devoted to health care in the United States is the highest in the world and rising rapidly. Recent economic studies have highlighted the growing value of health improvements, but less attention has been paid to the efficiency costs of tax-financed spending to pay for such improvements. This paper uses a life cycle model of labor supply, saving, and longevity improvement to measure the balanced-budget impact of continued growth in the Medicare and Medicaid programs. The model predicts that top marginal tax rates could rise to 70% by 2060, depending on the progressivity of future tax changes. The deadweight loss of the tax system is greater when the financing is more progressive. If the share of taxes paid by high-income taxpayers remains the same, the efficiency cost of raising the revenue needed to finance the additional health spending is $1.48 per dollar of revenue collected, and GDP declines (relative to trend) by 11%. A proportional payroll tax has a lower efficiency cost (41 cents per dollar of revenue averaged over all tax hikes, a 5%drop in GDP) but more than doubles the share of the tax burden borne by lower income taxpayers. Empirical support for the model comes from analysis of OECD country data showing that countries facing higher tax burdens in 1979 experienced slower health care spending growth in subsequent decades. The rising burden imposed by the public financing of health care expenditures may therefore serve as a brake on health care spending growth.
G-Men: Tax Lawyers Who Charge $1,000 Per HourWall Street Journal, Big Law's $1,000-Plus an Hour Club:
Leading attorneys in the U.S. are asking as much as $1,250 an hour, significantly more than in previous years, taking advantage of big clients' willingness to pay top dollar for certain types of services. ...
Harvey Miller, a bankruptcy partner at New York-based Weil, Gotshal & Manges, said his firm had an "artificial constraint" limiting top partners' hourly fee because "$1,000 an hour is a lot of money." It got rid of the cap after studying filings that showed other lawyers surpassing that barrier by about $50. Today Mr. Miller and some other lawyers at Weil Gotshal ask as much as $1,045 an hour. "The underlying principle is if you can get it, get it," he said. ...
"Plenty of clients say to me, 'I don't have any problems with your rate,' " said William F. Nelson, a Washington-based tax partner at Bingham McCutchen, who commands $1,095 an hour, up from $1,065 last year. "But there is price pressure for associates, especially junior lawyers.
In an accompanying chart, the WSJ lists lawyers with billing rates of $1,000 per hour or more, including these tax lawyers:
- NIcholas P.B. Aleksander (Gibson Dunn) -- $1,018
- Sean Finn (Latham Watkins) -- $1,065
- Michael Hirschfeld (Milbank Tweed) -- $1,025
- James MacLachlan (Baker McKenzie) -- $1,029
- John B. Magee (Bingham McCutchen) -- $1,065
- David W. Mayo (Paul Weiss) -- $1,015
- William F. Nelson (Bingham McCutchen) -- $1,065
- James M. Peaslee (Cleary Gottlieb) -- $1,020
- Bernie J. Pistillo (Shearman & Sterling) -- $1,065
- David M. Rievman (Skadden) -- $1,026
- Matthew A. Rosen (Skadden) -- $1,050
- Ian Taplin (Kirkland & Ellis) -- $1,220
- Jeffrey Trinklein (Gibson Dunn) -- $1,014
All 13 members of the $1,000 per hour tax club are white men. Four (31%) of the 13 went to U.K. colleges and law schools. Of the nine U.S.-trained tax lawyers:
- 3 (33%) got Tax LL.M.s (Georgetown, NYU (2))
- 6 (67%) went to Top 25 law schools (Boston University, Harvard (2), NYU, Virginia (2)); the others went to Boston College, Tulane, and U. Washington
- 5 (56%) went to Top 25 colleges (Brown, Chicago, Georgetown, Swarthmore, Yale); the others went to Case Western, Creighton, Mississippi State, and Wisconsin
For more, see:
- ABA Journal, More Top Lawyers Break Through $1,000 Hourly Billing Barrier
- Law Shucks, Bargains at $1,000 Per Hour
- WSJ Law Blog, On Billing Over $1,000 an Hour: ‘If You Can Get it, Get It’
State & Local Tax Burden: Highest in NJ & NY, Lowest in AK & NVThe Tax Foundation yesterday released State-Local Tax Burdens Fall in 2009 as Tax Revenues Shrink Faster than Income:
Combined state and local tax burdens fell slightly in fiscal year 2009, as taxes shrank faster than income due largely to a slower economy, according to a new study by the Tax Foundation. Taxpayers in New York, New Jersey and Connecticut bore the highest state-local burdens in the country, while residents in South Dakota, Nevada and Alaska experienced the lowest.
The study estimates the average total tax burden for residents of each state, including both the in-state taxes they’re subject to as well as taxes they pay to other states, for example by virtue of working in, traveling to, or buying products from other states. This method takes the point of view of the individual taxpayer, counting all taxes they pay, no matter which state they pay them to. Many other tax measures focus only on state-by-state revenue totals and reflect the perspective of a state’s tax collectors.
The nation as a whole paid 9.8% of its income in state and local taxes, down slightly from 9.9% in 2008 and down significantly from 10.4% in 1977, the earliest year for which the Tax Foundation has done such estimates. While it is useful and informative to look at the national trend, burdens among the states can vary widely. Taxpayers in high-tax New Jersey, for example, pay almost twice the state-local tax rate as those in Alaska, the state with the lowest burden.
Galle: Congressional Control of State TaxationBrian D. Galle (Boston College) has posted The Politics of Federalism: Self-Interest or Safeguards? Evidence from Congressional Control of State Taxation on SSRN. Here is the abstract:
We present for the first time in the literature a quantitative analysis of the efficacy of the "political safeguards of federalism." We also test the popular theory that congressional control of state authority to tax maximizes national welfare. Both analyses rely on a hand-collected data set of every federal statute to date affecting state power to tax.
Overall, our data suggest that federal decisions to curtail state autonomy are strongly influenced by congressional self-interest. Conditional on enactment, statutes affecting state taxing power are more likely to reduce state authority when a concentrated special interest group stands to benefit, and also when the reduction would reduce competition between states and Congress.
While this outcome certainly does not resolve the debate over judicial enforcement of federalism, it should significantly advance that debate. At a minimum, we show that state power to influence Congress is not absolute, and state influence in fact fails under conditions similar to those in which critics of the safeguards theory have predicted that state influence would fail. Additionally, we argue that our results cast significant doubt on recent calls to give control of state taxing authority solely to Congress.
CRS: Tax Policy Options for Deficit ReductionCongressional Research Service, Tax Policy Options for Deficit Reduction (R41641) (Feb. 18, 2011):
This report analyzes various revenue options for deficit reduction, highlighting proposals made by the President's Fiscal Commission and the Debt Reduction Task Force.
Miller & Bertrand: The Tax Treatment of Hedge FundsDavid S. Miller & Jean Marie Bertrand (both of Cadwalader, Wickersham & Taft, New York) have posted The U.S. Federal Income Tax Treatment of Hedge Funds, Their Investors and the Managers on SSRN. Here is the abstract:
This paper describes various hedge fund structures, and discusses the federal income tax treatment of hedge funds, their investors and their managers.
February 23, 2011
The Tax Implications of Obama's Abandonment of the Defense of Marriage ActThe Department of Justice announced today that the Obama Administration believes that the Defense of Marriage Act in unconstitutional and will stop defending it in court, including in the Windsor v. United States case challenging the constitutionality of limiting the estate tax marital deduction to hererosexual couples. (Hat Tip: Bob Kamman.) From Pat Cain (Santa Clara):
If DOMA were not on the books, Edie Windsor would not have had to pay the IRS $363,000 in taxes. Since the Executive Branch is still enforcing DOMA, that means that the case will have to be litigated to conclusion before Windsor knows whether she is entitled to the refund or not. And even if the Attorney General is not willing to defend DOMA, it seems likely that Congress will step in and defend the law.
IRS: Federal Payments to Financially Distressed Homeowners Are Not TaxableThe IRS ruled today that cash payments to financially distressed homeowners under federal housing relief programs do not constitute gross income under the general welfare exception (which excludes from income payments under governmental social benefit programs for the promotion of the general welfare). Notice 2011-14, 2011-14 I.R.B. ___ (Mar. 14, 2011). The ruling covers the Treasury Department’s Housing Finance Agency Innovative Fund for the Hardest-Hit Housing Markets and the Department of Housing and Urban Development’s Emergency Homeowners’ Loan Program. For more, see Robert W. Wood (Wood & Porter, San Francisco), The General Welfare Exception To Gross Income, 109 Tax Notes 203 (Oct. 10, 2005).
Burman Presents Tax Expenditures and Budgeting Today at Penn
Leonard Burman (Syracuse University, Maxwell School) presents Tax Expenditures and Government Size and Efficiency (with Marvin Phaup (George Washington University, Trachtenberg School of Public Policy and Public Administration)) at Pennsylvania today as part of its Center for Tax Law and Policy Seminar Series hosted by Chris William Sanchirico and Reed Shuldiner. Here is part of the Introduction:
The paper describes the current dysfunctional budget process and suggests reforms to the process that would explicitly and consistently incorporate and control tax expenditures. Beyond simply measuring tax expenditures and presenting them alongside explicit spending, the budget process could be modified to include caps on all spending—discretionary, mandatory, and tax expenditures—to facilitate tradeoffs of tax expenditures and explicit spending, and to provide incentives for policy makers to abide by the caps.
Infanti: Anonymous Tax PublishingAnthony C. Infanti (Pittsburgh) has published Foreword: On Publishing Anonymously, 8 Pitt. Tax Rev. 1 (2010). Here is the abstract:
In this foreword to the fall 2010 issue of the Pittsburgh Tax Review, I explain the troubling set of circumstances that led to our decision to publish one of the articles anonymously. All of the articles in this issue share a focus on suggestions for state and local tax reform in Pennsylvania. The circumstances surrounding the decision to publish this one article anonymously raise a host of questions regarding the extent to which tax professionals are free to make suggestions for tax reform without being subject to employer censorship.
Cooper: Applying the Benefit-the-Beneficiaries Rule to Trust Investment DirectivesJeffrey A. Cooper (Quinnipiac) has published Shades of Gray: Applying the Benefit-the-Beneficiaries Rule to Trust Investment Directives, 90 B.U. L. Rev. 2383 (2010). Here is the abstract:
This Essay considers the trust investment management implications of Section 105(b)(3) of the Uniform Trust Code (UTC), which codifies an unwaivable requirement that a "trust and its terms must be for the benefit of its beneficiaries" (hereinafter the "benefit-the-beneficiaries rule"). The Restatement (Third) of Trusts contains similar language.
This is the third in a series of Articles on this topic published by the Boston Univerisiy Law Review. The series began with my 2008 Article on the subject and continued with Professor John Langbein's 2010 Essay. In this third work, I emphasize two major themes that distinguish my viewpoints from Professor Langbein's. First, while the benefit-the-beneficiaries rule does have deep historical roots, it is more than simply a clarification of a single traditional rule against capricious purposes. Instead, it is a composite of multiple rules and interacts in complex ways with other principles and provisions of modern trust law. Second, when applied to a variety of potential trust provisions in the manner Professor Langbein's writings appear to advocate, the rule proves to be overly rigid in its practical effect. Whereas trust law historically has endeavored to balance the competing demands of settlors’ intent and beneficiaries’ rights, the new formulation of the benefit-the-beneficiaries rule is too absolutist in application. By categorizing settlor-imposed trust investment directives as either completely prudent or so capricious as to offend public policy, this rule seemingly offers no middle ground. It lacks the flexibility to differentiate wantonly destructive investment directives from more well-intentioned provisions that deviate from widespread, but not universal, theories of portfolio construction.
While scholarly discourse on this subject has served and will continue to serve a vital function, the ultimate impact of the benefit-the-beneficiaries rule will not be decided in the pages of law reviews. Rather, judges interpreting the UTC and the Restatement, state legislators considering adoption – or modification – of state trust law, and trust settlors and trust lawyers wrestling with the ensuing implications will be the ones to resolve this issue. Accordingly, this Essay is intended to clarify the nature of the issues confronting those various parties and inform their future decisions.
Bogdanski: Retained Interests and Estate of StewartJohn A. Bogdanski (Lewis & Clark) has published Upstairs, Downstairs: Retained Interests and Estate of Stewart,130 Tax Notes 911 (Feb. 21, 2011):
Section 2036(a) hauls back into a decedent’s gross estate, for federal estate tax purposes, property that she gave away while alive, if the decedent retained at death the income from the property or the right to designate who should enjoy or possess the property. Routinely applied to trusts, this provision has also been held applicable to other types of retained interests, including interests in property transferred to family partnerships and family limited liability companies. Quite often, applying § 2036(a) unravels valuation discounts that the decedent had hoped to use in determining the bases of the gift and estate taxes.
In a recent case, a split panel of the Second Circuit vacated and remanded a Tax Court ruling that § 2036(a) required inclusion of a 49% tenant-incommon interest that a decedent had given to her son in the final year of her life. The appeals court majority opinion raises intriguing questions about how the estate tax should apply to undivided real property interests created by a decedent, particularly when the co-tenants occupy a portion of the real estate together both before and after the co-tenancy is created. This report seeks to identify and answer some of the questions that the circuit court decision has presented, especially the apportionment issue that the circuit court has directed the Tax Court to address on remand.
All Tax Analysts content is available through the LexisNexis® services.
Photographic Evidence of the Horrible Physical Toll of the Law Prof LifestyleHere (not for the squeamish).
9th Circuit Reverses Denial of Estate's § 2053 Deduction for Palimony ClaimThe Ninth Circuit yesterday, in a 2-1 decision, held that the district court wrongly concluded that an estate could not deduct the amount paid in settlement of a palimony claim under § 2053. Estate of Shapiro v. Commissioner, No. 08-17491 (9th Cir. Feb. 22, 2011). From the majority opinion:
Bernard Shapiro and Cora Jane Chenchark lived together for twenty-two years, but they never married. Over those twenty-two years, Chenchark cooked, cleaned, and managed their household. When they broke up, she filed a palimony suit against him in state court. While the suit was pending, he died. In the context of this tax refund lawsuit filed by Shapiro’s estate, the district court held that Chenchark’s homemaking services did not, as a matter of law, provide sufficient consideration to support a cohabitation contract between Shapiro and Chenchark, and that therefore, an estate tax deduction for the value of Chenchark’s claim was properly disallowed. Because the district court’s holding was premised upon a misconstruction of Nevada law regarding contracts between cohabitating individuals, we reverse. ...
The United States argues that Chenchark’s claim is not deductible because it is not supported by “adequate and full consideration in money or money’s worth.” We do not disagree with the government’s point that, under § 2053(c)(1)(A), a claim founded on a promise or agreement, like Chenchark’s claim, is only deductible “to the extent [it was] contracted bona fide and for adequate and full consideration in money or money’s worth” —but the district court never reached this specific issue. Homemaking services such as those provided by Chenchark can be quantified and have a value attached to them. Our point is simply that these services are not of zero value as a matter of law, as the district court apparently believed.
This is not to say that, even if a factfinder determines that Chenchark’s claim was supported by “adequate and full consideration,” the Estate is necessarily entitled to the full deduction it seeks. Rather, the value of Chenchark’s claim is a factual issue that precludes summary judgment. The value of the claim (and the corresponding allowable estate tax deduction) remains for the district court to determine on remand. Whether her claim was worth $1 million (as it was eventually settled for) or some other amount is for the district court to decide.
Judge Tashima filed a vigorous dissent on this point:
Although the majority is correct that § 2053(a) “allows a deduction for ‘claims against the estate . . . as are allowable by the laws of the jurisdiction . . . under which the estate is being administered,’" a valid state law claim is a necessary condition for the deduction, but not necessarily a sufficient one. Section 2053 also requires that, to be deductible, claims “founded on a promise or agreement[ ] be limited to the extent that they were contracted . . . for an adequate and full consideration in money or money’s worth[.]" § 2053(c)(1)(A). This requirement is not satisfied merely because a claim is “legally binding and enforceable against [an] estate” under state law. ...
The statute’s requirement that deductions based on promises or agreements be supported by full consideration in money’s worth is based on a need to protect the estate tax. Without this limitation, there would be nothing to “prevent testators from depleting their estates by transforming bequests to the natural objects of their bounty into deductible claims.” ... Accordingly, any contract between a decedent and someone who would be a natural object of his or her bounty is viewed with suspicion, requiring exceptional circumstances to be treated as something other than “simply an agreement to make a testamentary disposition to persons who are the natural objects of one’s bounty.” ...
Accordingly, any love and affection provided to Shapiro by Chenchark must not, and cannot, be treated as consideration for purposes of § 2053, even if it would support a contract under state law. “Nevada law regarding contracts between cohabiting individuals” ... is simply irrelevant to determining the adequacy of consideration under § 2053. ... Even assuming that anything Chenchark provided to Shapiro out of love and affection would support a deduction of its full dollar value, the Estate has presented no evidence here that would create a genuine issue of material fact that Chenchark enhanced the value of the Estate in money’s worth. Although there is evidence that Chenchark supervised Shapiro’s household staff, including a maid, gardener, and a pool man, and that she cooked, cleaned, and provided emotional support to Shapiro, the Estate presented no evidence that these services have a cash value or what that cash value would be. ... Thus, the Estate has not raised a genuine issue of material fact to support its contention that Chenchark’s claim against the Estate, assuming arguendo that it was contracted bona fide, was supported by full consideration in money’s worth for the purpose of federal tax law. Accordingly, I would affirm the district court on this issue.
(Hat Tip: Bob Kamman.)
Update: Joe Kristan notes that "[t]his his could open the door for a do-it-yourself marital deduction for unmarried couples."
Sitkoff & Schanzenbach: An Empirical Analysis of the Prudent Investor RuleRobert H. Sitkoff (Harvard) & Max M. Schanzenbach (Northwestern) have published The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis, 35 Am. C. Tr. & Est. Counsel J. 314 (2010). Here is the abstract:
This article reports the results of an empirical study of the effect of the new prudent investor rule on asset allocation by institutional trustees. Using federal banking data spanning 1986 through 1997, the authors find that, after adoption of the new prudent investor rule, institutional trustees held about 1.5 to 4.5 percentage points more stock at the expense of "safe" investments. This shift to stock amounts to a 3 to 10 percent increase in stock holdings and accounts for roughly 10 to 30 percent of the over-all increase in stock holdings in the period under study. The authors conclude that the adoption of the new prudent investor rule had a significant effect on trust asset allocation.
Taxation, Property, and the Market: The Case of the Corporate Income TaxMiguel Correia (Católica Global School of Law) has posted Taxation, Property and Market: The Case of the Corporation Income Tax on SSRN. Here is the abstract:
This paper builds on the insight that there is a profound interconnection between taxation, property, and the market by analyzing the nature of these interrelationships in the context of a corporation income tax (CIT). The study adopts the United States Federal CIT system as the standard model of corporate income taxation. The paper argues that, due to the nature of these interrelationships, the design and operation of a CIT system is subject to several constraints and distortions, and proposes that to simply look at how far a certain policy is from optimality may be insufficient to determine whether an incremental improvement occurs. The study proposes a new approach to CIT policy whereby the pursuit of incremental improvements requires the minimization of transaction costs and other sources of deadweight loss and the taking into account of the collateral effects of a CIT system, including its interaction with market imperfections, the behavioural and operational nature of business entities, its interaction with related regulatory fields, and its political significance.
February 22, 2011
NYU Offers Entirely Online Tax LL.M.The NYU Graduate Tax Program announced today that it has eliminated the two-credit residency requirement for the Executive LL.M. in Taxation, meaning that the degree can now be completed entirely online:
During the past year, the Executive LL.M. in Taxation program has expanded globally; in order to make the program more flexible and available to more students, NYU Law petitioned the New York State Department of Education to eliminate a two-credit residency requirement, which has been part of the program since its inception in 2008. That had meant that students had to physically appear on campus and take two credits of class. But the Department of Education has now granted NYU Law's request, and the requirement has been completely eliminated, effective immediately and retroactively.
Fleischer: Regulatory ArbitrageVictor Fleischer (Colorado) has published Regulatory Arbitrage, 89 Texas L. Rev. 227 (2010). Here is the abstract:
Regulatory gamesmanship typically relies on a planning technique known as regulatory arbitrage, which occurs when parties take advantage of a gap between the economics of a deal and its regulatory treatment, restructuring the deal to reduce or avoid regulatory costs without unduly altering the underlying economics of the deal. This Article provides the first comprehensive theory of regulatory arbitrage, identifying the conditions under which arbitrage takes place and the various legal, business, professional, ethical, and political constraints on arbitrage. This theoretical framework reveals how regulatory arbitrage distorts regulatory competition, shifts the incidence of regulatory costs, and fosters a lack of transparency and accountability that undermines the rule of law.