Tuesday, May 31, 2011
There may be some dancing in the aisles next weekend at Apple retail stores around the country, but not because the consumer electronics powerhouse is launching a hot new product.
A group that seeks to draw attention to corporations that shelter profits overseas to cut their U.S. income tax burden is organizing protests for June 4 at Apple stores.
The group, US Uncut, says the so-called "Dance-Ins" at Apple stores are meant to grab the attention of 20-somethings who love Apple products but believe that all corporations should pay their fair share of taxes.
Apple and other tech companies, including Cisco, Adobe, Google, and Microsoft, support legislation that includes a proposed tax holiday. The Freedom to Invest Act of 2011, H.R. 1834, would let corporations pay a 5.25 percent tax rate on money "repatriated" to the U.S. from foreign countries. The bipartisan bill, introduced May 11, proposes a temporary tax holiday for corporations who refuse to pay the 35% corporate tax rate.
Its proponents say that a similar measure passed in 2004 brought $312 billion in capital back to the United States through such companies as Oracle, Qualcomm, and Adobe. It generated more than $34 billion in tax revenue, according to a 2009 study.
But US Uncut, while noting that Apple does pay taxes, says it is disappointed in Apple's support for what the activist group believes amounts to corporate tax amnesty.
(Hat Tip: Ann Murphy.)
When times get tough, top talent goes elsewhere.
That truism, while perhaps too simplistic to be applied widely, seems to be increasingly confronting many public universities, especially flagships, that have seen state support slashed or the political environment grow more tense and unpredictable. And, some say, the situation threatens to get worse.
The University of North Carolina at Chapel Hill is grappling with the departure of 78 faculty members this year (out of 110 who were wooed) -- more than 2.5 times the number who left the previous year. Perhaps not coincidentally, Chapel Hill is also facing its third straight year of declining state appropriations, a trend that has led to a pay freeze for faculty during the same period, said Holden Thorp, Chapel Hill’s chancellor. ...
"I think the bad thing right now is that, to the extent that there’s a pattern of exodus, it’ll go from state to private schools," said [Brian] Leiter of Chicago. "We’ll see the continued evisceration of public universities."
Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.
By this measure, federal taxes are at their lowest level in more than 60 years. The CBO estimated that federal taxes would consume just 14.8% of GDP this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget. The postwar annual average is about 18.5% of GDP. ...
In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9% of GDP in both 2009 and 2010.
Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again. ... The GOP says global competitiveness requires the U.S. to reduce its corporate tax rate. But the U.S. actually has the lowest corporate tax burden of any of the member nations of the OECD.
Update: For a detailed critique, see Are U.S. Corporate Taxes Low?, by Chris Edwards (Cato Institute).
On May 31, Judge Deanell Tacha will end her 25-year tenure on the U.S. Court of Appeals for the 10th Circuit, including seven years as its chief judge.
Tacha, 65, is embarking on a new career as dean of Pepperdine University School of Law in California, replacing another former appeals judge: Kenneth Starr, who left last year to become president of Baylor University. ...
Before leaving the bench, Tacha agreed to give her parting thoughts about the judiciary, the U.S. Supreme Court, the news media and her new job in an interview with The National Law Journal's Supreme Court correspondent Tony Mauro. ...
Q: Why did you decide to leave? What excites you about this new challenge, which comes at a time when you could be retiring? With Judge Henry also leaving for academia recently, there seems to be a trend. [Former 10th Circuit Judge Robert Henry is now president of Oklahoma City University.]
Tacha: First, let me say I have loved being a judge. I am not leaving because I was dissatisfied. I came to the bench from academic life and have missed, to some extent, the interaction with students, faculty, alumni and universities in general. I have remained very active in the work of several academic institutions, but the appropriate constraints under which judges operate were sometimes confining to me! Let's just say that my personality includes a side that very much yearns to be involved with people, causes, and active involvement in a variety of interests.
Returning to legal education affords me the opportunity to be involved in the future of the legal profession. I have a great interest in who the lawyers and judges of the future are, how they are trained, what they will bring to the nation and the society, and how they will model for the larger society the rule of law at work.
I certainly can't speak to any trend, but Judge Henry and I both have always maintained strong ties to academia. The same is true for my former 10th Circuit colleague, Michael McConnell, who is now at Stanford.
- Samuel A. Donaldson (U. Washington), Covering Your Client’s S (Corporation)
- Martin J. McMahon, Jr. (Florida), Recent Developments in Federal Taxation
- Ann Murphy (Gonzaga), Protecting Yourself and Your Client in the Digital Age: New Tax Court Rules and Federal Evidence Rules for Our Changing World
See here for a complete list of the presenters and their topics.
There are over 107,000 papers in the 75+ SSRN subject matter e-journals, Tax has the seventh most papers posted to its database. Here are the Top 25:
- Constitutional Law: 17,477
- Law & Society: 15,993
- Corporate, Securities & Finance Law: 11,135
- International Law & Trade: 10,712
- Criminal Law & Procedure: 9,155
- European Private & Public Law: 8,825
- Tax: 7,500
- Health Law: 7,353
- Employment, Labor, Compensation & Pension Law: 7,302
- Law & Economics: 6,406
- Intellectual Proprety: 6,181
- Litigation, Procedure & Dispute Resolution: 6,156
- Legal History: 5,831
- Environmental & Natural Resources Law: 5,729
- Comparative Law: 5,718
- Discrimination Law & Justice: 5,584
- Antitrust: 5,521
- Experimental & Empirical Studies: 4,415
- Law & Humanities: 4,231
- Family & Children's Law: 4,220
- Administrative Law: 3,777
- Cyberspace Law: 3,758
- Torts & Products Liability: 3,756
- Contracts & Commercial Law: 3,685
- Regulation of Financial Institutions: 3,621
The economic substance doctrine is so obscure that Congress has been unable to define when it applies and what exactly it is. Treasury and the IRS refuse to give any indication of when they will assert it, and tax professionals have spent untold hours in continuing legal education programs in which the best-informed experts search for clarity. However, the Justice Department and federal courts, particularly the Second Circuit, are sure that they know economic substance when they see it, and are directing juries to convict lawyers of criminal tax evasion if the lawyer knew the transaction had no business purpose or profit potential.
All Tax Analysts content is available through the LexisNexis® services.
The “optimal tax model” is the most significant development in the study of taxation in the last fifty years. It is a mathematical model that purports to measure the social welfare effects of taxation by integrating fairness and efficiency concerns, the two central – and sometimes conflicting – values in tax policy. While originally developed by economists, legal scholars have overwhelmingly embraced the optimal tax model as the tool for evaluating competing tax designs.
This article is the first challenge in the legal literature to the normative implications of the optimal tax model. It critiques a key assumption underlying the model – that an ideal tax would be based on an individual’s ability to earn income, rather than the income that is actually earned. While that assumption initially appears consistent with the intuition that tax should be based on one’s ability to pay, this article explains why a tax based on potential earnings would be unjust. It argues that the principles of liberty and equality prohibit a tax based on earning potential, and that the optimal tax model is therefore problematic from the perspective of fairness in taxation. Although different political theories lead to different conclusions about the design of fair taxes, this article makes clear why no theory of justice would embrace the ideal that underlies the optimal tax model. It concludes that legal scholars should consider the injustice of the foundation on which the optimal tax model is built before embracing the products of its analysis.
Monday, May 30, 2011
- Who Made Blago Almost Flunk Out of Pepperdine: Alexander Hamilton or Farrah Fawcett?
- CBPP: Misconceptions and Realities About Who Pays Taxes
- Tax Allocation Methods in Bankruptcy
- WSJ: A New Push to Protect Innocent Spouses
- Top 5 Tax Paper Downloads
- CBPP: Let's Return to 2009 Estate Tax Law in 2013
- Judge Tacha's Memorial Day Challenge to Law Schools: Create Lawyer-Patriots
- Memorial Day Tax Resources for U.S. Armed Forces (and Their Families, Employers)
- Top Linklaters Partner in Leather Trouser Tax Shame
This Memorial Day marks my last day as a federal judge. It has been the highest privilege of my life to serve for 25 years as a judge on the 10th U.S. Circuit Court of Appeals. The federal and state judges with whom I have worked bring to their positions the highest level of intellect, integrity, and committed sense of purpose. They are, in short, dedicated patriots who fight to preserve the rule of law for this nation and who model an independent judiciary respected throughout the world.
I leave my chambers for academic life as dean of the School of Law at Pepperdine University. In my career as a judge, I enjoyed an ideal "bench" from which to observe lawyers and the legal profession. That perspective, as well as my previous experience in academia, inspired and impelled me to examine the future role of legal education. How should lawyers be trained so that they are fully equipped to serve the profession, the nation, and the larger society in the years ahead?
I firmly believe, both as a matter of history and in a personal sense, that we lawyers are called to be working models of the rule of law as it plays out on the highways and byways of everyday life. We are not just adversaries in contentious matters. We cannot simply be advocates on behalf of the causes that pay. We do not do justice if we separate our work as lawyers from our human values and important ethical responsibilities.
As I recall the many "judge-patriots" I have known as colleagues, I ask myself whether all lawyers, no matter where they work, should be trained in part to be "lawyer-patriots." There are extraordinary lawyers around the globe who shine as patriots for the rule of law in humble, even hostile, everyday places. However, my anecdotal observation is that we lawyers need to reclaim our sense of a noble professional calling.
I am excited by the prospect of creating lawyer-patriots who will bring the full measure of their talents, intellects, ethical construct, and values to the legal profession and to the public arena. Indeed, on this Memorial Day, we should all recommit ourselves to the model of the patriot, whatever form that might take. You might call me naive. You might call me a hopeless optimist or an insufferable idealist. But please call me a lawyer-patriot.
The tax laws provide some special benefits for active members of the U.S. Armed Forces, including those serving in combat zones. For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel may qualify for certain tax deadline extensions because of their service in a combat zone.
For dozens of links to military tax resources, see below the fold.
Sunday, May 29, 2011
Rumours are circulating that one of Linklaters' top partners has been accused of tax evasion -- after failing to declare presents he bought in the US.
Ralph Wollburg, currently of Linklaters but formerly of Freshfields, apparently arrived at Dusseldorf airport in February on a flight from New York. In his bag were an expensive blouse and some sort of leather trousering. ... [H]e claimed they were presents for his wife and had receipts to the value of Euro 3,500. That's some pair of trousers.
A customs officer told Wollburg that he was obliged to pay tax on the goods, to which the partner allegedly replied that he'd already paid the tax in the States, apparently adding "Do you know who I am? I am one of the leading business lawyers in Germany".
The unimpressed officer charged him with tax evasion. And issued a press release about the incident, saying the culprit was a "54-year-old man from Dusseldorf". Insiders tell RollOnFriday that it's Wollburg, and the firm wouldn't deny it. So that seems like a "yes",
(Hat Tip: Francine Lipman.)
In an era of high-profile financial crime, [Lantz v. Commissioner, No. 09-3345 (7th Cir. June 8, 2010)] and other cases are prompting calls for revision of the tax code's innocent-spouse rules, which define when the signer of a joint return won't be held responsible for a partner's tax misdeeds. While National Taxpayer Advocate Nina Olson has pushed for rule changes for years, recently lawmakers from both parties in Congress have taken up the issue. ...
Some 50,000 taxpayers a year ask the IRS for innocent-spouse relief. Most are women under financial pressure, and some come from privileged backgrounds. ... The IRS denies about 2,000 of those cases because, like Ms. Lantz, the applicants missed the agency's two-year deadline.
IRS critics say Congress never meant that two-year deadline to apply in all cases. When lawmakers last addressed the issue in 1998, they included two rationales for innocent-spouse relief with such a deadline but added a third without a deadline, giving the IRS leeway for special cases.
The IRS, however, has applied the two-year deadline to all requests since then—despite the disapproval of lawmakers like Sen. Charles Grassley (R., Iowa), who was on the Finance Committee when the revision passed. Tax Court judges have repeatedly held in taxpayers' favor on this issue, although two appeals courts have overturned the Tax Court. More appeals cases are underway.
While the outcome of possible changes is unclear, experts have advice for spouses with current worries:
- Those suspecting their partners of tax misdeeds should avoid signing a joint return. ...
- Ex-spouses should know the IRS can legally disregard a divorce decree. ...
- Get help from a tax professional for filing IRS Form 8857 for innocent-spouse relief. ...
- Taxpayers who can't or won't take action because of fear of reprisal or threats made by their partners should keep a diary or share fears with someone else.
(Hat Tip: Francine Lipman.) Prior TaxProf Blog coverage:
- IRS Publishes FAQs on Innocent Spouse Litigation (May 25, 2005)
- WSJ: IRS Makes It Tougher to Qualify for Innocent Spouse Relief (Mar. 15, 2006)
- TIGTA: IRS Mishandles 27% of Innocent Spouse Cases (Mar. 19, 2007)
- Beck: The Failure of Innocent Spouse Reform (Oct. 19, 2007)
- CPA's Ex-Wife Denied Innocent Spouse Relief (Apr. 17, 2008)
- 9th Circuit: Taxpayer Must File Joint Return to Get Innocent Spouse Relief (Apr. 22, 2008)
- Tax Court Grants Widow of Former S.F. Mayor Innocent Spouse Relief (Aug. 2, 2008)
- Divided Tax Court Invalidates Innocent Spouse Reg (Apr. 4, 2009)
- The Innocent Spouse Manual (Apr. 27, 2009)
- 7th Cir. Reverses Tax Ct., Upholds 2-Year Deadline on Innocent Spouse Claims (June 8, 2010)
- A Dissenting View on Lantz (June 9, 2010)
- Camp: Lantz, § 6015, and Statutory Silence (Aug. 2, 2010)
- Tax Court Refuses to Follow 7th Circuit, Again Invalidates Innocent Spouse Reg (Sept. 23, 2010)
- Smith: Gaps in the 7th Circuit's Innocent Spouse Opinion in Lantz (Sept. 30, 2010)
- Schumacher: The IRS's Administrative Process in Innocent Spouse Cases (Jan. 7, 2011)
- 3d Cir. Joins 7th Cir. in Reversing Tax Court and Upholding Innocent Spouse Reg (Jan. 20, 2011)
- Critiquing the 3d & 7th Circuits' Approval of the 2-Year SOL Innocent Spouse Reg (Feb. 12, 2011
- A Practitioner's Guide to Innocent Spouse Relief (May 4, 2011)
- McMahon Presents An Empirical Study of Innocent Spouse Relief at Cincinnati (May 25, 2011)
2. [213 Downloads] Linton Reversed: Indirect Gift and the Step Transaction Doctrine, by Wendy C. Gerzog (Baltimore)
3. [197 Downloads] Charity in the 21st Century: Trending Toward Decay, by Roger Colinvaux (Catholic)
The tax-cut compromise enacted in December established estate tax rules for 2011 and 2012 that are considerably weaker than those in effect in 2009, the last year before the tax temporarily expired in 2010. The new rules will cost about $23 billion more than reinstating the 2009 rules over the same two years, yet will benefit only the largest one-quarter of 1% of estates, since they are the only ones that that would owe any estate tax under the 2009 rules.
Taxable estates will receive more than $1 million apiece in tax breaks this year from the new rules, on average, and estates worth more than $20 million will receive an average of nearly $3.8 million apiece. In light of the nation’s serious long-term budget problems — and proposals to slash a wide range of government services, particularly Medicare, Medicaid, and programs for low-income Americans — it would be irresponsible to extend these new rules beyond 2012.
2009 Rules Were More Than Generous
Estate Tax Serves as Backstop to Capital Gains Tax
Not only does the estate tax provision of the tax-cut compromise provide unnecessary largesse to the wealthiest estates in the country, but it is also costly. The Joint Tax Committee estimates the cost at $68 billion compared to letting the pre-2001 rules return. We estimate it would have cost about $23 billion less to reinstate the 2009 rules for the same time period. Moreover, if extended over ten years, the new rules would cost about another $80 billion more than maintaining the 2009 rules over that period.
Providing tens of billions of dollars in new tax windfalls to the largest one-quarter of 1% of estates would be difficult to justify in the best of times. It would be particularly gratuitous in the current fiscal context, when policymakers are starting to make substantial cuts in a range of government functions and are talking of deep cuts in areas ranging from education to infrastructure to Medicare to programs that help the poorest Americans meet basic necessities.
Saturday, May 28, 2011
- Bloomberg: [Blago] attended law school at Pepperdine University in Malibu, California. He described his first year in law school as “almost catastrophic,” and said he was put on academic probation. Distractions, including seeing [Michael] Landon, [Dyan] Cannon and [Farrah] Fawcett training at his local health club, made for an atmosphere that “was not that conducive to studying law.”
- Chicago Sun-Times: While attending Pepperdine Law School in Malibu, Blagojevich said he was distracted — by history books, not the beaches. “I had a man-crush on Alexander Hamilton,” said Blagojevich, who has a well-known tendency to talk history. His grades slipped to a failing average. “That was very embarrassing to me,” Blagojevich said of landing on academic probation his first year of law school. “I felt like I’d let my parents down because they’d work so hard.”
- WGN: It was his obsession with reading history books that led Blagojevich to almost flunk out of law school at Pepperdine in Malibu, Calif., he said, not time spent on the beach as he has joked in the past. "I had a man crush on Alexander Hamilton," he offered.
- Wikipedia: "I went to law school at a place called Pepperdine in Malibu, California, overlooking the Pacific Ocean — a lot of surfing and movie stars and all the rest. I barely knew where that law library was."
A recent finding by Congress’ Joint Committee on Taxation that 51% of households owed no federal income tax in 2009 is being used to advance the argument that low- and moderate-income families do not pay sufficient taxes. Apart from the fact that most of those who make this argument also call for maintaining or increasing all of the tax cuts of recent years for people at the top of the income scale, the 51% figure, its significance, and its policy implications are widely misunderstood.
Oft-Cited 51% Figure Is Temporary Spike Caused by Recession
Lower-Income People Pay Considerable Payroll, State, and Local Taxes
Buck Johnson realized a significant gain by treating the tax liability from the sale of his land and corn stock as a nonpriority claim. Section 1222(a)(2)(A) reduced the IRS’s veto power over his bankruptcy plan, which made his plan more feasible and, therefore, more confirmable. However, under § 1222(a)(2)(A), the proportional tax allocation method is more appropriate when compared to the marginal method. The use of the proportional method will have the effect of reducing Buck’s tax liability subject to § 1222(a)(2)(A) and increasing the IRS’s priority claim. Therefore, Buck’s total tax liability will also increase.
The Knudsen court incorrectly held that the marginal tax allocation method is proper under § 1222(a)(2)(A) by misconstruing the statute’s relevant legislative history. Moreover, because § 1222(a)(2)(A) is primarily a tax statute, the Knudsen court also improperly confined its analysis to the Bankruptcy Code. Further, the proportional method reflects both the Internal Revenue Code’s and the Bankruptcy Code’s preference for debtor and creditor equality. Therefore, the Supreme Court should adopt the proportional tax allocation method for claims arising under § 1222(a)(2)(A). Buck still recognizes a significant gain by treating certain IRS claims as nonpriority claims. However, the adoption of the proportional method will moderate that benefit by reducing the amount of IRS claims subject to § 1222(a)(2)(A), and reducing the amount of tax discharged.
Friday, May 27, 2011
The IRS has a low-profile but sweeping effort under way to use state land-transfer records for evidence of omissions in reporting gifts of real estate to family members. ... New tax rules have made big gifts to family members popular this year, as Congress raised the limit on how much a person can give in a lifetime to $5 million without having to pay gift tax. Still, any time a gift to one person exceeds $13,000, the giver is supposed to let the agency know in a filing.
Details of the IRS effort were revealed in a request to a federal judge in California for a John Doe summons for data that the agency wanted to serve on that state's State Board of Equalization, a taxing body. The IRS said it needed the summons because the state's Proposition 58 and Proposition 193 complicate the data the IRS maintains about real-estate transfers. This week, the judge said the IRS couldn't serve the summons because it hadn't shown it couldn't get the data otherwise. The IRS declined to comment.
A court document with the IRS filing described efforts by Josephine Bonaffini, the coordinator of an IRS state and federal gift-and-estate tax program, to find people who haven't filed Form 709 to report U.S. gift and generation-skipping transfer taxes to the IRS. ...
States that have handed over information on gift-like transactions are Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin, according to the document. Ms. Bonaffini examined a sampling of data from these states and it showed "an extremely high failure-to-report rate," the document said. A chart in the document indicated noncompliance rates of 60% in Connecticut, 90% in Florida, 60% Nebraska, 100% in Ohio, 90% in Virginia, 80% in Washington, and 50% in Wisconsin.
Update: Patricia Cain (Santa Clara), IRS Search for Unreported Gifts of Real Estate:
Many people do not think that merely putting a partner or cohabitant on the deed to the home is a completed gift. This is especially true for people who change the title on their homes to own it as joint tenants with right of survivorship. Often the transferor views this as a transfer that won’t take effect until death. But that is not true under state property law. The creation of the joint tenancy vests the new owner with a 50% interest in the home immediately. That makes the transfer a completed gift.
The IRS has been perusing public records looking for possible violations of the gift tax reporting rules. In California, the IRS asked the state Board of Equalization to provide records of real estate transfers that, under Prop 13, are protected from reassessment. All such transfers would occur between family members and would thus fall in the class of transfers most likely to produce a record of failure to report the gift.
The Board of Equalization (BOE) refused and so the IRS went to federal court and asked the court to order the BOE to comply with its request. On May 20, 2011, the court denied the IRS request. Read the court’s order here.
Plaintiff has been unable to secure a full time job as an attorney that pays more than non-legal jobs that are available to her, even though she graduated with honors from TJSL. Plaintiff would not have attended TJSL and incurred more than $150,000 in school loans if she knew the truth about her job prospects upon graduation. ...
At the end of the day, TJSL is more concerned with raking in millions of dollars in tuition and fees than educating and training its students. The disservice TJSL is doing to its students and society generally is readily apparent. Many TJSL graduates will never be offered work as attorneys or otherwise be in a position to profit from their law school education. And they will be forced to repay hundreds of thousands of dollars in school loans that are nearly impossible to discharge, even in bankruptcy. ...
Notwithstanding the economic recession that has crippled the job market for lawyers in the past years, TJSL has embarked on a campaign to expand its student body. Within the last three years (in the middle of the recession), TJSL increased its enrollment by 17 percent, with more than 680 students enrolled in 2011 (up from 580 students in 2008).
- ABA Journal, Honors Grad Working as Doc Reviewer Sues Law School, Says She Was Misled by US News Stats
- Above the Law, Class Action Filed Against Thomas Jefferson School of Law
- Legal Ethics Forum, Thomas Jefferson Invokes the ABA as Cover. (What Will the ABA Think of That?)
- National Law Journal, Law School Sued Over 'False' Employment Statistics
- Wall Street Journal Law Blog, Jobless in San Diego ... And Suing Over It
The nation’s biggest law firms are creating a second tier of workers, stripping pay and prestige from one of the most coveted jobs in the business world.
Make no mistake: These are full-fledged lawyers, not paralegals, and they do the same work traditional legal associates do. But they earn less than half the pay of their counterparts — usually around $60,000 — and they know from the outset they will never make partner.
- ABA Journal, Will Career Associate Programs Cause Resentment?
- Above the Law, Not on the Partner Track — and Maybe That’s Okay
- Wall Street Journal, Second Tier Associates Who are Decidedly Not Second Tier
Update: Erik Gerding (New Mexico), Tiers of Associates; Tiers for Legal Degrees?
One basic principle of the rule of law is that laws apply to everybody. If the sign says "No Parking," you're not supposed to park there even if you're a pal of the alderman. Another principle of the rule of law is that government can't make up new rules to help its cronies and hurt its adversaries except through due process, such as getting a legislature to pass a new law.
The Obamacare waiver process appears to violate that first rule. Two other recent Obama administration actions appear to violate the second. ... The other example is the IRS's attempt to levy a gift tax on donors to certain 501(c)(4) organizations that just happen to have spent money to elect Republicans.
A gift tax is normally assessed on transfers to children and other heirs that are designed to avoid estate taxes. It has been applied to political donations "rarely, if ever," according to New York Times reporter Stephanie Strom. "The timing of the agency's moves, as the 2012 election cycle gets under way," continues Strom, "is prompting some tax law and campaign finance experts to question whether the IRS could be sending a signal in an effort to curtail big donations."
- Forbes, Barack Obama: A Nixon, Not a Carter, by Ralph Benko
- Forbes, President Obama’s Abuse Of Power, by Charles Kadlec
Top Republican political strategist Karl Rove's method of secretly funneling unlimited contributions from big donors was so hugely successful in the 2010 campaign that Democrats are now trying to copy it. But his model may yet end up backfiring spectacularly.
In one scenario, groups like Rove's Crossroads Grassroots Political Strategies could find themselves subject to massive fines, ranging as high as 35 to 70% of the money they received in secret donations.
In another scenario, their deep-pocket donors could be hit by a 35% tax on their contributions.
Rove may well have found a way around the nation's federal election laws. But now the key question is whether the IRS is willing to be assertive. Because if it is, then just like with Al Capone, it could be the IRS that gets him.
In Crossroads GPS's solicitations for money, the group describes itself as a tax-exempt 501(c)(4) organization, and due to a controversial loophole in federal campaign finance rules, the names of donors to those organizations do not have to be disclosed publicly.
But contrary to popular belief, Rove's group has not formally attained 501(c)(4) status. The group's application, requesting the IRS to classify it as a "social welfare" group, is still pending.
And while the designation is typically not much more than a formality -- organizations routinely call themselves (c)(4) groups before they've been formally approved -- tax and campaign finance experts contacted by The Huffington Post said the IRS could well deny Crossroads GPS's application. ...
"Lots and lots of things that would not be considered 'express advocacy' by the FEC, the IRS would consider intervention in a political campaign," said Donald Tobin, a tax and campaign finance law expert at the Moritz College of Law. ... "There's a good chance the IRS will deny the (c)(4) application," said Lloyd Mayer, who teaches tax law at the University of Notre Dame. ... Mayer described what he considers a likely scenario: The IRS denies Rove's group its (c)(4) status, but ends up letting him off with just a slap on the wrist. ... "That would be the easy way out," he added. Another possibility is that the IRS could just decide to let the issue drag out indefinitely, Mayer said. As it is, the earliest opportunity for decisive action may not be for almost another year.
(Hat Tip: Francine Lipman.)
Women made a strong showing in recent law school dean searches, accounting for about 40% of the deans named in recent months. ...
A report released by the ABA in 2009 found that women made up 62% of assistant deans at the time, but only 21% of law deans.
- Annette Clark (St. Louis. from Seattle)
- Darby Dickerson (Texas Tech, from Stetson)
- Jane Korn (Gonzaga, from Arizona)
- Stacy Leeds (Arkansas, from Kansas)
- Maria Pabon Lopez (Loyola-New Orleans. from Indiana-Indianapolis)
- Wendy Collins Perdue (Richmond, from Georgetown)
- Margaret Raymond (Wisconsin, from Iowa)
- Deanell Tacha (Pepperdine, from U.S. Court of Appeals for the Tenth Circuit)
The IRS, moving aggressively to collect more taxes from small businesses, is telling companies being audited to turn over exact copies of the electronic records kept in their business-software programs, according to a letter from an agency official to the American Institute of CPAs.
The accounting group fears this will force small businesses to turn over customer lists, personnel data, confidential client information and other unrelated information often contained in the off-the-shelf software programs many businesses use to manage all aspects of their finances.
Small-business groups are beginning to push back, saying the agency shouldn't treat small firms like bigger businesses, which usually have elaborate accounting systems and are able to give the IRS only the data the agency seeks. Small businesses, defined by the IRS as those with assets of less than $10 million, often use one off-the-shelf software program such as QuickBooks or Peachtree. A spokesman for Intuit said the Mountain View, Calif., company "was aware that the IRS has purchased copies of small-business accounting software to use in its tax audits." The IRS declined to comment.
"Many accountants are worried this could lead to fishing expeditions" to find problems beyond the scope of the requested information, said Danny Snow, a certified public accountant in Memphis who is active in the American Institute of CPAs, or AICPA. "It's not like what the IRS asks of large companies."
“With our e-book, tax professionals will no longer have to dig through a printed book or even tap the Internet,” said Christopher E. Bergin, Tax Analysts president and publisher. “Our e-book will enable them to keep the information they need at their fingertips, wherever they go.”
The Internal Revenue e-Code & Regs, which costs $50 for a one-time purchase or $100 for an annual subscription with quarterly updates, is available for PCs and Macs using Adobe® Digital Editions.
The e-book is a total e-solution. You can bookmark and make notes within each update of it. The e-book provides extensive linking within and between the code and regulations. It also includes historical notes that link to every corresponding amendment dating back to 1993 – with pre-1993 amendments available for every code section.
“We would have accepted this article in February,” one editor-in-chief kindly wrote me not long ago, “but we’ve already accepted a tax article this year.” At the time, I took this as likely an editor’s version of “I have to wash my hair” and tried not to take it too seriously. A couple of weeks ago, though, at the OJ ... a recent Chicago Law Review editor said much the same thing: once his journal takes an article from a “specialty” field, the bar is much higher for other pieces in the same field. ... What’s most vexing ... is that it’s driven entirely by the assumption that available slots are limited. Why not just park the second excellent tax article in the next volume? Well, that’s a thornier one. Let’s pause for comment & come back for a Part II.
- William J. Turnier (North Carolina), Tax (and Lots of Other) Scholars Need Not Apply: The Changing Venue for Scholarship, 50 J. Legal Educ. 189 (2000)
- Jasper L. Cummings, Jr. (Alston & Bird, Raleigh, NC), Academic Articles on Tax, 130 Tax Notes 1189 (Mar. 7, 2011):
- Lawrence Zelenak (Duke), Tax Scholarship: Useful and Useless, 130 Tax Notes 1337 (Mar. 14, 2011):
Thursday, May 26, 2011
Tax expenditure analysis, despite its contribution to tax policy debate, is ill-suited as a tool of constitutional decisionmaking. Sometimes tax provisions are, for constitutional purposes, equivalent to direct monetary outlays; sometimes they are not. That equivalence can only be evaluated on a case-by-case basis, considering the nature of the specific tax provision and the particular constitutional clause at issue. Contrary to the approach of the Winn dissent, the Court is ill-advised to invoke tax expenditure analysis as a tool of constitutional decisionmaking. At the end of the day, we do not know what a tax expenditure is.
Democrats have said they only intend to restore the tax rates that existed during the Clinton years. In reality they're proposing rates like those under President Carter.
Media reports in recent weeks say that Senate Democrats are considering a 3% surtax on income over $1 million to raise federal revenues. This would come on top of the higher income tax rates that President Obama has already proposed through the cancellation of the Bush era tax-rate reductions.
If the Democrats' millionaire surtax were to happen—and were added to other tax increases already enacted last year and other leading tax hike ideas on the table this year—this could leave the U.S. with a combined federal and state top tax rate on earnings of 62%. That's more than double the highest federal marginal rate of 28% when President Reagan left office in 1989. Welcome back to the 1970s. ...
Now let's consider how our tax system today compares with the system that was in place in the late 1980s—when the deficit was only about one-quarter as large as a share of GDP as it is now. After the landmark Tax Reform Act of 1986, which closed special-interest loopholes in exchange for top marginal rates of 28%, the highest combined federal-state marginal tax rate was about 33%. Now we may be headed to 62%. You don't have to be Jack Kemp or Arthur Laffer to understand that a 29 percentage point rise in top marginal rates would make America a highly uncompetitive place. ...
What all this means is that in the late 1980s, the U.S. was nearly the lowest taxed nation in the world, and a quarter century later we're nearly the highest.
Despite all of this, the refrain from Treasury Secretary Tim Geithner and most of the Democrats in Congress is our fiscal mess is a result of "tax cuts for the rich." When? Where? Who? The Tax Foundation recently noted that in 2009 the U.S. collected a higher share of income and payroll taxes (45%) from the richest 10% of tax filers than any other nation, including such socialist welfare states as Sweden (27%), France (28%) and Germany (31%). And this was before the rate hikes that Democrats are now endorsing.
The deductibility of charitable donations has been a feature of the U.S. individual income tax almost as long as the modern income tax has been in existence. Notwithstanding the long duration of that deduction, concerns about its cost, equity, and efficiency have prompted many proposals to change the tax treatment of charitable contributions. At the request of the former Chairman of the House Committee on the Budget, the CBO has examined patterns of individual charitable giving and analyzed how options for changing the tax treatment of such giving might affect the overall level of donations, the costs to the federal government, and the distribution of tax benefits by income group.
Total Charitable Contributions by Individual Donors, 1963 to 2009
Update: Above the Law, Emory Law Follow-Up: In Defense of Professor Stadler
President Obama announced today his intent to nominate Kathleen Kerrigan and Albert Lauber as Judges to the United States Tax Court. ...
Kathleen Kerrigan serves as tax and Social Security counsel for the majority staff of the Senate Committee on Small Business and Entrepreneurship. She is also the staff director for the Finance Subcommittee on Social Security, Pensions, and Family Policy. Previously, Ms. Kerrigan was a Partner at Baker and Hostetler LLP, working in the government affairs practice group. Before arriving at Baker and Hostetler, Ms. Kerrigan served as legislative director for Congressman Richard E. Neal. Ms. Kerrigan earned a B.S. from Boston College and a J.D. from Notre Dame.
Albert Lauber is the Director of the Graduate Tax and Securities Programs and a Visiting Professor of Law at Georgetown Law School. Previously, Mr. Lauber spent 17 years as a partner in Caplin & Drysdale, a Washington D.C. tax firm. There, he specialized in tax litigation at the trial and appellate levels, tax procedure, taxation of non-profit organizations, state and local taxation, and constitutional law. From 1983 to 1988, he served in the U.S. Department of Justice as Deputy Solicitor General and previously as Tax Assistant to the Solicitor General. He was a law clerk to Supreme Court Justice Harry A. Blackmun, and Judge Malcolm R. Wilkey, U.S. Court of Appeals for the D.C. Circuit. He received a B.A. and a J.D. from Yale University and Master’s degrees from Clare College and Cambridge University.
This article analyzes Friedland [T.C. Memo. 2011-90 (Apr. 25, 2011)], a recent Tax Court memorandum opinion, and concludes that in light of recent Supreme Court opinions, the Tax Court was wrong to hold that the 30-day period to file a petition in a whistleblower award action cannot be equitably tolled.
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[T]his first-time research demonstrates just how critical the choice of major is to a student‟s median earnings. While there is a lot of variation in earnings over a lifetime, the authors find that all undergraduate majors are „worth it,‟ even taking into account the cost of college and lost earnings. However, the lifetime advantage ranges from $1,090,000 for Engineering majors to $241,000 for Education majors.
The top 10 majors with the highest median earnings are: Petroleum Engineer ($120,000); Pharmacy/pharmaceutical Sciences and Administration ($105,000); Mathematics and Computer Sciences ($98,000); Aerospace Engineering ($87,000); Chemical Engineering ($86,000); Electrical Engineering ($85,000); Naval Architecture and Marine Engineering ($82,000); Mechanical Engineering, Metallurgical Engineering and Mining and Mineral Engineering (each with median earnings of $80,000).
The 10 majors with the lowest median earnings are: Counseling/Psychology ($29,000); Early Childhood Education ($36,000); Theology and Religious Vocations ($38,000); Human Services and Community Organizations ($38,000); Social Work ($39,000); Drama and Theater Arts, Studio Arts, Communication Disorders Sciences and Services, Visual and Performing Arts, and Health and Medical Preparatory Programs (each at $40,000).
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Wednesday, May 25, 2011
In Down-Market Diversity and Bar Passage, I discussed how minority students, particularly Black/African-American, generally have lower LSAT scores than do White/Caucasian students. I also discussed how law schools near the bottom of the market of law students tend to enroll minorities with LSAT scores than more elite law schools. This is particularly true for Historically Black Law Schools. Based on the average LSAT 25th percentiles for the Fall 2006 through Fall 2009 entering classes of mainland law schools, the bottom four schools were Florida A&M (142.50), Southern (142.75), North Carolina Central (143.50) and Texas Southern (145.00), while District of Columbia (148.75) and Howard (149.25) were grouped around the 15th percentile. ...
As I discuss in my April 2011 comments to the ABA, Endangered: Historically Black Law Schools (SSRN) (revised version, dated May 24, 2010, in process at SSRN), a 10% below first-time Bar passage rate was the measure used by the ABA before the adoption of Interpretation 301–6. Efforts by the Historically Black Law Schools (“HBLS”) to meet the “10% below” minimum by increasing the LSATs of entering students are associated with decreases in the enrollment of Black/African-American students at HBLSs. ...
The best example is The University of the District of Columbia--David A. Clarke School of Law ("UDC"). ... As shown in the following chart, from 1998 through 2005, the LSAT 25th percentile of UDC’s entering classes rose from a low of 138 to 149. At the same time, the proportion of entering students that were Black/African-American fell from almost 70% to a low of about 25% (it has since recovered to about 30%).
Under existing law, spouses are jointly and severally liable for joint tax returns and, as a result, the IRS may pursue either spouse for any tax due but not paid. In 1998, Congress expanded the relief available to filers of joint returns to include innocent spouse relief, separation of liability, and equitable relief. Many critics of these three avenues of relief complain that the statute is too complicated and offers too little relief to spouses, generally wives, who sign returns under duress, while being deceived by their husbands, or while subject to some other marital compulsion. This paper first evaluates what Congress intended to provide to “innocent spouses” when it expanded relief. The paper then examines 445 cases decided on appeals from IRS denials of relief in order to evaluate whether the law is accomplishing that congressional objective. This paper’s aim is to judge the success and failure of the innocent spouse provision from Congress’s perspective.
Whether, in direct conflict with the Third Circuit, the Ninth Circuit erred in holding that Petitioners' convictions of filing, and aiding and abetting in filing, a false statement on a corporate tax return in violation of 26 U.S.C. §§ 7206(1) and (2) were aggravated felonies involving fraud and deceit under 8 U.S.C. § 1101(a)(43)(M)(i), and Petitioners were therefore removable.
Dean Jeffrey Lehman is generally pleased with the progress of the new law school he oversees. The former dean of University of Michigan Law School and onetime president of Cornell University has seen enrollment at the three-year-old school go from 53 extremely bright and highly motivated students per class to 80. ... The one sticking point has been accreditation by the ABA. Which seems like it should be a no-brainer, except that this law school is located in Shenzhen, China.
Lehman has long hoped to make the Peking University School of Transnational Law (STL) the first law school outside the United States to be accredited by the ABA, which would allow its graduates to take the bar exam in any U.S. state. ...
But that aim has run headlong into the still-weak U.S. legal job market. Fears of a tide of new overseas competition for scarce work were evident in many of the 60 comments the ABA received in response to a special-committee report released last fall recommending the accreditation section begin considering foreign schools.
"As a long-time ABA member, I have no doubt why so many people refuse to join the association or leave shortly after joining," wrote Kelley Drye & Warren partner Steven Moore. "This proposal makes absolutely no sense, unless we just want to implode the legal field in the United States and get our unemployment rate in the double digits for decades to come." ...
Several law school deans expressed concern that accrediting foreign schools would undermine their L.L.M. programs. Such programs, they argue, offer foreign law students critical immersion in U.S. culture they would not receive at overseas schools like STL. ...
The ABA has responded by postponing any decision on the matter while it consults with "stakeholders" like the state supreme courts that oversee admission of foreign lawyers to practice.
But if the ABA is ultimately swayed by arguments about the bad U.S. job market for lawyers, Lehman thinks that the organization should be forthright about it. "Then the ABA should announce they aren't accrediting any more law schools anywhere because there are too many lawyers," he says.
At the core of the budget crises facing states are regressive state tax structures (comprised of the major state and local taxes) that are unfair, unsound, and unsustainable by design. Fortunately, there is a sensible solution: inverting the state’s current tax structure.
The inversion exercise takes a state’s current distribution of state and local taxes by income quintile (lowest 20%, second 20%, middle 20%, fourth 20%, top 20%) and flips it at the 50th percentile mark, thereby making a regressive structure progressive. This resulting progressive tax structure has major benefits to states.
To achieve the inverted structure, states must establish, or significantly improve upon, the graduated personal income tax—the backbone of any progressive tax structure. Concurrently, states and localities must significantly reduce their reliance on regressive sales, excise, and property taxes, which fall heavily on low- and middle-income families.
- It raises significant revenue. If every state inverted its tax structure, states would raise a combined $490 billion, wiping out deficits with cash to spare to invest in economy-enhancing activities.
- It is unmatched in its economic efficiency, which encourages steady and strong economic activity and widespread prosperity over time.
- It provides commonsense equity, with wealthy families contributing a greater share of their income in taxes than low- and middle-income families.
Legal scholars say a recent Supreme Court decision upholding Arizona's tax credits for scholarship donations could contain the seeds of defeat for a pending California challenge to the housing allowance enjoyed by pastors. ...
The ruling sends a signal that the Freedom From Religion Foundation (FFRF) cannot rely on Flast in its current federal challenge to ministerial housing allowances, said church law expert Richard Hammar.
Notre Dame law professor Rick Garnett agrees. He noted a separate mid-April ruling by the Seventh District Court of Appeals, which dismissed the FFRF complaint that the presidential proclamation of a National Day of Prayer amounted to government establishment of religion. The Seventh Court said that since FFRF was not directly injured, it lacked legal standing.
"The ruling suggests that the Supreme Court is not alone in thinking that Flast should not be read over-broadly," Garnett said. "It is powerful, persuasive authority for the claim that the foundation lacks standing to challenge the pastoral housing exemption."
The Tax Reform Act of 1986 combined base broadening (such as the curtailment of tax expenditures) with a reduction in tax rates, in a manner designed to be revenue neutral and distribution neutral. It established an influential model for tax reform that continues to be cited frequently. This report argues, however, that while 1986-style tax reform was a good idea in its time, it is no longer appropriate for three main reasons. First, if tax expenditures are properly viewed as spending through the tax code, a revenue neutrality norm in which the budgetary gain from their repeal ostensibly needs to be offset by rate cuts is intellectually incoherent. Second, the long-term U.S. fiscal gap makes rate-cutting, in particular for individuals, potentially imprudent. Third, if one wants to address rising high-end income concentration in the United States since 1986, the option of raising, rather than reducing, the top marginal income tax rates may need to be squarely considered.
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For law schools near the bottom of the market for law students—those with lower LSAT profiles of entering classes—diversity often means taking minority students at high risk of failing the Bar.
The mean LSAT scores (and standard deviations) of the largest racial and ethnic groups for the 2009-2010 testing year were:
LSAT Testing Year 2009-2010
Means and Standard Deviations, by Ethnicity
Asian/Pacific Islander 152.4 10.74 Black/African-American 142.0 8.74 Hispanic/Latino 146.4 9.65 White/Caucasian 152.9 9.33
One would expect that the schools with highest LSAT profiles would enroll minority students with the highest LSATs. As schools above them take the higher-LSAT students, law schools with lower LSAT profiles would only be able to enroll minority students with increasingly lower LSAT scores. As discussed in The LSAT- free Illusion, those students are at increasingly higher risk of failing the Bar. ...Law schools at the bottom of the market for law students must often choose between diversity and maintaining Bar passage rates by trying to raise the LSAT scores of entering students. Here the first clause of Standard 212 comes into play: the commitment to diversity must be “[c]onsistent with sound legal education policy and the Standards”.
An IRS investigation of gifts to a type of non-profit advocacy organization that is getting involved in political activity likely affects a small number of wealthy individual donors. At the same time, the inquiry could have wide-ranging implications for groups such as the Disabled American Veterans, the Sierra Club and AARP. They’re organized under the same section of the U.S. tax code as the groups engaged in political giving that the IRS is examining. ...
The IRS confirmed earlier this month it is investigating five donors who hadn’t filed gift tax returns for large contributions to advocacy groups organized under § 501(c)(4). Large donations to such groups, known as social welfare organizations, have been subject to the gift tax, though there’s little evidence the IRS has sought to collect it since the early 1980s. ...
Most corporations are allowed to make gifts to advocacy groups without having to pay the tax. Donations from S corporations, which pass profits directly to shareholders for assessment as personal income, would be treated as though they came from individual shareholders, according to Ellen Aprill, a law professor at Loyola Law School in Los Angeles. ...
Both political parties benefit from the political work of 501(c)(4) entities ... Political activity isn’t supposed to be the primary purpose of such groups, though “the IRS has never defined what primary is,” said Aprill. “It’s very murky.” Another form of non-profit, a so-called 527 organization, can accept unlimited contributions that aren’t subject to the gift tax and has less stringent rules governing political activity. Such groups must disclose the identity of large contributors.
Tuesday, May 24, 2011
Sitting for the bar exam may soon be trickier for the thousands of foreign-trained attorneys who take the test each year.
The New York Court of Appeals in April adopted stricter requirements for master of laws (LL.M.) programs, which help foreign lawyers gain eligibility to take the bar. The new rules focus primarily on the content of LL.M. programs, which many foreign attorneys use as an entry point into the domestic legal market.
At the same time, the ABA's Section of Legal Education and Admissions to the Bar has proposed specific curriculum requirements for LL.M. programs geared toward foreign-trained lawyers. Individual states that adopt the proposed model rule would let graduates of those programs sit for their bar exams. That may result in an expansion of states admitting foreign attorneys, since few states beyond New York and California currently allow the LL.M.-to-bar exam path.
If approved, the ABA initiative would represent a significant policy shift. For decades, LL.M. programs have been left largely unregulated -- the ABA demands only that they not detract from a law school's J.D. program. The New York and ABA rules would impose detailed curriculum guidelines and credit-hour requirements, although neither would bestow formal accreditation on any LL.M. program.
“My father,” Elliott Roosevelt observed of his famous parent, “may have been the originator of the concept of employing the IRS as a weapon of political retribution.” ...
In this chapter, Mr. Folsom points to a number of examples where FDR ordered the IRS to investigate people who were critical of his policies. He also told the IRS to stop investigations that might harm those who were helping him (such as then congressman and future president LBJ). The scariest part of this was that FDR was willing to use the IRS as a weapon against private US citizens. Take for example William Randolph Hearst (newspaper publisher), or Father Charles Coughlin (priest and radio personality). In both of these cases, Roosevelt had the IRS comb through the financial records of these individuals looking for something he could use against them. Why? They dared to oppose the New Deal. Neither of these individuals were found guilty of anything. Others, such as Moses “Moe” Annenberg, weren’t so lucky.
Applications will be accepted May 23, 2011, through June 30, 2011. Previous grant recipients will have the option to apply for up to three years of annual funding, which would reduce the amount of paperwork they must complete over a three-year period. This annual funding will also help recipients with budget planning.
In 2011 the IRS awarded 31 TCE grantees $6.1 million and 179 VITA grantees $12 million.
- Application Package and Guidelines
- Publication 3319: Low Income Taxpayer Clinic Grant Application
- Publication 4134: Low Income Taxpayer Clinic List
- Publication 4671: VITA Grant 2012 Program Overview and Application Package
- Publication 4680: TCE & VITA Grant Programs
- Publication 4883: Grant Programs Resource Guide