TaxProf Blog

Hoffer: Germany's Church Tax and Non-Geographic Taxing Jurisdiction

Stephanie R. Hoffer (Ohio State) has published Caesar as God's Banker: Using Germany's Church Tax as an Example of Non-Geographically Bounded Taxing Jurisdiction, 9 Wash. U. Global Stud. L. Rev. 595 (2010). Here is the abstract:

This Article compares the modern-day German church tax to church taxes levied by the American colonies and early states and concludes that, unlike its American counterparts, the German church tax is not wholly a “church” tax. Rather, it is primarily a form of decentralized local taxation, the jurisdiction of which is determined by voluntary group affinity rather than geography. As such, it is a crucial part of the German taxing landscape that should not be abandoned but should instead be retained and extended to qualifying secular organizations. In that context -- secular rather than sectarian - the tax may also serve as the starting point for developing a model of non-geographically bounded jurisdictions to be used for funding local government or non-profit provision of public goods within the United States.

CBPP Opposes Repatriation Tax Holiday

The Center on Budget and Policy Priorities yesterday released Tax Holiday for Overseas Corporate Profits Would Increase Deficits, Fail to Boost the Economy, and Ultimately Shift More Investment and Jobs Overseas:

[A] recent study by Northwestern University law professor Thomas J. Brennan strongly suggests that firms, anticipating a second holiday, have already aggressively shifted profits overseas. Analyzing the public records of a large group of U.S. multinationals that together accounted for 79% of the repatriations that occurred under the 2004 holiday, Brennan found that “since the holiday window, there has been a dramatic increase in the rate at which firms add to their stockpile of foreign earnings kept overseas.” In each of the three years following the 2004 tax holiday, these companies increased the amounts of new “permanently reinvested” foreign earnings by three times as much, on average, as they had in the each of the ten years before the holiday (see Figure 1)

JCT estimated that while a second repatriation holiday would raise revenues initially (as corporations took advantage of the holiday to repatriate foreign earnings), it would cost the Treasury considerably more in later years, for a ten-year net revenue loss of $79 billion — 24 times the net projected cost of the 2004 tax holiday (see Figure 2)

 

 Although a total of 843 companies participated in the 2004 tax holiday, the bulk of the benefit went to companies in the sectors identified by Everson as having made the most aggressive use of tax avoidance schemes. IRS data show that half of all qualifying repatriations under the 2004 tax holiday came from large pharmaceutical and technology corporations (see Figure 3); one large pharmaceutical company, Pfizer, alone accounted for over 10 percent of total repatriations.

 

The NBA Salary Cap Gives No-Tax Dallas and Miami an Unfair Advantage

Mitchell L. Engler (Cardozo) has posted The Untaxed King of South Beach: Lebron James and the NBA Salary Cap, 49 San Diego L. Rev. ___ (2011), on SSRN. Here is the abstract:

In contrast to major league baseball, the National Basketball Association has a salary cap designed to provide every team an equal and fair chance of competing for the championship. The Miami Heat‘s recent incredible success in signing the game‘s three most hotly desired free agents, including mega-stars Lebron James and Dwyane Wade, therefore flies in the face of the NBA‘s attempted level playing field. How could one team so outmaneuver all the others in the sport which tried to eliminate such uncompetitive results via a salary cap?

As discussed in this Essay, the answer lies in the law of unintended consequences and perverse incentives. Some NBA teams are located in more attractive jurisdictions with nicer amenities or lower costs, such as taxes. In particular, Miami provides a highly-favorable climate both as to weather and taxes as Florida does not have a state income tax. In the absence of any salary cap limitations, teams in higher-tax jurisdictions could compete better with Miami for free agent players by offering higher salaries to offset the extra tax. But the NBA salary cap, by its very terms, blocks this usual free-market response.

Having flagged this perverse and unintended benefit to the no-tax clubs, this Essay then proposes an appropriate solution. Rather than scrapping the salary cap and restoring a competitive advantage to the wealthier clubs, a state tax adjustment to the cap amounts would remove the rich clubs‘ advantage without substituting an unintended benefit to the no-tax clubs. The salary cap amounts of no-tax teams simply should be reduced by a percentage equal to the highest state tax rate of any NBA team. After making this simple adjustment, this Essay then refutes more sophisticated arguments as to why the proposed adjustment might go too far. Among other points, this Essay highlights how Miami‘s tax advantage might extend beyond just Lebron‘s salary to include his extensive endorsement income as well. Expanding the analysis to such deeper level therefore highlights an even greater need for a state tax adjustment to the NBA salary cap.

As Rick Bales (Northern Kenkucky) notes, the recnt NBA finals between no-tax Dallas and Miami supports Professor Engler's thesis.

Should Media Matters Lose its § 501(c)(3) Tax-Exempt Status?

Washington Times, Taxpayers’ Subsidization of War on Fox News, by C. Boyden Gray:

Media Matters for America was originally established as a § 501(c)(3) organization, that is, an organization that can receive tax-deductible contributions to engage in educational activities. The more precise purpose was to counter alleged media bias and so to “identify occurrences of excessive bias in the American media, educate the public as to their existence, and to work with members of the media to reduce them.”

What MMA actually is doing, however, moves far afield from identifying possible bias to mounting a campaign to undermine a major media outlet and to promote the Democratic Party and progressive causes associated with it. Mr. Brock himself has described this new strategy as “a war on Fox,” an effort “to disrupt [Rupert Murdoch‘s] commercial interests” and look for ways to turn regulators against News Corp.’s media outlets.

MMA’s activities should disallow its tax-exempt status in two fundamental ways. First, IRS rulings make clear that attacks on individuals, statement of positions that are unsupported by facts and use of inflammatory language and other distortions will cost an organization its tax-free status. Second, in declaring “guerrilla warfare” on Fox as the “leader” and “mouthpiece” of the Republican Party and in developing a sophisticated Democratic-leaning media training boot camp, MMA has transformed itself into an aggressive advocate for Democratic and progressive causes and thus produced a second deviation from exempt educational activities.

MMA’s role as a Democratic training camp parallels exactly the operations of the American Campaign Academy which was denied tax-exempt status by the IRS in 1989. [American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989).]

Haile Reviews Shaviro's Decoding the U.S. Corporate Tax

Andy Haile (Elon) has published Book Review, 2 Elon L. Rev. 287 (2011) (reviewing Daniel N. Shaviro (NYU), Decoding the U.S. Corporate Tax (Urban Institute Press, 2009)):

Is it possible to make a book about reforming the U.S. corporate tax accessible and interesting? Daniel Shaviro does a credible job of both in Decoding the U.S. Corporate Tax. While tax policymakers and professors constitute the most likely audience to read and appreciate the book, Professor Shaviro’s entertaining writing style makes the book a useful primer for anyone interested in understanding the theoretical foundations (or lack thereof) of the existing corporate tax as well as possible future directions for the tax.

TIGTA: 100% of Tested IRS Databases Are Vulnerable to Hackers

The Treasury Inspector General for Tax Administration today released Security Over Databases Could Be Enhanced to Ensure Taxpayer Data Are Protected (2011-20-044):

Some of the 2,200 databases that the IRS uses to manage and process taxpayer data are not configured securely, are running out-of-date software, and no longer receive security patches. Nor has the IRS fully implemented its plans to complete vulnerability scans of its databases -- although the IRS spent more than $1.1 million in software licenses and support costs for a database vulnerability scanning and compliance assessment tool, it did not fully implement it.

TIGTA used database vulnerability assessment software to conduct remote scans of the primary databases for 13 applications supporting critical tax administration business processes. Its review found high and medium risk vulnerabilities, as classified by the scanning tool in each of the 13 databases.

IRS Increases Standard Mileage Rate in Light of High Gas Prices

In light of the increase in gas prices, the IRS announced today (IR-2011-69; Announcement 2011-40) a 4.5-cent increase for July 1, 2011 through December 31, 2011 in the optional standard mileage rates used to calculate the deductible costs of operating an automobile:

• Business use of a car:  55.5 cents per mile (up from 51 cents)
• Medical and moving use of a car:  23.5 cents per mile (up from 19 cents)

The rate for charitable use of a car is set by statute and thus remains at 14 cents per mile.

Off to the CALI Conference on Unbound

Although I hate to leave the paradise of San Diego, I am spending the next three days at the 2011 CALI Conference for Law School Computing at Marquette.  I will be attending many of the wonderful sessions, as well as a meeting of the CALI Board of Directors on Friday evening (on which I serve as Vice-President, along with my colleague Ken Hirsh).  CALI is doing wonderful work on a variety of projects for faculty, including A2J Author, Classcaster, eLangdell, Free Law Reporter, InstaPoll, Lawdibles, Legal Education Commons, MediaNotes, and Webinars, in addition to their bread and butter CALI lessons for students (Jim Maule has produced over 250 tax lessons, which I highly recommend).  In many ways, this is my favorite conference of the year, as it is the only gathering of law school faculty, librarians, and IT folks.  I am looking forward to reconnecting and breaking bread with friends in all three spheres. I suspect I will leave Milwaukee with a severe case of building envy.

Update: For more, see Law Libarian Blog.

75% of Law Grads Are Better Off Than 10 Years Ago; 25% Are Worse Off

Recent Law Grads Enjoy Better Standard of Living Than 10 Years Ago:

Recent law school graduates on average have more disposable income than they did ten years ago, this despite higher student loan debt payments and a worsened job market, according to an exclusive study by National Jurist magazine.

Graduates employed by law firms have seen their standard of living improve by 59% since 1998. It also improved for graduates headed into public service — albeit by a more modest 6%. But the news is not good for all recent graduates. 

To determine standard of living, The National Jurist used median starting salaries, average debt payments, estimated taxes and then factored in inflation over the period of the study. The magazine did the analysis on a national basis and on a school-by-school basis.

The findings seem to run counter to conventional wisdom that law school is a worse investment than it was in the past.

“While the data shows that the Class of 2009 was worse off than the previous class, it fares very well when compared to historical numbers,” said Jack Crittenden, editor of The National Jurist. “Recent graduates enjoy a similar, if not better, quality of life upon graduation.”

But that is not true for graduates who get jobs at the smallest law firms, or for those underemployed or unemployed.

Why Not All Law Grads Are Better Off Than 10 Years Ago:

Not all law grads are better off than 10 years ago. In fact, for about one-fourth, things are worse. 

We just published a story that shows that, on average, recent law graduates have a better standard of living than they did in 1998 — by 59% for those who enter private practice and by 6% for those who enter public service.

But while the average has improved, one has to take a close look at the data to understand what really happened to the legal profession over the past ten years.

Large law firms increased the number of hires, and they significantly increased their salaries – from $70,000 in 1998 to $160,000. That means that there is a segment of the population — 22.3% — that is far better off than 10 years ago. But there is a segment — the 18.7% who landed jobs with firms of two to 10 attorneys and those unemployed — that are worse off. The other 50% of graduates saw modest improvements in standard of living. ...

[W]hile things have improved for most recent grads over the past ten years, they are very ugly indeed for the underemployed, unemployed and those employed at the smallest firms — which I am guessing account for about 28% of the Class of 2010.

House Holds Hearing Today on Tax Reform and Foreign Investment in the U.S.

The Subcommittee on Select Revenue Measures of the House Ways & Means Committee holds a hearing today on Tax Reform and Foreign Investment in the United States:

Foreign direct investment plays an important role in the U.S. economy.  According to the Commerce Department, FDI increased to $194.5 billion in 2010 after plummeting to $134.7 billion in 2009 as a result of the economic downturn.  (In 2008, FDI reached an all-time high of $328.3 billion.)  U.S. subsidiaries of foreign-based companies employ 5.6 million American workers – roughly 5% of the U.S. private sector workforce.  Foreign-headquartered companies share many of the same concerns about the U.S. tax system that purely domestic companies raise, such as the relatively high U.S. corporate tax rate.  Foreign-based companies also face tax issues unique to their business structure, and some commentators have suggested that there are tax obstacles to additional FDI in the United States.

In 2007, the Treasury Department published a study on inbound transactions that covered earnings stripping, transfer pricing, and eligibility for tax treaty benefits.  Among other findings, the study determined that there was not conclusive evidence on whether U.S. subsidiaries of foreign parents engage in earnings stripping.  Treasury recommended that policymakers continue examining the question as better information becomes available. ...

The hearing will focus on the important role that FDI plays in expanding the U.S. economy and creating jobs for American workers. The hearing will explore the tax environment facing foreign investors and foreign-headquartered businesses investing or operating in the United States.  It also will examine a number of tax provisions applicable to inbound activity, including (but not limited to) the U.S. corporate tax rate, foreign investment in real property, and the earnings stripping rules of Code section 163(j).

Witnesses:

• Jeffrey DeBoer (President & CEO, The Real Estate Roundtable)
• Claude Draillard (CFO, Dassault Falcon Jet Corp.)
• Gary Hufbauer (Fellow, Peterson Institute for International Economics)
• Nancy McLernon (President & CEO, Organization for International Investment)
• Alexander Spitzer (Senior VP, Nestle Holdings, Inc.)
• Robert Stricof (Partner, Deloitte Tax)
• Bret Wells (Professor, University of Houston Law Center)

In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Related to U.S. Activities of Foreign Persons (JCX-37-11):

This document ... provides data on foreign investment in the United States and describes the U.S. tax rules applicable to U.S. activities of foreign taxpayers.

In 2009, foreign persons received approximately $488 billion in income from U.S. investments. $151 billion of that $488 billion of income was from foreign direct investment in the United States. With significant exceptions, foreign persons’ income from foreign investment in the United States is subject to U.S. tax.

Nonresident individuals and foreign corporations are subject to U.S. taxation on U.S.- source income (and on very limited categories of foreign-source income). Category-by-category rules determine whether income has a U.S. source or a foreign source. The U.S. tax rules for foreign persons’ income potentially subject to U.S. taxation apply differently to two broad categories of income. U.S.-source “fixed or determinable annual or periodical gains, profits, and income” is, with exceptions for investment and bank deposit interest, subject to a 30-percent gross-basis withholding tax (subject to reduction or elimination under bilateral income tax treaties), and income that is effectively connected with the conduct of a U.S. trade or business is subject to the same net-basis taxation that applies to U.S. persons.

Burton & Stewart: Budget Transparency Through Tax Expenditure Management

Mark Burton (University of Canberra Law School) & Miranda Stewart (Melbourne Law School) have posted Promoting Budget Transparency Through Tax Expenditure Management: A Report on Country Experience for Civil Society Advocates on SSRN. Here is the abstract:

This report aims to provide an accessible source of information about tax expenditure reporting, including definitions, explanations of different approaches to measurement and calculation, and examples and analysis of country experiences. Politicians, journalists, think tanks and researchers, government department officers and Treasury and Finance officials may find the information and experiences in this report helpful in analyzing their own country government’s decisions about taxing and spending.

Galle: The Distortionary Effects of Charitable Subsidies

Brian D. Galle (Boston College) has posted The Distortionary Effects of Subsidies for Charity in a Federal System on SSRN. Here is the abstract:

Prevailing accounts of the efficiency of subsidies for the nonprofit sector presume that the only alternative source of public goods is a single sovereign, controlled by a single median voter. Tiebout sorting, however, also provides citizens with alternative bundles of public goods. When these two systems are in place simultaneously, they may interact. We present a model in which subsidies may affect not only the choice between nonprofit and government, but also the choice among governments. Because nonprofits allow citizens to obtain alternative bundles of public goods without relocation, subsidies for the nonprofit sector alter incentives to relocate. We show that this distortion in the market for local government may either increase or decrease welfare, depending on the nature and geographical scope of the good provided. As a result, for some goods it is ambiguous whether subsidies for charity on net increase social welfare. We also consider extensions involving simultaneous provision of similar goods of differing quality.

Colorado Early Retirement Program Targets Unproductive Faculty

Inside Higher Ed, Motivating the Reluctant Retiree (Singular):

[A] truism among human resources experts is that because [early retirement programs for faculty] are often structured to include significant numbers of people, institutions have little control over who takes the offer and who doesn't -- and in many cases, the "wrong people" (in an employer's eyes) leave. ...

As Colorado officials discussed how to craft a retirement incentive that would be both large enough to attract meaningful numbers of reluctant retirees and targeted enough to focus on those the institution felt most comfortable losing, they opted to take an "individual" rather than a "group" approach. ...

The traditional approach is to define a set of criteria and make the benefit available to anyone who qualifies. Instead, the university created a program that allowed all deans to identify individual candidates in their schools who met certain criteria (55 or older, with at least 15 years of experience) and whose productivity -- for a variety of reasons, such as changes in student interest or declines in research funding -- was perceived to be waning.

Those individuals were offered an extremely attractive but unusual deal (with non-negotiable terms): two years' pay at their final base salary paid over five years into a 403(b) retirement account (most incentive programs offer a year's pay). In exchange, the faculty member had to relinquish tenure and commit (for tax reasons) to do no work for which he or she received pay from the university for that five-year period, and Colorado would provide retirement planning coaching on both financial and non-financial matters. ... In all, 36 professors were approached, and 31 accepted the arrangement. ...

"I'm not sure how many faculty got the point that it was targeted rather than one that you could ask for -- it kind of went over people's heads," says Joseph Rosse, a professor of management at the Boulder campus and chair of the campus's Faculty Assembly. "I heard virtually no discussion of it this year. One reason it was so low-visibility is because they were so careful to avoid any characterization of it being for 'deadwood' professors."

Mankiw Accuses Krugman of Cooking the Reagan Tax Revenue Data

In today's New York Times (Reagan and Revenues), Paul Krugman argues that the GOP wrongly argues that the Reagan tax cuts increased tax revenues:

 
There was no Reagan revenue miracle; growth slowed. There was a Clinton miracle. And there was a Bush II reverse miracle.

 But Greg Mankiw accuses Krugman of cooking the data:

What strikes me about Paul's blog post, however, is how completely unconvincing it is.  He uses a chart that starts the Reagan era in 1979, arguing we need to correct for the business cycle.  But would or should this persuade anyone?

The null hypothesis being tested is that Reagan policies had a significant effect on revenue growth.  But would any believer in that null hypothesis include the last couple years of the Carter administration as part of the Reagan era?  Weren't the policies of those years precisely what Reagan was trying to reverse?  Maybe Paul's chart might appeal to someone who already agrees with him, but I thought economists turned to data to try to persuade those who are truly undecided. It is hard to see how this presentation of the data would move someone who is yet to make up his mind.

Nussim: Unjust Enrichment and the Refund of Overpaid Taxes

Jacob Nussim (Bar-Ilan University, Faculty of Law) has published On a Passé Defense: Unjust Enrichment and the Refund of Overpaid Taxes, 18 Sup. Ct. Econ. Rev. 233 (2010).  Here is the abstract:

A producer pays commodity taxes on sold goods, realizing only later that the tax was unlawful. Yet, his claim for refund is denied. Tax authorities in the U.S. and elsewhere use the passing on defense to deny refunds of unlawfully levied taxes. The defense states that some or all of the unlawful tax the producer paid was passed on to consumers through goods' price, and thus the producer would be enriched if refunded fully. The passing on defense is largely perceived in legal scholarship as a choice between unjustly enriching the producer by a full refund and unjustly enriching government by denying it. A balance is thus called for, e.g. by applying equity considerations. Accordingly, the application of the defense is vague and inconsistent. This paper shows, based on an economic reasoning, that a full refund of overpaid taxes does not enrich the producer-taxpayer. Since the defense does not serve to prevent producers' enrichment, it should be rejected. Further, the paper demonstrates that, in fact, the passing on defense generates an additional tax in the market.

Summer Reading: Selfish Reasons to Have More Kids

Bryan Caplan (George Mason University, Department of Economics), Selfish Reasons to Have More Kids: Why Being a Great Parent is Less Work and More Fun Than You Think (Basic Books 2011):

We've needlessly turned parenting into an unpleasant chore. Parents invest more time and money in their kids than ever, but the shocking lesson of twin and adoption research is that upbringing is much less important than genetics in the long run. These revelations have surprising implications for how we parent and how we spend time with our kids. The big lesson: Mold your kids less and enjoy your life more. Your kids will still turn out fine.

Selfish Reasons to Have More Kids is a book of practical big ideas. How can parents be happier? What can they change--and what do they need to just accept? Which of their worries can parents safely forget? Above all, what is the right number of kids for you to have? You'll never see kids or parenthood the same way again.

The Guardian, Is Strict Parenting Better for Children?:

Amy Chua's memoir about her super-strict parenting style gave us the Tiger Mother; but professor Bryan Caplan is not convinced it's the best way.

Yale law professor, and mother of two girls, Amy Chua gave the world a new type of mother role model in her memoir Battle Hymn of the Tiger Mother: someone who insisted on several hours of music practice every day, banned sleepovers and wasn't happy with anything less than an A+ for schoolwork. Bryan Caplan, economics professor and father-of-three, whose new book says nature will always win over nurture, is an exponent of "serenity parenting", the belief that parents should stop hothousing their children. Can either of them change the other's mind?

Tax Court: New York Lawyer Lacked Tax Mojo

The Tax Court held on Monday that New York lawyer Thomas F. Liotti had $11,974.65 of discharge of indebtedness income when MBNA accepted $5,200 to settle his $17,174.65 credit card balance. Liotti v. Commissioner, T.C. Summ. Op. 2011-73 (June 20, 2011):

Petitioner contends that he did not have DOI income on the basis that: (1) The amount he owed MBNA was in dispute (a contested liability); (2) the amount of interest MBNA was charging him was usurious; and (3) he did not receive a Form 1099-C from MBNA and did not know that there would be any tax ramifications for settling his account for less than the full amount of his MBNA account balance.

Petitioner's contention that the debt is contested is incorrect. Petitioner has made no argument against the original amount of his debt. ... Petitioner's challenge to the amount of interest he is charged does not rise to a contested liability. ...

Coupled with, and seemingly a second prong of, petitioner's contested liability argument is his argument that the interest MBNA charged was usurious under New York law and the discharge of such interest should, therefore, not be income to him.  ... Petitioner has taken on the mantle of protecting all consumers from the aggressive tactics of the credit card companies and even informed the Court that he was "here, Judge, for the American people, as well as for myself." ...  All of the credit card statements that petitioner entered into evidence reflect an annual interest rate of 22.98%. While this interest rate is high, it does not reach the level of what petitioner claims is usurious in New York.

Petitioner also argues that he never received a Form 1099-C from MBNA and did not know that there would be any tax ramifications for settling his debt for less than the full amount. ... Petitioner is an attorney and a member of the Tax Court bar with legal acumen and a fundamental knowledge of legal research. The fact that petitioner did not know that there were tax ramifications associated with settling a debt for less than its face value does not negate his enjoyment of the economic benefit from the discharge of his debt.

Mr. Liotti is the author of Judge Mojo: The True Story of One Attorney’s Fight Against Judicial Terrorism (2008):

Chilling and gripping, Judge Mojo tells the incredible true story of a mentally unstable judge who became obsessed with destroying Thomas F. Liotti, a high-profile criminal defense attorney.

Liotti relates how Judge B. Marc Mogil suffered from bipolar disorder but refused to take his medication and started referring to himself as Judge Mojo. What began as a simple dispute between the two men soon turned into a full-fledged obsession on the part of Judge Mogil. He threatened Liotti’s life and that of his family, stalking him over the Internet and through bar associations until Liotti’s life resembled a walking nightmare.

As Judge Mogil’s illness remained untreated, his outrageous claims of being a concert pianist and of the ability to fly F-14 fighter jets continued. But it wasn’t until he was removed from the bench and disbarred that the damage of his rule became apparent. Liotti objectively shows how the judicial system failed to remove Mogil from his position in the midst of several allegations against him, creating misery for attorneys and clients and pessimism for the system itself.

Through an intriguing mix of legal history, personal insight, and hard facts, Liotti chronicles his bizarre saga and speaks to the abusive power of one judge’s corruption.

David Cay Johnston Joins Reuters

After writing a column for Tax Notes for three years (following his 13-year stint at the New York Times), Pulitzer Prize-winning tax journalist and author David Cay Johnston will write a twice-weekly tax column for Thomson-Reuters, and also provide television commentaries.  (David will continue in his dual appointment as Distinguished Visiting Lecturer at Syrcause University's College of Law and Whitman School of Management.) From The Wrap:

Johnston’s column is launching the week of July 5 and will appear on the new Thomson Reuters News & Insight resource for tax and accounting professionals as well as the Reuters wire and reuters.com, according to executive editor Amy Stevens.

IRS-TPC Research Conference: New Perspectives on Tax Administration

The IRS and Tax Policy Center are hosting a research conference today on New Perspectives on Tax Administration with these presentations and papers (live webcast here; delayed webcast here):

Session #1: Impact of Service on Compliance (Moderator: Melissa Vigil (IRS); Discussant: Marsha Blumenthal (University of St. Thomas))

• Christian Vossler (Tennessee), Michael McKee (Appalachian State) & Michael Jones (Bridgewater State), Some Effects of Tax Information Services Reliability and Availability on Tax Reporting Behaviorm
• Tiffanie N. Bruch, David C. Cico & Saima S. Mehmood (all of the IRS), 2009 Multi City Study of the Effect of Assistance on Compliance
• Brian Erard (B. Erard & Associates), Alan Plumley (IRS) & Derek Snaidauf (IBM Business Consulting), Predicting Aggregate Taxpayer Compliance Behavior

Session #2: Individual Compliance Behavior (Moderator: Elaine Maag (Urban Institute); Discussant: Charles Christian (Arizona State))

• James Alm (Tulane), Kim M. Bloomquist (IRS) & Michael McKee (Appalachian State), On the External Validity of Tax Compliance Experiments
• Mark D. Phillips (Chicago), Reconsidering the Deterrence Paradigm of Tax Compliance

Session #3: Estimating the Tax Gap (Moderator: Eric Toder (Urban Institute); Discussants: Katherine Baer & Emily Lin (both of the Office of Tax Analysis, U.S. Treasury Department))

• Marcus Rubin (HMRC, UK), The Practicality of a Top Down Approach to Estimating the Direct Tax Gap
• Brian Erard (B. Erard & Associates) & Jonathan Feinstein (Yale), The Individual Income Tax Reporting Gap: What We See and What We Don't
• Joshua Lawrence, Michael Udell & Tiffany Young (all of Ernst & Young), The Federal Tax Position of Persons Who Were Not Reported on Filed Tax Returns in 2005

Session 4: New Disclosure and Regulation Issues (Moderator: Barry Johnson (IRS); Discussant: Joe Cordes (George Washington))

• George Contos, John Guyton, Jean LaVelle & Deborah Myers (all of the IRS), Use of Assets in Large and Mid-Size Corporations: An Econometric Analysis of the Manufacturing Sector Using Schedule M-3 Data
• Evelyn Brody (Chicago-Kent), Sunshine and Shadows on Charity Governance: Public Disclosure as an IRS Regulatory Tool
• Rachel Brash, Jessica F. Compton, Nancy Pindus, C. Eugene Steuerle, Brett Theodos (all of the Urban Institute) & Karen Masken (IRS), Who Needs Credit at Tax Time and Why: A Look at Refund Anticipation Loans and Refund Anticipation Checks

Hickman on D.C. Circuit's Intermountain Decision

Kristin E. Hickman (Minnesota) offers her thoughts on yesterday's decision in Intermountain Insurance Service of Vail LLC v. Commissioner, No. 10-1204 (D.C. Cir. June 21, 2011):

Much like the Federal Circuit, the D.C. Circuit applied Chevron analysis to conclude that § 6501 is ambiguous and that Treasury's interpretation of that provision is reasonable. Because the statute is ambiguous, the Supreme Court's decision in Colony does not foreclose Treasury's interpretation. Whether or not the temporary regulations were procedurally flawed for APA purposes, Treasury finalized them using notice and comment. Treasury's “searching consideration” of the sole comment received in that process, as expressed in the preamble to the final regulations, demonstrated a sufficiently “open mind” to “cure” any procedural problem posed by the use of temporary regulations. (The court did not address at all whether or not the use of temporary regulations without notice and comment complies with the APA. Instead, the court only addressed the argument that the final regulations were procedurally flawed because they had been initially adopted as temporary regulations without notice and comment and the agency failed to keep an open mind in promulgating the final regulations.)

Update: For more, see Miller & Chevalier's Tax Appellate Blog.

Prior TaxProf Blog coverage:

• Johnson: Intermountain, Interpretive Regulations, and Brand X (May 20, 2010)
• Johnson: Intermountain and the Importance of Administrative Law in Tax Law (Aug. 25, 2010)
• Federal Circuit Exacerbates Split on Overstatement of Basis and 6-Year SOL (Mar. 12, 2011)
• Harvard Law Review on Intermountain (Mar. 24, 2011)

GAO Identifies 29 Deficiencies in IRS's Internal Controls

The Government Accountability Office yesterday released Management Report: Improvements Are Needed to Enhance the Internal Revenue Service's Internal Controls and Operating Effectiveness (GAO-11-494R):

During our audit of IRS's fiscal year 2010 financial statements, we identified [15] internal control issues for which we do not already have recommendations outstanding. ...These issues increase the risk that IRS may not prevent or promptly detect and correct (1) unauthorized or improper refunds, purchases, or promotions; (2) errors in the hours credited or amounts paid to staff; (3) loss or theft of cash receipts or taxpayer information; (4) security and control deficiencies at its SCCs and processing facilities; (5) data errors in its property records; and (6) improper disclosure of taxpayer and other sensitive data.. ... This report provides 29 recommendations to address the internal control issues we identified. These recommendations are intended to bring IRS into conformance with its own policies, the Standards for Internal Control in the Federal Government, or both.

From: The Best Colleges. (Hat Tip: InstaPundit.)

NY Times: Taxes Are the Lowest They've Been Since the 1960s

Following up on my previous post, U.S. Has Lowest Corporate Tax Burden of Any Western Nation:  Bruce Bartlett has an op-ed in today's New York Times, Are Taxes High or Low? A Further Look:

A couple of weeks ago, I discussed the low level of federal taxes as a share of the GDP in the United States, both historically and in comparison with other developed economies. I noted that total federal revenue — income, corporate and payroll taxes combined –– has been below 15% of GDP for three years in a row, its lowest level since 1950 and well below the postwar average of about 18.5% of GDP. ...

A common criticism of my earlier point about federal taxes as a share of G.D.P. is that I ignored marginal tax rates — the tax on each additional dollar earned. ... The Tax Policy Center annually calculates average and marginal tax rates for four-person families with the same relative income. It starts with the median income. ... It then calculates tax rates for those with half the median income, a common definition for the working poor, and twice the median income, which would represent the reasonably well-to-do. The table below shows the average and marginal tax rates for each of these families since 1955, including both federal income taxes and the employee share of payroll taxes.

[I]t is clear that federal taxes have not been rising and are, at least in historical terms, lower for most taxpayers than they have been since the 1960s. Those who assert that taxes are rising or are at confiscatory levels simply do not know what they are talking about.

Four Law Schools to Shrink Size of 1L Class

At least four law schools -- Albany (from 250 to 230), Creighton (from 155 to 135), Touro (from 280 to 250), Western New England (from 125 to 100) -- have announced plans to shrink their incoming 1L classes.   These schools say their decisions are based on "morality" in light of the declining job prospects for law grads. John Yoo (UC-Berkeley) disagrees:

The decision to reduce the size of a law school class has little to do with morality (though it may have a lot to do with moralizing) and everything to do with economics.  ... As the economy contracts, as it has, the economy's demand for legal services will drop. Fewer students will want to go to law school and will pursue other opportunities.  Not to be an elitist, but it is no surprise that lower ranked law schools will be the first ones which will experience the effects and will reduce the size of their classes, or reduce their tuitions, accordingly.

• ABA Journal
• Above the Law
• Inside Higher Ed 
• Legal Skills Prof Blog
• WSJ Law Blog

Senators Push IRS to Offer Free Tax Prep Software for All Taxpayers

U.S. News & World Report, Senators Urge IRS to Provide Taxpayers With Free Software:

Egged on by [Mark] Kirk at a hearing this month, [Dick] Durbin, chairman of the Senate Appropriations subcommittee that oversees the IRS, wants a disinterested IRS to look into drawing up software like TurboTax and offering it free to Americans on the agency's website. "We can eliminate the middle man," Durbin said. "It may save taxpayers money." ...

[Kirk] argued that Americans spend too much time and money filing taxes and that the agency should make helping taxpayers its priority. His idea: "That an American doesn't pay TurboTax, doesn't pay H&R Block, simply logs onto the IRS website, fills out their taxes in an accurate, complete way in which the software is handling all of the complexity, and the amount of time spent complying with federal law drops like a rock."

Shulman suggested, however, "I don't think it's quite that simple." ... Intuit, the TurboTax maker, notes that the IRS offers a service called Free File; however, it's limited to those with adjusted gross income of $58,000 or less. Shulman was saying that his agency had gotten lots of letters on both sides of the free software issue when Kirk declared: "Your mission should be to make it as easy as possible to comply with federal law, so this argument inside your shop should end in like an hour."

(Hat Tip: Bon Kamman.) This gives me an excuse to run the latest TurboTax ad:

GW Law Prof Sues Catholic U. to Stop Same-Sex Dorms

Following up on last week's post on the op-ed by former Boston College Law School Dean and AALS President John Garvey, announcing that Catholic University would be implementing same-sex dorms in an attempt to counter the binge drinking and hook up culture: Inside Higher Ed, Moral, but Lawful?:

The Catholic University of America generated much press last week when its president announced that, beginning next year, it would transition to single-sex only housing. Considering that such a move was previously unheard-of, the attention wasn’t shocking.

What may have caught Catholic officials more off-guard is the intent-to-sue notice they were served with this week.

Completely eliminating coeducational dorms would violate the District of Columbia’s Human Rights Act, says John F. Banzhaf, a law professor at George Washington University who is known for public interest suits of this nature. That statute prohibits discrimination in employment, housing and commercial space, and public accommodations on the basis of sex and other factors like race, religion and marital status. ...

Banzhaf likens Catholic’s move to a “separate but equal” scenario. “Suppose a university decided that there would be less racial tension if all the blacks were in a black dorm, all the whites were in a white dorm,” Banzhaf said. “Each one is, quote, getting their own dormitory, and maybe some of them would be happier that way. But surely no one would suggest that it’s lawful.” The statute does not require that a certain population be disadvantaged for an action to be illegal; the simple act of segregating the genders is enough, Banzhaf said.

• Fox News Washington
• Metro Washington
• NBC Washington

TIGTA: IRS Is Not Doing Enough to Ensure its Employees Are Paying Their Taxes

The Treasury Inspector General for Tax Administration today released Employees Are Provided Sufficient Information on Their Tax Responsibilities, but Additional Actions Are Needed to Detect All Noncompliant Employees (2011-10-047):

The IRS redesigned and centralized the Employee Tax Compliance (ETC) Program in Calendar Year 1995 to ensure that employees are held to a high standard of compliance with the tax laws. The IRS has developed processes to educate employees on their tax responsibilities and detect employees who may not have timely filed or timely paid their taxes; however, not all potential employee misconduct concerning noncompliance with tax laws is being assessed, and additional analyses are needed to periodically reevaluate the direction of the Program.  ...

TIGTA independently reviewed IRS computer files over a 2-year period and identified 133 employees who were potentially noncompliant with their taxes and were not detected by the ETC computer application. ... TIGTA determined the IRS significantly reduced the focus of the ETC Program from its original mission and goals partially based on a study it conducted showing that IRS employees were more compliant compared to the general taxpaying public. While TIGTA understands the IRS’s decision to use resources as efficiently as possible, the IRS should document this change and conduct three additional analyses to periodically reevaluate the Program’s direction to ensure proper oversight of employees’ compliance with their tax obligations.

• Forbes, IRS Employees In Tax Trouble
• Fox News, IRS Watchdog: Tax Agency Failed to Detect 133 Employees Behind on Tax Filings
• Going Concern, Some IRS Employees Living by the Motto ‘Do as I Say, Not as I Do’
• Market Watch, Some Tax Cheats Work at the IRS
• Wall Street Journal, IRS Must Beef Up Oversight of Its Own Workers, Report Finds

SSRN Tax Professor Rankings

SSRN has updated its monthly rankings of 662 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  Here is the new list (through June 1, 2011) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

 

		All-Time Downloads		Recent Downloads
1	Reuven Avi-Yonah (Mich.)	20,386	Reuven Avi-Yonah (Mich.)	4905
2	Paul Caron (Cincinnati)	16,434	Paul Caron (Cincinnati)	4462
3	Louis Kaplow (Harvard)	16,390	Katie Pratt (Loyola-LA)	3515
4	Vic Fleischer (Colorado)	15,353	Jen Kowal (Loyola-LA)	3332
5	James Hines (Michigan)	14,336	Francine Lipman (Chapman)	3036
6	Dennis Ventry (UC-Davis)	12,085	Carter Bishop (Suffolk)	2519
7	David Walker (Boston U.)	10,592	Steve Willis (Florida)	2459
8	Chris Sanchirico (Penn)	10,452	Dennis Ventry (UC-Davis)	2402
9	Ted Seto (Loyola-LA)	10,021	Herwig Schlunck (Vand.)	2126
10	Richard Kaplan (Illinois)	9976	Amy Monahan (Minnesota)	1947
11	David Weisbach (Chicago)	9935	Ted Seto (Loyola-LA)	1909
12	Fran. Lipman (Chapman)	9571	Richard Kaplan (Illinois)	1754
13	Ed McCaffery (USC)	9375	Bridget Crawford (Pace)	1703
14	Robert Sitkoff (Harvard)	9056	Dan Shaviro (NYU)	1663
15	Carter Bishop (Suffolk)	8735	Vic Fleischer (Colorado)	1635
16	Herwig Schlunk (Vand.)	8638	James Hines (Michigan)	1556
17	Steven Bank (UCLA)	8168	Erik Jensen (Case Western)	1521
18	Katie Pratt (Loyola-LA)	8120	David Walker (Boston Univ.)	1427
19	Brad Borden (Brooklyn)	7823	Marty McMahon (Florida)	1385
20	Daniel Shaviro (NYU)	7444	Allison Christians (Wisc.)	1372
21	Wendy Gerzog (Baltimore)	7408	Louis Kaplow (Harvard)	1363
22	Jen Kowal (Loyola-LA)	7279	Robert Sitkoff (Harvard)	1314
23	Bridget Crawford (Pace)	7262	Wendy Gerzog (Baltimore)	1286
24	Michael Knoll (Penn)	6931	Ellen Aprill (Loyola-LA)	1249
25	David Schizer (Columbia)	6629	John Miller (Idaho)	1240

Note that this ranking includes full-time tax professors with at least one tax paper on SSRN, and all papers (including non-tax papers) by these tax professors are included in the SSRN data:

The other SSRN ranking categories are: 

• All-Time Papers
• New Papers
• All-Time Downloads Per Paper
• New Downloads Per Paper

These rankings, of course, are imperfect measures of faculty scholarly performance -- as are the existing ranking methodologies of reputation surveys, productivity counts, and citation counts. Our modest claim in our article, Ranking Law Schools: Using SSRN to Measure Scholarly Performance, 81 Ind. L.J. 83 (2006) (Symposium on The Next Generation of Law School Rankings), is that the SSRN data can play a role in faculty rankings along with these other measures.  Bill Henderson (Indiana) thinks we are too modest, and that SSRN may provide a better measure of faculty performance than these other methodologies.

For my other articles on what SSRN downloads can tell us about the current state and future of legal scholarship, and about the relationship between scholarship and blogging, see:

• The Long Tail of Legal Scholarship, 116 Yale L.J. Pocket Part 38 (2006)
• Are Scholars Better Bloggers? -- Bloggership: How Blogs are Transforming Legal Scholarship, 84 Wash. U. L. Rev. 1025 (2006)

For Ted Seto's faculty-wide (and metropolitan area-wide) analysis of these SSRN tax rankings, see:

• The Top 25 Tax Faculties
• The Top 15 Graduate Tax Faculties
• The Top 10 Tax Faculty Metro Areas

Crawford: Fixing the Federal Wealth Transfer Tax System

Bridget J. Crawford (Pace) has published Fixing the Federal Wealth Transfer Tax System, 131 Tax Notes 1281 (June 20, 2011):

At the end of last year, the 2010 Tax Act was enacted to extend many of the Bush-era tax cuts. It also increased the estate and gift tax exemption to $5 million, lowered the rate to 35%, and implemented spousal portability for exemptions. However, it didn’t address many of the substantial problems created by the 2001 Tax Act, originally scheduled to expire at the end of 2010. Instead, lawmakers merely kicked the can down the road and delayed the 2001 Tax Act’s sunset until the end of 2012. This period of continued uncertainty makes planning for the future unnecessarily difficult and expensive. Crawford proposes making permanent the $5 million exemption, 35% tax rate, and spousal portability of the 2010 Tax Act, while remedying the problems and uncertainty created by the scheduled sunset of existing estate and gift tax rules on December 31, 2012.

All Tax Analysts content is available through the LexisNexis® services.

Beale: Using Tax Policy to Redress Gender Discrimination After Wal-Mart

Linda Beale (Wayne State), WalMart, Gender Discrimination, Corporatism, the Supreme Court -- and, Yes, TAXES:

The Supreme Court handed down its decision on whether the million and a half women who think they have been discriminated against by the corporate giant because of their gender can bring a class action suit.  [Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (June 20, 2011).]

As might be expected in this age of corporatism, the corporate giant won.  Women will have to pursue their own individual cases--making it much easier for the corporate giant to simply wait them out rather than settle, and making it much harder for the woment to hire the kind of top-notch attorneys (like the corporation can hire) to fight their case for them.  In other words, making it much much easier for the corporate giant to get away with breaking the law in its business practices on a routine basis without having to pay for it. ...

Even in academe, men tend to get equity pay raises (big ones) because they play the "game" of pretending that they are going to take a job somewhere else.  Women tend not to, because women tend to be honest about their permanence or impermanence in a place.  So men get a "retention" raise and women don't.  And men tend to start out higher anyway, because of the years of male dominance, and the tendency of the existing status quo to be reinforced by the male deans and male associate deans and male senior professors.

So what's the answer here?  Maybe we need some radical left thinking to counter the radical right fringe element that has almost taken over the country.  How about these ideas--many using tax policy to turn around the corporatist agenda? ...

• Congress could consider instituting a tax penalty on firms for gender or ethnicity or age discrimination in wages. ...
• Congress could institute an excise tax on corporations with more than $100 million in income annually, to go into a fund to pay the legal expenses of employees in those firms bringing individual suits against the firms for violating any civil or union rights.
• Congress could institute a variable corporate rate structure through a rate surcharge for corporations that relates to their record in paying their average workers an equitable salary by having the corporate tax rate increase when the compensation of top managers increases more rapidly than the compensation of the average worker, and a corporate tax rate decrease when the compensation of the average worker increases more rapidly than the compensation of the top managers.

Hatfield: Federalism, Taxation, and Economic Growth

John William Hatfield (Stanford University, Graduate School of Business) has posted Federalism, Taxation, and Economic Growth. Here is the abstract:

We present a model of endogenous growth where government provides a productive public good …nanced by income and capital taxes. In equilibrium, a decentralized government chooses tax policy to maximize economic growth, while a centralized government does not do so. Furthermore, these conclusions hold regardless of whether governments are beholden to a median voter or are rent-maximizing Leviathans. However, a decentralized government will underprovide a hedonic public good, while a central government beholden to the median voter will optimally invest in the hedonic public good.

Cunningham: Digital Evolution in Law School Course Books

Lawrence A. Cunningham (George Washington) has posted Digital Evolution in Law School Course Books: Trade-Offs, Opportunities, and Vigilance, in The Digital Path of the Law (Edward Rubin, ed.) (Cambridge University Press, 2012), on SSRN. Here is the abstract:

As we all migrate to the digital world, imagine the future of the law school course book by reflecting on its history, purposes, and promulgation over the seven generations since C.C. Langdell initiated our current mode of legal education in 1870. Some see the future of digital course books as a radical shift, akin to the original revolution of Langdell’s Contracts casebook. Others dismiss it as a simple marketing maneuver, the way post-Langdell addition of notes, questions or problems might be regarded. This look back at casebook history suggests that digital course books are more likely to be something in between, an incremental but meaningful evolution.

This essay, a chapter in a new book on the subject, engages with great innovations in law school course books over the past century-plus, highlighting historic contributions from the likes of Samuel Williston, Arthur Corbin, Lon Fuller, Grant Gilmore; and drawing on more recent contributions to Contracts from the likes of Allan Farnsworth, Charles Knapp, Karl Klare, Ian Macneil, Stewart Macaulay, Lenora Ledwon, Amy Kastely, Deborah Waire Post, Nancy Ota, Douglas Leslie, Robert Summers, Robert Hillman, and Randy Barnett; and on law books and legal education generally, from such figures as Paul Caron, Michael Kelly, Matthew Bodie, Bruce Kimball, Kellye Testy, Edward Rubin, and Steven Bradford.

Section A's brief excursion through the evolution of the course book for Contracts is a sober reminder of the plodding pace of change in American legal education. It prepares readers to appreciate trade-offs, opportunities, and risks associated with migration from print to digital books. These are elaborated in three ensuing Sections, all animated by the historical perspective and illuminating trade-offs, opportunities, and risks, though each stressing a different one of those three implications of the migration from print to digital law books.

Section B stresses trade-offs, especially concerning course books’ purposes and scope; Section C stresses opportunities the digital format offers, highlighting the appeal of digital methods to produce supplements, maintain a work’s currency, and facilitate skills training; and Section D discusses matters of presentation that creators of print and digital materials alike must address to promote usefulness – and calls for vigilance against associated risks. Section E synthesizes, concluding that digital course books are important and valuable, but not revolutionary.

Dilbert: Let's Tax Stupidity So We Have Less Of It

Scott Adams Blog, A Stupidity Tax:

Tax policy has two purposes. One goal is to collect money to operate the government. The other goal is to promote public policy. For example, mortgage deductions are meant to encourage home ownership. Tax incentives are a proven way to change behavior. This makes me wonder if we could have a tax on stupidity and thereby reduce its prevalence over time. Seriously. The nation has a great interest in reducing stupidity. ...

Suppose we developed a general knowledge test that had clear and indisputable answers. ... [I]t would be entirely optional. If you choose to not take the test, you can simply pay a stupidity tax instead. If you take the test, and score 100%, you pay no stupidity taxes at all. And if you take the test and miss a few questions, you pay a stupidity tax that is prorated by your test score. ...

I'm just curious as to whether tax policy could make a huge difference in the effectiveness of society by directly taxing stupidity.

Prior TaxProf Blog Dilbert coverage:

• Dilbert on How to Tax the Rich (Jan. 30, 2011)
• Dilbert on Tax Policy (Jan. 25, 2011)
• Dilbert on the 'Dutch Sandwich' Tax Shelter Strategy (Dec. 28, 2011)
• Dilbert on the Tax Legislative Process (July 14, 2006)
• Dilbert on Pension Solvency (Oct. 27, 2005)
• Dilbert on Financial Disclosure After Enron (Oct. 11, 2005)
• Dilbert on EBITDA (June 16, 2004)

NY Post: Odd Bulge in Weiner Tax Form

New York Post, Odd Bulge in Weiner Tax Form:

Anthony Weiner likes to do things big -- especially when it comes to his tax deductions. The disgraced former congressman's 2010 tax return shows he took $40,521 in unspecified itemized deductions on an income of $156,117.

"It's definitely a very large deduction," said Manhattan CPA Jonathan Medows.

A spokesman for Weiner, who resigned Thursday in the wake of a sexting scandal, refused to provide any details about the return.

• Daily Mail, Are There Holes in Weiner's Tax Returns?
• Fox News, Weiner's 2010 Tax Return Shows Bulging Deductions
• Going Concern, Did Anthony Weiner Pump Up His Itemized Deductions?

More on Grossing-Up Employee Pay for Federal Taxes on Same-Sex Benefits

I previously blogged various employers (Barclays, Google, law schools, Yale) who gross-up the pay of gay, lesbian, and bi-sexual employees for the taxes they must pay on health benefits provided to same-sex domestic partners. The New York Times has an article and list of the response of over 100 large employer on this issue, and today's Above the Law reports on over a dozen big law firms that provide this benefit.

Former IRS Commissioner Blames Tax Lawyers for Financial Crisis

New York Times op-ed, Lawyers and Accountants Once Put Integrity First, by Mark. W. Everson:

It will take decades to fully untangle the causes of the 2008 financial crisis, but as our economy fitfully heals, it would be prudent to ask whether lawyers and accountants offer the same protection against corporate misconduct that they once did.

Three or four decades ago, investors and regulators could rely on these professionals to provide a check on corporate risk-taking. But over time, attorneys and auditors came to see their practices not as independent firms that strengthen the integrity of capitalism, but as businesses measured chiefly by the earnings of their partners. ...

Lawyers and accountants who were once the proud pillars of our financial system have become the happy architects of its circumvention. Nowhere is this more the case than in the world of tax law. Companies (and wealthy individuals) pay handsomely for tax professionals not just to find the lines, but to push them ever outward. During my tenure at the IRS, the low point came when we discovered that a senior tax partner at KPMG (one of the Big Four, which by virtue of their prominence set standards for the others) had advocated — in writing — to leaders of the company’s tax practice that KPMG make a “business/strategic decision” to ignore a particular set of I.R.S. disclosure rules. The reasoning was that the IRS was unlikely to discover the underlying transactions, and that even if we did, any penalties assessed could be absorbed as a cost of doing business.

Just what role outside professional firms played in the genesis of the financial crisis has not been adequately explored. Perhaps it never will be. But at a minimum, we know that the widespread documentation problems associated with bank foreclosures demonstrate that in too many instances, attorneys and accountants abandoned their duties to assure integrity. Further, it seems unlikely that professionals will, of their own initiative, return anytime soon to their traditional posts as vigilant sentries guaranteeing the financial system’s integrity.

I will leave it to others to assess the propriety of being lectured on integrity by a married man who was fired as President of the American Red Cross after it was revealed that he was having an affair with a married female subordinate who became pregnant.

• ABA Journal, Ex-IRS Commissioner Links Financial Crisis to Lawyers, Says Privilege and Pay Part of the Problem

3d Cir. Rejects Tax Shelter, Blasts Schering-Plough's 'Chutzpah'

The Third Circuit today upheld the district court's rejection of a $690m assignment of future income tax shelter claimed by Schering-Plough. Merck v. United States, No. 10-2775 (3d Cir. June 20, 2011). At the end of its opinion, the Third Circuit blasted Schering-Plough's "chutzpah":

Schering-Plough further complains that the IRS had inappropriate motives for pursuing its audits and requests discovery to explore this allegation further. The language from IRS documents that Schering-Plough quotes indicates that at least one IRS agent thought that Schering-Plough’s approach to determining its tax liabilities was less than conscientious, given prior findings of evasion (which were upheld by this circuit, as the District Court noted, see Schering-Plough Corp.). The chutzpah of this argument is notable. To the extent that the IRS pursued Schering-Plough more vigorously because Schering-Plough had a history of failing to comply with the tax laws, this represents commendable agency diligence in the light of past experience, not some kind of impermissible bias against Schering-Plough. Schering-Plough offers no persuasive basis for us to order further discovery.

(Hat Tip: Richard Jacobus.)  For more, see Subpart F and Schering-Plough, 60 Emory L.J. 503 (2010).

NY Times: Companies Push for Repatriation Tax Holiday

New York Times, Companies Push for Tax Break on Foreign Cash, by David Kocieniewski:

Some of the nation’s largest corporations have amassed vast profits outside the country and are pressing Congress and the Obama administration for a tax break to bring the money home. Apple has $12 billion waiting offshore, Google has $17 billion and Microsoft, $29 billion.

Under the proposal, known as a repatriation holiday, the federal income tax owed on such profits returned to the United States would fall to 5.25% for one year, from 35%. In the short term, the measure could generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could help ease the huge budget deficit.

Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as “the next stimulus” at a conference last Wednesday in Washington. “For every billion dollars that we invest, that creates 15,000 to 20,000 jobs either directly or indirectly,” Jim Rogers, the chief of Duke Energy, said at the conference. Duke has $1.3 billion in profits overseas.

But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage. Though the tax break lured them into bringing $312 billion back to the United States, 92% of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

 

(Hat Tip: Ann Murphy.)

Update: Dan Shaviro (NYU), Banana Republic Watch

Johnston: Close Encounters of the Tax Myth Kind

David Cay Johnston has published Close Encounters of the Tax Myth Kind, 131 Tax Notes 1299 (June 20, 2011):

In this column, Johnston addresses several tax myths, including the economic effects of the Bush tax cuts, the number of jobs created by targeted tax benefits, and how Formula One racing will help the Texas economy.

All Tax Analysts content is available through the LexisNexis® services.

Schlag: The Faculty Workshop

Pierre Schlag (Colorado) has posted The Faculty Workshop on SSRN. Here is the abstract:

This essay explores the ubiquitous law school institution, “The Faculty Workshop,” as an entrée into and manifestation of contemporary American legal thought. The Faculty Workshop is examined both as a regulator and expression of legal thought -- at once governance system and symptom. We close by discussing “Stage 4.”

Man Arrested for Spending $110k IRS Mistakenly Deposited in His Bank Account

Stephen McDow of Laguna Beach, California has been jailed for spending the $110,000 federal tax refund that the IRS erroneously deposited in his Citibank account. The refund was intended for a Los Angeles woman who requested that the funds be deposited in her Citibank account, but she gave the IRS her old account number that had been reassigned to Mr. McDow.

• CBS Los Angeles
• Huffington Post
• L.A. Weekly
• Orange Country Register

(Hat Tip: Ann Murphy.)

TaxProf Blog Weekend Roundup

Saturday:

• IRS Sets Trap at US Open, Seeks Slice of Foreign Golfers' Endorsement Income
• Update on Professor Charged With Peeing on Faculty Colleague's Office Door
• Tax Treatment of Gender Reassignment Surgery
• Monitoring Corporate Governance at Nonprofit Hospitals Through Form 990

Sunday:

• A Father's Day Lesson
• Top 5 Tax Paper Downloads
• UBS, Tax Fraud, and International Banking Law
• UBS, Tax Fraud, and International Cooperation

A Father's Day Lesson

For all the fathers out there, and their children: please take the time to read Father’s Day Lesson About Children, and Life. Here is an excerpt:

The morning of Sept. 8, 2008, was like most mornings for Thomas S. Vander Woude, a former airline pilot who, in retirement, kept a farm in Nokesville, Virginia. ... By his side was his youngest son, Joseph, known as Josie, who was 20 at the time, and who had Down syndrome. ...

While Thomas was working, Josie was off in a different part of the yard when a broken septic-tank cover gave way under his feet, and he slid in. Vander Woude, from a distance, saw his son fall. He understood right away that Josie was in mortal danger. The tank was 8 feet deep, and filled almost to the top with waste.

Vander Woude rushed to the hole, which measured 2 square feet. He reached down to grab his panicked son, but without success. ...Vander Woude ... lowered himself into the tank. He treaded in the sewage in an attempt to keep Josie’s head above the water line, but Josie was still sinking.

So Thomas Vander Woude made a decision: He would hold his breath, dive under the sewage, and lift Josie onto his shoulders. When rescuers finally arrived, they pulled Josie out of the tank; he was alive. But Vander Woude, 66 years old, was dead.

He had made the deliberate decision to risk drowning in sewage in order to save the life of his child. ...

The hellishness of his final moments gives the story a kind of ghastly power. But there is also something opposite: an intimation of nobility, and a lesson about living.

I understood the story of Vander Woude’s death through the prism of fatherhood. I tell myself, as I imagine most fathers do, that I would make any sacrifice, suffer any hardship or humiliation or pain, for my children. ... How did he become the sort of man who could devise a plan to save his drowning son, and then carry out that plan, knowing all the while that it might mean his own death? ...

[T]he Rev. Vander Woude ... describes his father as someone who trained himself for virtue, and who possessed a crucial understanding -- one that is particularly rare in self-indulgent, self-actualizing America -- about the nature of happiness. He knew that joy is best found not in the pursuit of pleasure, but in the execution of responsibility. ...

Thomas Vander Woude Sr. ... was a pious and committed Catholic, who attended Mass every day, who provided for the poor, and who knew, as his son describes it, that God meant for him to live for his family. “A father puts others ahead of himself,” the Rev. Vander Woude said. “That was his belief. He never said that. He just did it. He loved being a husband and being a father. Pride, pleasure and possessions are where people go for happiness. But my father first thought of God, and the devotion to the family, the love, comes naturally from that.” ...  “He went down there in peace,” the Rev. Vander Woude said. “This is what he did. This is who he was. This was where his life was taking him.” ...

There’s a little secret about Father’s Day that I think a lot of fathers understand, and that our children don’t. ... The joy of Father’s Day is the joy of every day: the gift of being in the company of your children, and of living for them in the way you are meant to live, in the way that Thomas Vander Woude lived, for all of his sons.

(Hat Tip: Dan Markel.)

Top 5 Tax Paper Downloads

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new #1 paper and a new paper debuting on the list at #4:

1.  [237 Downloads]  Series LLCs in Real Estate Transactions, by Bradley T. Borden (Brooklyn) & Mathews Vattamala (J.D. 2012, Brooklyn)

2.  [228 Downloads]  Charity in the 21st Century: Trending Toward Decay, by Roger Colinvaux (Catholic)

3.  [127 Downloads]  How Nations Share, by Allison Christians (Wisconsin)

4.  [115 Downloads]  Supreme Court CIGNA Ruling Allows Workers to Reverse Harmful Pension Changes, by Richard L. Kaplan (Illinois)

5.  [111 Downloads]  Common Control and the Delineation of the Taxable Entity, by Michael Aikins (J.D. 2012, Yale)

UBS, Tax Fraud, and International Banking Law

Emily Ann Busch (J.D. 2011, Temple) has published Comment, To Enforce or Not to Enforce? The UBS John Doe Summons and a Framework for Policing U.S. Tax Fraud Amid Conflicting International Laws and Banking Secrecy, 83 Temp. L. Rev. 185 (2010). Here is part of the Introduction:

This Comment analyzes whether the U.S. court should enforce the UBS summons and provides a comprehensive analysis for evaluating similar summonses in the future. The UBS John Doe summons raises three paramount issues. The first is whether a U.S. court can enforce a summons when compliance with the summons requires a foreign summonee to violate its country’s laws and therefore subjects the summonee to prosecution in the foreign country. With UBS, compliance with the summons requires UBS employees to violate Switzerland’s banking secrecy laws which forbid disclosing this information. The second issue is whether the summons is too broad to enforce. Finally, this Comment addresses whether the Double Taxation Treaty between Switzerland and the United States precludes issuing the John Doe summons, as the Treaty arguably provides an alternative method for exchanging information.

UBS, Tax Fraud, and International Cooperation

Samantha H. Scavron (J.D. 2011, Cardozo) has published Note, In Pursuit of Offshore Tax Evaders: The Increased Importance of International Cooperation in Tax Treaty Negotiations After United States v. UBS AG, 9 Cardozo Pub. L. Pol’y & Ethics J. 157 (2010). Here is the Conclusion:

Offshore tax evasion is clearly a persistent problem affecting the ability of the IRS to collect income taxes. It is a problem for which international assistance is absolutely essential in formulating any possible solution, and it seems that other world nations have recognized this. Consequently, the United States is no longer the only nation aggressively pursuing foreign bank account information for suspected tax evaders. The success of the IRS in Switzerland has prompted other nations to begin similar inquiries using tax treaties. The amended treaty between France and Switzerland is one example. Additionally, the United Kingdom and Germany investigated accounts in Liechtenstein. Mexico asked the United States to give account information for Mexican citizens who may have money hidden in United States banks. Indeed, UBS AG has already had far-reaching effects on the proliferation of international tax agreements. Numerous nations have since adopted OECD standards for information exchange in the treaties they have signed. The OECD is optimistic that countries will continue to be open to international cooperation. This is precisely why the United States should modify policies that could hinder tax treaty negotiations.

For the sake of concluding as many DTAs as possible, the United States should seriously reconsider its two policies known to be sticking points in treaty negotiations. The UBS case has changed the way tax evaders are pursued. Existing methods for information gathering were employed during the UBS case, but it was only when treaty obligations were implicated that the optimal result was achieved. This should act as a lesson to the United States in terms of highlighting the important role of a tax treaty. Tax treaties are indispensable in the pursuit of offshore tax evaders, and the United States should do whatever is necessary to ensure that tax treaties are in place with as many nations as possible, especially with developing countries that may be acting as tax havens. To that end, it is necessary to reexamine longstanding United States policies against tax sparing provisions and the concept of treaty overrides. A change in policy may go a long way in tax treaty negotiations. Ultimately, many nations have stepped up their willingness to abide by the treaty policies inherent in an OECD Model treaty, and it would be to the advantage of the United States to join them.

IRS Sets Trap at US Open, Seeks Slice of Foreign Golfers' Endorsement Income

Following up on last week's post, Retief Goosen Birdies at FedEx St. Jude Classic, Bogeys in Tax Court: the MSM and blogs have picked up the story:

• The Age, Tax Case is the Talk of the U.S. Open
• Bloomberg, Goosen’s Tax Case Tests Principle That Image Is Everything
• Forbes, IRS Sand Trap For Pro Golfers
• Forbes, Tax Court to Athletes: Image Isn’t Everything But It’s At Least 50%
• Taxes in the Back, No Mulligan in Tax Court for Goosen

"[T]he IRS is paying attention to how high-profile performers earn money, said Lucy Lee, an attorney at Caplin & Drysdale in Washington. “They’re watching what clubs are being used, what logo’s being displayed on the bags, the uniforms, and they’re taking notes,” said Lee, whose clients include female Korean golfers."

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Update on Professor Charged With Peeing on Faculty Colleague's Office Door

I previously blogged the case of Tihomir Petrov, a California State University Northridge math professor charged with urinating on a faculty colleague's office door. A California judge has issued a $35,000 bench warrant after Prof. Petrov failed to appear Wednesday at a pretrial conference.

• Daily Mail, The 'Peeing Professor'? Maths Teacher 'Urinated on University Colleague's Office Door'
• Fox News, Arrest Warrant Issued for California Professor Who Allegedly Urinated on Colleague's Door
• Huffington Post, Tihomir Petrov, 'Pissing Professor', Wanted For Skipping Pretrial Conference
• L.A.ist, Peeing Professor Is a Wanted Man, Failed to Appear for Pretrial Hearing
• L.A. Times, Professor Accused of Urinating on Colleague's Door Now Wanted Man

Tax Treatment of Gender Reassignment Surgery

Max V. Camp (J.D. 2012, Tulane) has published Note, O’Donnabhain v. Commissioner: Treatment Costs for Gender Identity Disorder Are Tax-Deductible Medical Expenses, 20 Tul. Law & Sexuality 133 (2011). Here is the Introduction:

After receiving therapy and feminizing hormones, Rhiannon G. O'Donnabhain chose to complete her gender-reassignment treatment by undergoing sex-reassignment surgery and breast augmentation. O'Donnabhain deducted as medical expenses the $21,741 she spent on feminizing hormones, sex-reassignment and breast augmentation surgeries, and related miscellaneous costs on her 2001 tax return. However, the respondent disallowed these deductions, and determined a tax deficiency of $5679.

O'Donnabhain was born a genetic male, earned a degree in civil engineering, married a woman, and raised three children. However, while growing up, petitioner experienced discomfort with gender and felt as though “she was a female trapped in a male body.” O'Donnabhain sought treatment with a licensed psychotherapist who diagnosed her with gender identity disorder (GID), a condition recognized in the Diagnostic and Statistic Manual of Mental Disorders (DSM). The petitioner successfully adapted to feminizing hormones and presenting herself as female in public; however, she still suffered anxiety over an incongruity between her male genitals and female gender identity and presentation. Her psychotherapist recommended sex-reassignment surgery for her to complete treatment for her gender reassignment process. The petitioner deducted these costs as medical deductions on her 2001 tax return, which the respondent disallowed. The petitioner filed a claim in the U.S. Tax Court for redetermination of tax deficiency. The Tax Court held GID is a disease for purposes of section 213 (medical deductions), hormone therapy and sex-reassignment surgery are considered appropriate treatment for GID, petitioner could deduct the costs of hormone therapy and sex-reassignment surgery as medical expenses on her 2001 tax return, but the costs of her breast augmentation surgery could not be deducted as a medical expense.

Monitoring Corporate Governance at Nonprofit Hospitals Through Form 990

Rummana Alam (J.D. 2010, Illinois) has published Note, Not What the Doctors Ordered: Nonprofit Hospitals and the New Corporate Governance Requirements of the Form 990, 2011 U. Ill. L. Rev. 229 (2011). Here is the abstract:

This Note analyzes whether there is a need for the IRS to monitor corporate governance as it applies to nonprofit hospitals. There has been an increase in scandals involving nonprofit hospitals that are receiving tax-exemption, yet a decrease in charitable care in favor of higher pay for administrators. This led to a string of statutes focusing on corporate governance, as well as the IRS deciding to monitor corporate governance of nonprofit hospitals in its own way by requiring the Form 990. Although no evidence exists to show a link between good corporate governance and tax compliance, the IRS has continued to increase the filing burden on nonprofit hospitals.

The author argues that the Form 990, now required by the IRS, places an undue and unnecessary burden on nonprofit hospitals. The Form 990 is duplicative of other statutes focusing on corporate governance, and it also requires a much larger amount of time and resources than those predicted by the IRS, causing a strain on already limited nonprofit resources. The author suggests that monitoring corporate governance is both desirable and necessary but that the state and health care statutes already in place do a sufficient job of such monitoring. The author concludes that until the IRS has better data to support a connection between good governance and tax compliance, the Form 990 should be suspended, and the IRS should allow nonprofit hospitals to submit their annual compliance reports under other current reporting statutes in lieu of requiring the Form 990. Such an arrangement would save resources for both the IRS and nonprofit hospitals.