Monday, October 31, 2011
Welcome to The National Law Journal's Law School Review, which is an online forum examining the current state and future of legal education. We want to address the question, "Are law schools in crisis?" If the answer is yes, what are the most pressing problems and how should educators and regulators address them? If the answer is no, what is it that law schools are doing right? Is this enough to ensure their future viability? We have assembled a panel of experts to share their thoughts on the subject (see the roll call of contributors on the right), and we hope to create a robust dialogue and exchange of ideas.
- Erwin Chemerinsky (UC-Irvine), Law School As A Tool For Social Change
- William Henderson (Indiana), The Hard Business Problems Facing U.S. Law Faculty
- Lucille A. Jewel (John Marshall (Atlanta)), A Sense of Entitlement?
- Kyle McEntee (Law School Transparency), Reimagining Legal Education
- Brian Z. Tamanaha (Washington U.), Law Schools Are Not in Crisis
Our central thesis is that the current income tax regime undertaxes business owners and overtaxes workers in unexamined and unjustifiable ways. Our analysis focuses primarily on outlays and their classification as either costs of producing income or items of consumption – a foundational distinction under the Schanz-Haig-Simons definition of income. We find that the tax law is too generous and deferential in classifying business owners’ outlays as incurred in the production of income. Conversely, the law too readily dismisses workers’ costs of producing income, instead classifying them as consumption items. We first explain how the systematic bias in the tax treatment of business owners and workers reflects the social values prevailing at the time that the foundational principles of the income tax took shape. We then analyze tax jurisprudence to show how this bias is embedded in current law, and explore the resulting inequities and inefficiencies. Finally, we propose solutions to rebalance the tax treatment of business owners and workers.
Thomas Griffith (USC) is the commentator.
New York Post op-ed, Screw U.: Government Inflated the College Loan Bubble, but Obama Isn’t Fixing It, by Glenn Harlan Reynolds (Tennessee):
It’s officially a crisis. Student loan debt has hit the $1 trillion mark, exceeding Americans’ total credit card indebtedness. Unemployed graduates with huge loan balances are camping out in “Occupy” camps -- the Hoovervilles of our age -- around the nation. And President Obama, perhaps afraid those camps will be dubbed “Obamavilles,” as indeed they have already been by some, has unveiled a new proposal that promises to help graduates who are drowning in debt.
Unfortunately, “promises” is the correct word. Though unveiled with much fanfare, the Obama proposal doesn’t really do much. First, as the Chronicle of Higher Education pointed out in an article characterizing it as mostly political, “The benefit is available only to current students. Those jobless college graduates who are protesting on Wall Street and at similar events elsewhere won’t qualify.” Second, even for those who do qualify, the benefit doesn’t amount to much. Daniel Indiviglio of The Atlantic Monthly calculated that the president’s plan will save the average grad less than $10 a month....
For serious student-loan reform, we’re going to have to look well beyond the Obama proposal. We need something that aligns incentives with reality. Here’s my proposal:
I think we should return to the days when student loans were dischargeable in bankruptcy, starting five years after graduation. This will allow graduates who are unable to pay to get out from under what is otherwise a potential lifetime of debt-slavery. If you buy a house to flip, and wind up losing your shirt, we let you go bankrupt, take a credit-rating hit, and scrub the debt away. Why should graduates be forbidden from doing the same? The five-year delay means that you can’t use immediate post-graduation poverty as an excuse (as some medical students used to do), but still provides an out.
But the real incentive-alignment part is this: Put the institutions who issued the degrees on the hook for the money they received. Making them eat the entire loan balance would probably bankrupt a lot of colleges (though that should tell us something about the problem right there), but sticking them with even a small fraction -- say, 10% or 15% -- would be enough to inspire a much greater degree of concern for how much debt students take on while in school, and for how likely they are to find gainful employment after graduation. One way or another, the higher education bubble is going to deflate. Better that it should do so without crushing the students it was supposed to benefit -- or the taxpayer.
- ABC News, Is Your Occupy Wall Street Donation Tax Deductible? Does It Matter?
- The Blaze, Donations To Occupy Wall Street Are Now ‘Tax Deductible’
As Donald Tobin (Ohio State) has noted, it is more than strange that NYU has finished ahead of Florida and Georgetown each year that U.S. News has conducted the survey. Because the survey ranks the schools by how often they appear on the respondents' "Top 15" lists, this means that some folks list NYU, but not Florida and Georgetown, among the Top 15 tax programs.
In filling out your survey, you may want to consult our article, Pursuing a Tax LLM Degree: Where?, which compiles information about 13 highly ranked tax LLM programs: (1) NYU; (2) Florida; (3) Georgetown; (4) Northwestern; (5) Miami; (6) Boston University; (7) San Diego; (8) Loyola-L.A./LMU; (9) SMU; (10) Denver; (11) University of Washington; (12) Villanova; and (13) Chapman. The topics on which information is reported in the Article include: (1) tuition; (2) scholarships; (3) the full-time tax professors who teach in each program and the tax courses they teach; (4) the number of full-time and part-time students enrolled in each program; (5) general information about adjunct professors teaching in each program; (6) required courses; (7) elective courses, specialty certificates, and concentrations; (8) opportunities to develop tax practice skills by taking experiential learning courses and simulated practice courses; (9) extracurricular tax activities; (10) opportunities to graduate with honors or receive academic prizes; and (11) career planning and placement services offered to students in each program. The article also ranks the tax faculty at these thirteen law schools by citations (the Top 5 are NYU (1), Florida (2), Georgetown (3), Miami (4), and Northwestern (5)) and SSRN downloads (the Top 5 are Loyola-L.A. (1), NYU (2), Chapman (3), Florida (4), and San Diego (5)).
Other resources available on TaxProf Blog include:
- Links to All 32 Graduate Tax Programs
- Tax Faculty Rankings
- Graduate Tax Faculty Rankings
- Tax Professor Rankings
- Tax Faculty Metropolitan Area Rankings
- Links to Tax Colloquia Workshop Series (left column of the blog)
I hate to drag you away from your fascination with Herman Cain's 999 plan and Rick Perry's flat tax, but if we are going to make real progress, we can't fixate on every overhyped, half-baked tax slogan that comes along. Sooner or later we must get back to basics. Here's the main question: Should taxes be cut, raised, or reformed without changing overall revenue? The answer is that taxes should be cut in the short term, raised after we are clearly out of our cyclical downturn, and then reformed only after we have settled on the magnitude of tax increases needed for deficit reduction.
All Tax Analysts content is available through the LexisNexis® services.
There can be no doubt now that the Obama White House believes that one important way to improve the economy is for Americans to give less to charity. In the collection of proposals he calls his jobs bill, the president has—for the fourth time in his administration—proposed to limit the value of the charitable tax deduction, cutting it back for those earning more than $250,000 to just 28% of a donation, from 35%. Although Senate Majority Leader Harry Reid dropped that proposal from the Senate version of the jobs bill, it remains in the White House set of recommendations to the deficit-cutting congressional "super committee."
By raising the cost of giving (by $70 for each $1,000 donated), the proposal, if enacted, would almost surely lead to a significant decline in overall charitable giving. ...
A drop in prospective donations is bad enough. Much more worrisome are the assumptions of the latest tax proposal and a White House initiative called the Social Innovation Fund. While the former assumes that the money diverted from charity can be put to better use by government, the latter adds the notion that government funds should themselves be directed to nonprofits, some previously independent of government. The other assumption is that private philanthropy should follow along, matching government dollars.In combination, this amounts to what can be called the Solyndra-ization of philanthropy, in which the government would brand select social-service organizations with the Washington seal of approval, and thus signal that private charitable capital should be directed to the same organizations.
At its October 1, 2011 meeting, the Council of the Section considered and approved the following proposed revisions to the ABA Standards and Rules of Procedure for Approval of Law Schools for Notice and Comment:
New Interpretation 510-2 [For law schools not affiliated with a university, the school’s student loan cohort default rate shall be sufficient ... if it is not greater than 10% for any of the three most recently published annual cohort default rates.]
Proposed Revisions to Rule 5(a), Rule 22 [Teach-out Plan and Law School Closure]
A hearing on these proposed changes is scheduled for 3-4 p.m. on November 17, 2011 at the ABA, 321 N. Clark Street, Chicago, IL 60654. Please address written comments and requests to speak to Becky Stretch, Assistant Consultant, at the above address or at Becky.Stretch@americanbar.org.
Comments and requests should be submitted no later than November 15, 2011.
We expect that final Council action on these matters will occur at the Council meeting scheduled for December 2-3, 2011.
GOP presidential candidate Herman Cain's 9-9-9 tax plan has incited energized discussion about the impact of taxes on Americans. The 9-9-9 plan would throw out our current tax system and replace it with a 9% business tax, a 9% personal income tax and a 9% national sales tax. Many economists believe that this move would promote growth, but detractors argue that the plan might raise tax rates for low-income Americans. At this event, Mr. Cain will discuss the details of his plan in a conversation with AEI's Kevin Hassett. Following the discussion, a panel of experts will debate the merits and liabilities of 9-9-9.
- William G. Gale (Brookings Institution)
- Rich Lowrie (Advisor to Herman Cain)
- Stephen Moore (Wall Street Journal)
Sunday, October 30, 2011
- Tax Papers at Today's Central States Law School Association Annual Conference
- Afield Presents Campaign Participation by Religious Organizations at Charleston
- WSJ: Tax Benefits for Education
- A Theory of Inflation, Tax Evasion, and Redistribution
- Gutting Presents Public Benefit and the Charitable Deduction at Charleston
- Top 5 Tax Paper Downloads
- Landsburg: How the Death Tax Hurts the Poor
- Shay: Jobs, Deficit Reduction, Revenues, and Fundamental Tax Reform
This Article critically examines the efficiency of the quid pro quo test and its need for an exception in order to conform to the purpose of the charitable deduction; acting as a subsidy to those organizations the government feels provides a community benefit. Throughout the country, firefighters risk their lives on a daily basis to keep the public safe. It is, therefore, imperative they receive the best possible training. One invaluable training method is live-burn training, in which a structure is set on fire providing firefighters with “a level of realism that is unsurpassed.” For over thirty five years, relying on a United States Tax Court case, many believed a taxpayer could claim a charitable deduction for the donation of the taxpayer’s home to the local municipality for live-burn training, while still retaining ownership of the underlying land (live burn donation). In recent years, however, there has been much confusion and debate on whether live burn donations qualify for charitable deductions culminating in the IRS specifically targeting live burn donations and the United States Tax Court overruling its long standing opinion. The battle over whether a charitable deduction is allowed for a live burn donation is still burning in the courts. Assuming the Service does not win the live burn donation fight, it is believed Congress will enact legislation specifically targeting live burn donations. More than likely, Congress will either specifically disallow a charitable deduction for the live burn donation or limit the amount of the deduction with regards to a live burn donation. This article proposes Congress should do the latter and not extinguish the live burn donation, because exceptions to the application of the quid pro quo test should be made when the benefit of the donation to the public substantially outweighs the benefit received by the donor (public benefit exception). Essentially, the public benefit exception should be used to encourage donations that otherwise would be underfunded, as is the case in live burn donations. In conclusion, this Article proposes an amendment to the charitable deduction, thereby allowing a charitable deduction for live burn donations, while recognizing the need for limitations given the perceived abuse and the valuation difficulties of the live burn donation.
4. [279 Downloads] Charitable Gifts by S Corporations and Their Shareholders: Two Worlds of Law Collide, by Christopher R. Hoyt (Missouri-Kansas City)
5. [238 Downloads] Charitable Gifts by S Corporations: Opportunities and Challenges, by Christopher R. Hoyt (Missouri-Kansas City)
I'm sure there's a lot to be said for rich people, but they sure do consume a lot of resources. I wish they'd leave more for the rest of us. That's why I oppose the death tax.
The death tax sends a powerful message to rich people: "You can't leave everything to your heirs, so spend now, before it's too late. Burn more fuel. Demand more timber for your mansions, more steel for your private planes, and more fiberglass for your yachts.''
Then all those resources—the fuel and timber, the steel and fiberglass—become unavailable to build factories, so the rest of us get worse jobs at lower wages. Those resources are unavailable to build farm equipment, so we all pay higher food prices. They're unavailable to build roads and schools and hospitals.
I don't begrudge anyone the fruits of his labor. But the death tax encourages people to pick extra fruit, leaving the trees a little barer for the rest of us. ...
Every tax discourages work, and every tax discourages risk-taking. That's sad but true, and it's a reason to hesitate before you raise any tax. But the death tax is a double whammy, compounding the damage by encouraging overconsumption. (The same is true, incidentally, of taxes on interest and dividends.) So my message is this: If you must tax the rich, please do it in a way that minimizes the collateral damage to the poor.
This article argues that flat opposition to revenue increases has contributed to U.S. economic vulnerability and has had unintended effects, including contributing to increased deficits instead of smaller government. The article distinguishes fundamental income tax reform from raising revenues from tax expenditures and recommends that the Treasury Department spearhead fundamental income tax reform, within the context of an overall budget framework that includes revenue increases, and develop detailed proposals to make the individual and corporate income taxes fairer, simpler and more efficient.
All Tax Analysts content is available through the LexisNexis® services.
Saturday, October 29, 2011
- Linda Beale (Wayne State), Fairness in Context
- Danshera Cords (Albany), Equitable Innocent Spouse: Is There Any Equity?
- Del Wright (Valparaiso), Fighting the IRS When the IRS is Fighting Young
This article proposes a unique resolution to the debate over political campaign participation by tax exempt organizations, specifically religious organizations. By virtue of their tax exempt status, these organizations are banned from participating in political campaign activity. Commentators have debated the merits of this ban for years, and to say that commentators have been all over the map regarding their opinions over the ban is putting it charitably. The ban’s advocates and opponents have staked out seemingly every position imaginable in arguing the merits of this ban. Some commentators have argued forcefully that the ban is needed to preserve constitutional separation of church and state. Other commentators have argued equally as passionately that the ban is unconstitutional and pulls at the fabric of American democracy by unduly limiting political participation by churches and religious organizations. The arguments of each side of the debate take a zero-sum gain approach to resolving the debate, and they seem to discount the concerns of the opposition as either irrelevant or insignificant.
This article does not attempt to resolve the debate in the literature over the ban’s legitimacy. Rather, this article proposes a solution that the literature has apparently ignored: finding a compromise between the two extremes of the debate that addresses the primary concerns of both sides. This article proposes that § 501(c)(3) organizations be permitted an increased amount of political campaign activity in exchange for paying a tax that I refer to as a “self-directed tax.” What makes the self-directed tax unique is that the organizations themselves would be permitted to direct the government as to how to allocate the proceeds from the tax to a preset group of government spending choices. Similar rules would apply to the charitable deduction as well. The self-directed tax allows § 501(c)(3) organizations to become more politically active without having to be subsidized through a tax exemption. This article’s proposal, however, still allows § 501(c)(3) organizations to preserve their unique status as partners with government in the provision of public goods, a status that justifies not requiring them to provide a portion of their profits to the government for the government to do with as it pleases.
The tax code offers numerous breaks for education, from the American Opportunity Tax Credit and the Lifetime Learning Credit to 529 college-saving plans and the business deduction for work-related education. While none is a one-stop solution to the problem of paying for education—and many are mutually exclusive—they can make it easier to foot the bill. ...
Unfortunately, navigating the tax code is no easy task. It takes IRS Publication 970, Tax Benefits for Education, 84 pages to explain 12 different benefits.
"The tax benefits for education are so complicated, many people either don't know they exist or just throw up their arms in despair," says Gary Carpenter, a long-time CPA who heads the National College Advocacy Group, a nonprofit based in Syracuse, N.Y. "They make the alternative minimum tax look easy."
We provide a theory which predicts that economies with greater inequality will tend to have greater tendency for tax evasion and more reliance on inflationary finance. Consistent with empirical evidence, the model features economies of scale in the credit transaction technology, and pervasive tax evasion in the extreme tails of the income distribution due to increasing returns in the tax evasion technology, and the existence of positive audit costs which makes auditing the poor unappealing. A rise in inequality in the sense of second order stochastic dominance spreads more mass to the tails, and raises the marginal cost of taxation thus making inflation more attractive from the public finance point of view. An important contribution of the paper is that when the level of redistribution is decided by majority voting, the median voter may prefer less redistribution, the greater the level of inequality, contrary to standard politico- economic theories, and consistent with some empirical evidence. We provide further empirical evidence in support of this view, according to which controlling for inflation and the size of the shadow economy dramatically changes the effect of inequality on redistribution.
Friday, October 28, 2011
The country faces a well-documented debt crisis, but in many ways it faces more hidden, and even more pernicious, ones. Yes, the national debt as a percentage of GDP is approaching all-time highs and traditional monetary and fiscal policy tools to combat unemployment and grow the economy appear to have been exhausted. But perhaps the biggest crisis facing the country is a self-inflicted one of myopia over the political and policy terms of the national tax debate itself. Rather than fall prey to the petty syllogisms of job-killing tax hikes and tax cuts for the rich, policy makers need to embrace novel solutions for the novel problems facing the modern economy. The Tax CUT mechanism provides one such approach, rejecting the binary of tax cuts or tax hikes and replacing it with a targeted policy of tying the tax rate faced by public corporations to the employment decisions of such corporations by increasing a corporation’s marginal income tax rate when it decreases payroll while decreasing the corporation’s marginal income tax rate when it increases payroll. This mechanism takes into account the economic reality that employers can more easily shift the incidence of the corporate tax onto labor during periods of deep unemployment, simply because workers have nowhere else to go. The Tax CUT offsets this by charging employers through higher marginal tax rates for shifting the incidence of the corporate tax onto labor while at the same time rewarding employers through lower marginal tax rates for new investment in labor. In this manner, the Tax CUT can help directly subsidize employment while avoiding tax increases on, or even providing tax relief for, capital, thereby satisfying both demand-side and supply-side calls for employment stimulus. Hopefully, for these reasons, the Tax CUT can help shape future debates about the direction of tax reform, whether as part of any package assembled by the Super Committee or in future considerations.
- The Daily, Don’t Mind the Gap: Occupiers Blast Economic Inequality but Fail to Notice Growing Mobility
- Bob Ellis, The Marxist Income Inequality Lie
- Hot Air, The Income Inequality Myth Explained
- James Pethokoukis, 7 Reasons Why Obama Is Wrong on Income Inequality
The Obama administration unveiled a plan this week aimed at reducing the burden of student loan debt, which now surpasses credit card debt in the United States.
The plan will let borrowers consolidate their government loans and government-backed private loans into one monthly payment, at a lower interest rate. It will also give people the right to cap their loan payments at 10% of their income, down from a current limit of 15%, and will allow student debt to be forgiven after 20 years, compared with 25 years under the law now.
Will the Obama plan make a difference? Will it help prevent defaults or will it lead today's students to borrow more, if they view their debts as potentially negotiable and if they believe the government is assuming more of the risk? What should government do about student debt and the college loan industry?
- Sandy Baum (Professor of Economics, Skidmore College), A Step in the Right Direction
- Richard Vedder (Professor of Economics, Ohio University), Subsidizing the College Bubble
- Anya Kamenetz (Author, The Edupunks' Guide), An Inadequate Response
- Neal P. McCluskey (Cato Institute), The Worst Lesson We Could Teach
- Cindy Warner (StudentLoanJustice.org), Compounding the Suffering
While the Republican presidential candidates agree that the tax code is too long, they can’t seem to agree on just how long it is. Rick Perry says it’s 3 million words. Herman Cain used to describe the code as “an 8-million-word mess,” but now he says it’s 10 million words. How many words are really in the tax code?
In the neighborhood of 3 million. According to the IRS’s Taxpayer Advocate Service, the Internal Revenue Code had 3.8 million words as of Feb. 1, 2010. That count is a little high, because it includes cross-references, descriptions of amendments, and effective dates. A separate count done by data consultant Michael Bommarito and Michigan State Law Professor Daniel Katz came up with 2.6 million words, although their analysis didn’t include nonsubstantive words like is, and, or at. In fairness to Herman Cain, there’s far more to our tax system than the Internal Revenue Code. The code provides an outline of what Congress wants the IRS to do, but it’s the IRS regulations that put the outline into effect. There hasn’t been a recent count of the words in both the code and the regulations, but a 2005 analysis put the total at more than 9 million.
Term: 12-month, long-term contract position, with renewals for additional terms available.
Qualifications: Candidates must have a distinguished academic record, including a J.D. from an accredited law school, and must be licensed to practice law in Ohio (or have the ability to become promptly licensed). Experience in public interest representation, including significant litigation experience, experience involving domestic violence and family law, and/or clinical teaching or supervisory experience is preferred. A successful applicant should have excellent lawyering, communication (oral and written), and interpersonal skills.
Starting Date: August 1, 2012.
Apply at www.jobsatuc.com. for position #211UC1888. Attach a resume, cover letter, and contact information for three references.
For More Information: Contact Professor Tim Armstrong, Chair, Non-tenure Track Faculty Committee.Application Deadline: Applications will be accepted until the position is filled. Review of applications will begin on November 1, 2011.
Panel #1: Taxation and Health Care Reform: History, Politics, and Comparative Perspective
- Ted Marmor (Yale) & Kieke Okma (NYU), Tax Expenditure in Health Care: Issues, Controversies, Expectations
- Mark A. Peterson (UCLA), The Ideological and Partisan Polarization of Health Care Reform and Tax Policy
- Panel Organizer: Eric Zolt (UCLA)
- David Gamage (UC-Berkeley), The Affordable Care Act’s Effective Taxes on Low- and Moderate-Income Workers
- Amy Monahan (Minnesota),Why Tax High-Cost Employer Health Plans?
- Larry Zelenak (Duke),Choosing Between Tax and Non-Tax Delivery Mechanisms
- Panel Organizer: Deborah Schenk (NYU)
- Brian Galle (Boston College),The Implications of Health Care Reform for U.S. Intergovernmental Fiscal Relations: A Preliminary Assessment
- Shanna Rose (NYU),Health Reform as Policy Feedback: Medicaid’s Pivotal Role in the Massachusetts Health Care Reform Plan and the Affordable Care Act
- Alan Weil (National Academy for State Health Policy), Why Don't States Love the Fiscal Terms of the Affordable Care Act?
- Panel Organizer: Kirk Stark (UCLA)
- Howard Gleckman (Tax Policy Center),Healthcare and Long-Term Fiscal Outlook
- Daniel Kessler (Stanford), Reforming Medicare
- Mark Pauly (Pennsylvania), The Real Burden of Tax Financed Medical Care in the United States
- Panel Organizer: Daniel Shaviro (NYU)
The federal student loan reforms announced by President Obama on Oct. 26 won't help most students now in law school or recent graduates, because they are geared primarily toward undergraduates, according to student loan experts. ...
"[W]hat I'm being told by the Department of Education is that there will be some added relief for people on income-based repayment," said Heather Jarvis, a student loan consultant. "It will be for people who borrowed their first student loan in 2008." That means law students who took out federal loans to help pay for their undergraduate degrees will see no benefit, Jarvis said. However, some law students likely will qualify for loan consolidation, she said.
The reforms apply only to federally guaranteed loans, not private student loans, said Radhika Singh Miller, program manager for educational debt relief and outreach at Equal Justice Works. "What's really missing is relief for those who had to borrow private loans," Miller said. "And it's not going to help those of us who have already graduated." ...
At present, monthly federal student loan payments are capped at 15% of the borrower's discretionary income, for people who signed up for income-based repayment. After the borrower makes qualifying payments for 25 years, the federal government will forgive any remaining loan debt. Last year, Congress modified the system to cap payments at 10% of a borrower's discretionary income and forgive debt after 20 years. The changes were to benefit new borrowers beginning in 2014. Obama would simply bump up the effective date to benefit graduates beginning in 2012 — provided they had not previously taken out federal student loans. "It's not going to change the options for most current law students," Jarvis said. "They don't want to open the floodgates." ...
One change that might benefit law students is loan consolidation. The government will start offering that option for federal loans with an interest rate between 0.25% and 0.5% lower than the going rate of 6.8%, Miller said. ... Law students graduating in 2011 may qualify for the new consolidation option; ... A 0.5% decrease in the interest rate may not seem like much, but it can make a significant difference over 20 or 30 years.
- J. Martin Burke (Montana) & Gary Randall (Gonzaga), Damages and Taxes
- James Delaney (Wyoming) & Elaine Hightower Gagliardi (Montana), Estate & Gift Tax Update with Current Planning Considerations in Light of Recent Changes
- Sam Donaldson (U. Washington), Annual Income Tax Update
- E. Edwin Eck (Montana), Income, Estate and Gift Tax Fundamentals of Charitable Giving
- Kristen Juras (Montana), Family Limited Partnerships Revisited
- Martin J. McMahon, Jr. (Florida), Now You See It, Now You Don’t: The Comings and Goings of Disregarded Entities
- Ann Murphy (Gonzaga), What to Expect When the Unexpected Happens - Procedures and tips for Surviving an IRS Audit
- Daniel Simmons (UC-Davis), Breaking Up Is Hard To Do: Liquidation of Partnerships or a Partner’s Interest
By focusing attention on core principles and policies, Corporate Taxation reveals all of the major patterns and themes in the field. Students learn the law from basic source material – the Code and regulations – with concise explanations to supplement the presentation. Many problems, questions, and examples help lead students through challenging material. Cases and other source materials are edited concisely, and note material is kept to a manageable length. An effective organizational structure bridges introductory concepts with those presented in advanced tax classes. The text begins with subchapter S – an area of growing, practical significance – which links individual and separate entity taxation. Using a “building-block” approach from basic to complex transactions, students grasp the notion that many complex transactions are merely combinations of simpler ones, and that transactions may be structured in different ways to achieve varied tax consequences.
Corporate Taxation is solidly up-to-date. The structure and text integrate current developments, including codification of the economic substance doctrine; the impact of corporate tax shelters and application of substance-over-form doctrine; the increased importance of pass-through tax principles; the comparable treatment of dividends and long-term capital gain; recent changes affecting acquisitive and divisive reorganizations; and policy implications of current corporate tax reform options. A comprehensive Teacher’s Manual accompanies the text.
Since the early 1980s, US states have experimented with tax incentives targeted to distressed places to encourage economic development. The literature raised concerns that these expenditures were a net social loss because they would just subsidized a business to move from one location to another. In 1993, the US Congress passed the Empowerment Zone/Enterprise Community (EZ/EC) program, it addressed this concern with an "anti-pirating" provision that prohibited local government from using the EZ/EC resources to relocate a business from one jurisdiction to another using grants or loans.
When Congress passed the Community Renewal Act of 2000, it expanded the EZ program and added 40 Renewal Communities (RCs). They key incentive was an employment credit worth up to $3000 for hiring employees who live and work in the RC/EZ. The RC did not include an anti-pirating provision, possibly because it was assumed that tax credits alone would not entice a business to relocate. As the program sunsets in 2011, we can see if this assumption was valid. Were businesses more likely to relocate into the RC/EZ compared to neighboring areas? Were they less likely to move out? If the program enhanced social gain while minimizing social loss, we would hope that the program minimized relocations into the RC/EZ while preventing moves out.
To examine this question, I compared the business moves within 1000 feet of the either side of the border of the RC/EZ using data from the National Establishment Time Series Database. The sample included RC/EZs from California and Tennessee. The Oakland, CA and Nashville, TN ECs served as placebo test because they did not receive the tax incentives and their designation expired in 2004. The results show that while the RC/EZ incentives appear to have increased moves into the RC/EZ along the border by 25% holding pretreatment levels and trends constant (t=2.38, p=0.02). However, moves out of the RC/EZ along the border also increased leading to no statistically significant net change in firms. This finding is consistent with recent studies. Findings may be compromised by the small sample and limitations of the data source. Further research would be needed to determine if the firm moves that happened left the RC/EZ regions better off in terms of jobs and the tax base.
Thursday, October 27, 2011
We propose a novel solution for states that wish to tax interstate e-commerce – based on fully and adequately compensating remote vendors for all tax compliance costs. We argue that our proposed solution is compatible with the Quill framework for when states can constitutionally impose burdens on remote vendors. We argue that unlike our proposed solution, the recent state attempts to tax interstate e-commerce through so-called “Amazon laws” are unconstitutional, ineffective, or both. We thus urge the states to adopt our proposed approach as the best way forward for state taxation of interstate e-commerce.
- Corporate income tax: +19.1%
- Personal income tax: +16.5%
- Sales tax: +2.9%
The largest increase was in the Mid-Atlantic (+14.9%); the smallest increase was in the Southeast (+7.1%). State tax revenues rose in 49 states. Here are the states with the ten biggest increases in tax revenues, as well as the states with the smallest increases in tax revenues:
Capital gains taxes are integrated into an excess-bid model to develop an analytical narrative of the housing market crash. Housing data is used to support the narrative. The paper concludes that sudden changes in capital gains tax rates can cause formed bubbles to burst. Research recommends gradual changes in capital gains taxes rather than large one-time changes may be a better policy.
To assist in its workforce planning efforts, the Internal Revenue Service (IRS), like other Federal agencies, has the flexibility to use payment compensation in the form of recruitment and retention incentives to attract and retain a high-quality workforce. Specifically, the IRS can offer recruitment incentives to attract new employees for positions that are difficult to fill, and retention incentives to retain employees with unusually high or unique qualifications. ... The average recruitment incentive ranged from $2,600 to $10,000 per recruit and the average retention incentive ranged from $8,000 to $27,000 per employee between Calendar Years 2005 and 2010. ...TIGTA found that some controls were bypassed or not followed. This resulted in some recruitment and retention incentives not being processed in accordance with IRS guidelines between January 2006 and February 2010. For example, seven (25.9%) of the 27 retention incentives reviewed did not contain adequate documentation to support that employees would likely leave the IRS in the absence of the incentive, which presents a risk that the incentives may not have been justified.
The negative attention heaped on law schools of late seems to have made an impression on would-be law students.
In a survey by law school admissions consulting firm Veritas Prep [Inside the Minds of Law School Applicants], 68% of the prospective lawyers queried said they would still apply to law school even if they understood that a significant number of graduates would be unable to find jobs in their desired field. That figure had fallen from 81% one year ago.
The National Association for Law Placement reported that the class of 2011 had the lowest employment rate since 1996. Only 68% of graduates had landed jobs requiring a J.D. nine months after graduation.
The survey appeared to confirm that attitudes were changing toward a legal education. In 2011, the number of law school applicants dropped by 10%.
Other survey findings:
- [O]nly 26% of respondents believe they will always be able to find a job if they have a JD, a 9% decrease from last year’s results.
- Finding a job that allowed them to pay off their student loan debt (73%) supplanted last year’s top issue, which was finding an appealing long-term career path (68% of respondents as opposed to 79% of respondents in 2010).
- Although the number of respondents (21%) relying on grants and scholarships remained unchanged, the number expecting to finance their education through student loans grew substantially, from 38% in 2010 to 49% in 2011. Perhaps somewhat related to this increase was the fact that in 2011 only 9% of respondents indicated parental support would help them finance the degree, as opposed to the 14% expecting parental support last year.
- Location continues to be the most important factor in selecting a law school (71% this year). Although prestige and ranking continue to be important considerations (64% in 2011), this year career placement rate displaced prestige and ranking as the number two consideration, with 67% of respondents considering it a high priority (versus last year’s 62%). Additionally, the affordability of a legal education has assumed a higher priority for respondents: 60% (versus last year’s 54%) cited it as a consideration in the law school selection process.
Update: ABA Journal, Poll Finds Would-Be Law Students Are Getting the Message About Scarce Jobs
Corporate tax reform is in the air. Competitive pressures from globalization, as well as skyrocketing budget deficits, are forcing lawmakers to rethink how America’s largest businesses are taxed. Some want to close “loopholes.” Others want to end all U.S. tax on foreign profits. Some want to lower rates, while still others want to abolish the corporate tax altogether and replace it with an entirely new system. Unlike many other books on tax policy, Corporate Tax Reform: Taxing Profits in the 21st Century is not selling an idea or approaching the issue from a particular political slant. It boils down the complexity of corporate taxation into simple language so readers can make up their own minds about the future of this controversial tax. For too long, the issue of corporate tax reform has been the exclusive domain of lawyers and economists who devote their entire adult lives to studying the tax. Corporate Tax Reform: Taxing Profits in the 21st Century opens the door on these issues to all concerned citizens by providing a compact guide to the economics and politics of the current debate on corporate tax reform.
- Provides an overview of the corporate tax and the possibilities for reform
- Discusses the impact on businesspeople and individual taxpayers
- Boils down complex tax concepts boiled into simple language
- Spurs lively discussion of the political issues without political bias
- Includes a discussion of ideas for revamping taxes for individuals, since the corporate and individual tax codes are interrelated
This article presents a critique of the economic substance doctrine and suggests an alternative. The economic substance doctrine under certain circumstances overrides the technical provisions of the Internal Revenue Code. Congress recently incorporated into the Code a version similar to the court-developed doctrine. Whether authorized by the court or authorized by statute, however, the doctrine makes our tax laws vague, uncertain, and fallacious. Therefore, the doctrine should be abandoned. A more appropriate tool for curbing questionable tax planning is the use of statutory risk requirements. This article provides some suggestions for developing such requirements. The article concludes that statutory risk requirements would help break the tax system’s addiction to economic substance and restore long overdue rationality.
Wednesday, October 26, 2011
To discourage unhealthy eating and limit the population’s intake of fatty foods, an increasing number of countries across the the European Union is considering levying taxes on unhealthy food. This essay provides a brief analysis of the genesis, rationale and legal implications of these national ‘fat tax’ schemes by focusing in particular on the measures recently implemented in Denmark and Hungary. It focuses in particular on the legality of these product-specific taxes under EU and WTO law and explores whether the EU might validly consider to adopt a EU-wide fat tax in the light of the considerable geographic variation of obesity prevalence in the EU and its limited competence in both the health and tax areas. Those issues are particularly sensitive in the aftermath of the Political Declaration on the Prevention and Control of Non-Communicable Diseases (NCDs) adopted by the UN General Assembly on September 18, 2011.
Median Private Practice Salaries Cities Ranked by Buying Power of the Salary (Class of 2010)
|City||Reported Median Salary||Salary Required to Yield New York City Buying Power*||Buying Power Index|
|Los Angeles, CA||160,000||100,700||1.589|
|St. Louis, MO||100,000||66,840||1.496|
|Newport Beach, CA||160,000||108,100||1.480|
|Menlo Park, CA||160,000||115,340||1.387|
|Mountain View, CA||160,000||115,340||1.387|
|Palo Alto, CA||160,000||115,340||1.387|
|Kansas City, MO||100,000||72,240||1.384|
|San Francisco, CA||160,000||121,110||1.321|
|Salt Lake City, UT||95,000||74,380||1.277|
|New Orleans, LA||90,000||71,645||1.256|
|Fort Worth, TX||79,000||67,280||1.174|
|Las Vegas, NV||80,000||75,270||1.063|
|San Antonio, TX||75,000||70,680||1.061|
|New York, NY||160,000||160,000||1.000|
|San Diego, CA||90,000||97,670||0.921|
|Des Moines, IA||60,000||67,210||0.893|
|Baton Rouge, LA||54,500||70,980||0.768|
|Little Rock, AR||54,000||71,275||0.753|
|Oklahoma City, OK||50,000||67,800||0.737|
|Fort Lauderdale, FL||62,000||85,470||0.725|
|Long Beach, CA||72,000||100,700||0.715|
|San Jose, CA||80,000||115,340||0.694|
- ABA Journal, Why New York Isn’t No. 1: Associates in Dallas Get the Most Bang for Their Buck
- Above the Law, NALP ‘Buying Power’ Index Says Everything Is Bigger in Texas
- National Law Journal, When It Comes to Buying Power, Dallas Beats New York
The U.S. tax debate tends to focus on the top 1% — their share of income taxes and their tax rates. ... Problem is, the top 1% is a very misleading measure of who pays federal income taxes. It mixes doctors and billionaires, masking the taxes paid by the middle class and the affluent.
Everyone seems to know that about half of Americans paid no income taxes in 2009 and that the top 1% paid about 37% of the income taxes. But how many people know that households making make less than $75,000 collectively paid more federal income tax than those making $1 million or more? ... The fact is that the government relies far more on the bottom 99 percent than the top 1 percent for federal income taxes.
A much better measure than the top 1% would be the top tenth of 1%. The government does not break out this group, but Emmanuel Saez, a University of California economist, and others have. The Saez analysis of tax return data shows that through 2008, the top one-in-a-thousand taxpayers had average income in recent years that ranged between $5.2 million and $7.5 million annually. ... Furthermore, inside the top 1%, those with the highest incomes pay the lowest tax rates.
The top 1 percent paid an average income tax rate of 24% ... The top 400 taxpayers paid a much lower rate. On an average income of $270 million each, their effective federal income tax rate was 18.1%. In a country with more than 300 million people, 400 taxpayers is a minute number. Yet those 400 made 1.3 cents out of every dollar of the country’s total adjusted gross income, almost doubling their share of national income since 2002.
Continuing to focus on the top 1% will mislead us about who pays federal income taxes. That focus should be on the middle class and the upper middle class, and then on the top tenth of 1%. And on whether our tax system is helping create wealth and jobs or destroying them.
- Ways and Means Discussion Draft
- Discussion Draft Section-by-Section
- Press Release: Camp Releases International Tax Reform Discussion Draft
- Discussion Draft: One Page Highlights
- Discussion Draft: Three Page Summary
- Talking Points and Background: Reforming the Tax Code to Get America Working Again
- Comments: Business Leaders in Support of a Territorial Tax System
Press and blogosphere coverage:
- Bloomberg, Camp Territorial Plan Exempts Most Offshore Profits From Tax
- The Hill, GOP Chairman to Offer Corporate Foreign Tax Overhaul Proposal
- Wall Street Journal, Rep. Camp Prepares to Unveil Bill on Taxing Companies’ Overseas Income
Rick Perry joined the GOP's tax reform sweepstakes on Tuesday, proposing an optional flat income tax of 20%, among other fiscal and economic reforms. We'll get to the details, but the larger story is how the drive for a flatter, simpler, more pro-growth tax code is taking center stage in the Republican Presidential contest.
Mr. Perry joins Newt Gingrich, who has proposed a 15% optional flat tax; Jon Huntsman, whose reform proposal would cut the top individual rate to 23%; and Herman Cain and his now famous 9-9-9 plan. House Republicans included a reform with a 25% top rate in their budget earlier this year. All of this ferment shows that whatever one thinks of the candidates as potential Presidents, most of them are trying to meet the political moment with reforms to address our major economic challenges.
A flatter tax code is both an economic and political reform. Economically, its lower rates would attract more capital from abroad, encourage more domestic investment, and increase growth and jobs. It would also minimize, if not eliminate, the tax favoritism and loopholes that misallocate labor and capital. Politically, this would reduce the legal corruption of handing out favors that has soured so many Americans on their government. ...
The good news is that Mr. Perry and most of his competitors are thinking big, with proposals that will reverse the U.S. slide to high-debt, slow-growth stagnation. President Obama wants to portray the economic debate as pro-growth government spenders vs. the austerity of budget cutting. But the real debate is over whether government or the private economy is the main engine of prosperity. The flat tax puts Republicans on the side of private growth and government reform, a potent combination. Perhaps Mr. Perry and his comrades can even coax Mitt Romney to join the party.
Eliminating the death tax will create more jobs and more revenue for the federal government. That combination should be an obvious choice for the deficit reduction committee. Repealing it is a painless part of the solution. It’s also the right thing to do.
The United States has utilized an estate tax for over 90 years. In the early 1990s a sustained effort to repeal the tax at both the state and federal levels began. Previous inquiry into the estate tax repeal effort has focused upon the innovative political and communications strategies utilized by repeal advocates. While I believe that these strategies have played a significant role in the success of the repeal effort, I argue that the repeal effort’s success is primarily due to significant changes within the U.S. economic, media and political landscapes that have created an environment ripe for the use of innovative political and communications strategies to create popular support for estate tax repeal. Growth in economic inequality, a decline in economic security, the rise of a counter-establishment of conservative academia and think tanks, and unprecedented changes in the nature of mass media have transformed the U.S. political landscape, allowing estate tax repeal effort to gain popular support.
After-tax income for the highest-income households grew more than it did for any other group. (After-tax income is income after federal taxes have been deducted and government transfers—which are payments to people through such programs as Social Security and Unemployment Insurance—have been added.) CBO finds that, between 1979 and 2007, income grew by:
- 275% for the top 1% of households
- 65% for the next 19%
- 40% for the next 60%
- 18% for the bottom 20%
For decades the legal industry has operated as a monopoly, which has been made possible by its self-imposed rules and state licensing restrictions — namely, the requirements that lawyers must graduate from an ABA-accredited law school and pass a state bar examination. The industry claims these requirements are essential quality-control measures because consumers do not have sufficient information to judge in advance whether a lawyer is competent and honest. In reality, though, occupational licensure has been costly and ineffective; it misleads consumers about the quality of licensed lawyers and the potential for non-lawyers to provide able assistance.
Rather than improving quality, the barriers to entry exist simply to protect lawyers from competition with non-lawyers and firms that are not lawyer-owned — competition that could reduce legal costs and give the public greater access to legal assistance. ...
To protect clients from bad lawyers, current barriers to entry try to separate the wheat from the chaff among potential legal practitioners. A market for information, though, would let consumers identify the chaff more precisely, saving more of the wheat. It is worth recalling that two of the finest lawyers and civil rights advocates our country has ever produced, Abraham Lincoln and Clarence Darrow, would not be allowed to practice law today under current rules. (Lincoln was self-taught; Darrow attended the University of Michigan Law School but did not graduate.) Eliminating entry barriers and allowing non-lawyers to perform legal & services would, among many other gains, ensure that such talents have a place within our legal system.
- Above the Law, New York Times Op-Ed Advocates Letting Everybody Play ‘Lawyer’
- My Shingle, No Need to Deregulate Lawyers if We Debunk An Economist
- Truth on the Market, Unlocking the Law Symposium
- Wall Street Journal Law Blog, Lincoln Was Self-Taught . . . So Why Go To Law School?
A New York real estate transactional lawyer who didn't file state tax returns from 2001 to 2007 had sought a public censure. But a state appeals court suspended Roger Roisman's law license for one year, saying that the reduced income and multiple serious health problems he experienced during that period weren't a sufficient excuse to justify a lesser penalty, Reuters reports. [In re Roisman, 2011 NY Slip Op 07300 (NY App. Div. Oct. 18, 2011).]
Roisman, who has a LLM degree in tax law, is a partner of Tannenbaum Helpern Syracuse & Hirschtritt. He formerly was a partner of Orrick Herrington & Sutcliffe and Stroock & Stroock & Lavan.
He was earning $650,000 annually at Stroock in 1999 when he left to form a company at which he never made much more than $120,000, according to Reuters. He returned to law practice in 2001 and made around $500,000 in 2007.
After the New York State Department of Taxation contacted him in 2008, Roisman retained counsel and paid about $730,000 to state and federal tax authorities.
Governments at all levels – federal, state and local – are suffering through ever more severe budget crises. The interests of these different levels of government are often assumed to be in conflict. For instance, it seems reasonable to believe that if the federal government were to get its finances in order then that would mean less aid to the states. Yet this common assumption is not necessarily correct; what if the federal government saved money through cutting subsidies that are likely doing more harm than good? Currently, the Internal Revenue Code is doling out more than one hundred billion dollars per year in just such subsidies to the states. If these subsidies were cut completely, then this alone would go a long way towards resolving the disputes that are now regularly threatening to bring the federal government to a standstill. This Article advocates deep cuts, but not the complete elimination of these subsidies because much smaller subsidies could be better focused on enhancing state and local fiscal stability, and this would mean that the federal government would be spending less while aiding the states more. Most centrally, this Article advocates that the federal government encourage states to use the local property tax in contrast to more volatile revenue sources.
This Article proposes a systematic method for evaluating United States tax-reform proposals which incorporate the use of a value-added tax (VAT) as part of either a full or partial replacement for the U.S. income-tax system. Intended to aid the academic or legislator in considering the proposals for a U.S. VAT, this Article categorizes and readies the principal U.S. VAT issues for analysis and then judges the issues on the basis of clear, well-established guidelines or recommended criteria for how a U.S. tax system should be designed.
Tuesday, October 25, 2011
Petitioner claimed that as a teacher she occasionally used "candy and sugar" as student incentives. A number of the receipts she offered to substantiate these expenses also include other food items and household goods. Petitioner also testified that she purchased a U.S. savings bond that was presented to a student in recognition of community service provided to the school.
There is no evidence that the school required the purchase of the candy or the savings bond for petitioner's students. These expenses were not necessary to petitioner's job; and no matter how well intentioned, gifts to students are not deductible as business expenses.
- Daniel Halperin (Harvard), Is Income Tax Exemption for Charities a Subsidy?, 64 Tax L. Rev. 283 (2011): "This Article considers whether income tax exemption for charities is consistent with normal income tax. It finds that exemption for contributions is not special treatment and that exemption for income from sale of goods or performance of services related to the purpose of the charity is special treatment only if profits are used for expansion. It concludes that a subsidy for expansion can be justified. Most importantly the article finds that exemption for investment income is a subsidy. It concludes that exemption for such income depends on a value judgment as to whether public policy should favor less accumulation and more current spending by charities. It suggests that the exemption for investment income and the charitable deduction should be limited in certain circumstances."
- Gillian Lester (UC-Berkeley), Can Joe the Plumber Support Redistribution? Law, Social Preferences, and Sustainable Policy Design, 64 Tax L. Rev. 313 (2011): "This article explores how to build political support for law reform designed to achieve economic redistribution. Specifically, I analyze and compare reforms that aim to redistribute by targeting benefits at low-income individuals through an income or means test, versus those that emphasize “universal” allocation of benefits, not conditioned on poverty. I argue that notwithstanding that we should expect universal provision (by definition) to achieve less redistribution than means testing, universalist policies ultimately may be more effective in achieving this goal because they are likely to be more politically durable, and - more intriguingly - to create social conditions that increase toleration for redistribution. I support this argument by drawing upon the growing body of research in psychology and economics suggesting that people have a mixture of self-regarding and other-regarding impulses, and that some forms of social organization are more likely than others to elicit pro-social behavior. Universalist programs, I argue, plausibly increase preferences for redistribution by tapping social norms of reciprocity, generating group identity effects based on a sense of common vulnerability, and serving as a “policy frame” that de-emphasizes the salience of low-income people as an undeserving “out-group.” I use a case study of recent social insurance legislation as a springboard for developing an empirical research agenda that would help evaluate the strength of my thesis."
- Daniel Shaviro (NYU), The David R. Tillinghast Lecture. The Rising Tax-Electivity of U.S. Corporate Residence, 64 Tax L. Rev. 377 (2011): "In an increasingly integrated global economy, with rising cross-border stock listings and share ownership, U.S. corporate residence for income tax purposes, which relies on one’s place of incorporation, may become increasingly elective for new equity. Existing equity in U.S. companies, however, is effectively trapped here, given the difficulty of expatriating for tax purposes absent a bona fide acquisition by new owners. Both the prospect of rising tax electivity for new equity and the very different situation facing old U.S. equity have important implications for U.S. international tax policy. This paper therefore explores three main questions: (1) the extent to which U.S. corporate residence actually is becoming elective for new equity, (2) the implications of rising electivity for the age-old (though often mutually misguided) debate between proponents of residence-based worldwide corporate taxation on the one hand and a territorial or exemption system for foreign source income on the other, and (3) the transition issues for old equity if a territorial system is adopted."