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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, January 23, 2012

Crane Presents Can Congress Retroactively Tax Distributions From Roth IRAs? Today at Case Western

CraneCharlotte Crane (Northwestern) presents Legitimate Expectations in Tax Transitions: Are Roth IRA Conversions Different? at Case Western today as part of its Faculty Workshop Series:

Congress has rarely been tempted to test its power to adversely change tax treatments of investments in ways that would have substantial retroactive effects, despite the assurance from academia (most notably in the writings of Graetz and Kaplow) that there are few if any limits on such power beyond the limits of pragmatic politics. If, however, substantial numbers of high-wealth taxpayers have taken advantage of the ability to convert from traditional IRAs to Roth IRAs, future Congresses may feel pressure to reneg on the promises made to Roth converters, and make tax law changes that affect the exemption of distributions from such Roth IRAs. Roth converters may be especially vulnerable if it turns out that such high wealth converters were able to selectively transfer investments likely to have particularly high returns into Roth IRAs.

This paper explores whether Roth IRA converters have claims so qualitatively different from those of other investors in tax-affected positions that their expectations should be honored. It concludes with a caution against the deep entrenchment of tax exemptions, because of the obstacles such entrenchment creates for the evolution of the federal taxes. Roth converters will be among those with the highest interest in preserving the income tax, since it is that tax that they have pre-paid.

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