TaxProf Blog

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

Monday, March 26, 2012

BigLaw Grew 1.7% in 2011

NLJThe NLJ 250:   The National Law Journal's Annual Survey of the Nation's Largest Law Firms:

After three years of flat to negative growth, 2011 was the year that the nation's 250 largest law firms started getting bigger again. Headcount among NLJ 250 firms was up a collective 2,132 lawyers, about the size of a Latham & Watkins. That represented growth of 1.7% — in line with the average increase during the past 10 years, but well below the 4-5% growth rate of the 2005-08 go-go year.

  1. Baker & McKenzie (largest office: Chicago) -- 3805 lawyers
  2. DLA Piper (New York) -- 3746
  3. Jones Day (New York) -- 2407
  4. Hogan Lovells (Washington, D.C.) -- 2253
  5. Latham & Watkins (New York) -- 2014
  6. White & Case (New York) -- 1906
  7. Skadden (New York) -- 1832
  8. K&L Gates (Pittsburgh) -- 1762
  9. Greenberg Trauig (New York) -- 1699
  10. Sidley Austin (Chicago) -- 1592

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

McMahon, Shepard & Simmons: 2011 Federal Income Tax Developments

Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston) & Daniel L. Simmons (UC-Davis), Recent Developments in Federal Income Taxation: The Year 2011, 12 Fla. Tax Rev. 183 (2012):

This recent developments outline discusses, and provides context to understand the significance of, the most important judicial decisions and administrative rulings and regulations promulgated by the Internal Revenue Service and Treasury Department during 2011 — and sometimes a little farther back in time if we find the item particularly humorous or outrageous. Most Treasury Regulations, however, are so complex that they cannot be discussed in detail and, anyway, only a devout masochist would read them all the way through; just the basic topic and fundamental principles are highlighted – unless one of us decides to go nuts and spend several pages writing one up. Amendments to the Internal Revenue Code generally are not discussed except to the extent that (1) they are of major significance, (2) they have led to administrative rulings and regulations, (3) they have affected previously issued rulings and regulations otherwise covered by the outline, or (4) they provide Dan and Marty the opportunity to mock our elected representatives; again, sometimes at least one of us goes nuts and writes up the most trivial of legislative changes. The outline focuses primarily on topics of broad general interest (to the three of us, at least) – income tax accounting rules, determination of gross income, allowable deductions, treatment of capital gains and losses, corporate and partnership taxation, exempt organizations, and procedure and penalties. It deals summarily with qualified pension and profit sharing plans, and generally does not deal with international taxation or specialized industries, such as banking, insurance, and financial services.

March 26, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Sullivan: Will Rate Changes Transform C Corps Into Tax Shelters?

Tax Analysts Martin A. Sullivan (Tax Analysts),  Will Rate Changes Transform C Corps Into Tax Shelters?, 134 Tax Notes 1590 (Mar. 26, 2012):

[T]he potential for using C corporations as a tax shelter does not just depend on the values of the corporate and individual rates. The taxation of distributions from C corporations plays a critical role. More precisely, the choice between the passthrough and the corporate form depends on the relative value of the individual rate (on passthrough income) to the sum of the corporate rate plus the effective tax rate on distributions. Professor Daniel Halperin of Harvard Law School emphasized that in a 2010 article: "If the combined tax at the corporate level and on corporate distributions is sufficiently higher than the U.S. individual rate, closely held businesses might continue to prefer passthrough entities." [Mitigating the Potential Inequity of Reducing Corporate Rates.]

The effective tax rate on most dividends is 15%. The effective tax rate on profits realized through capital gains is less than the 15% statutory rate because many gains are deferred. And with the step-up in basis at death, capital gains can have an effective income tax rate of zero.

Table 2 compares passthrough rates with combined individual and corporate tax rates in OECD countries in 2011. Including both state and federal taxes, Table 2 shows that the combined individual and corporate tax rate on corporate income is 54.1% in the United States. That is more than 10 percentage points higher than the estimated corporate rate. The table suggests that if all corporate earnings are distributed as they are earned, the federal statutory rate could be reduced to 25%, and the rate differential that mattered would still tilt in favor of keeping income outside C corporations.  [Click on chart to enlarge.]

TN Chart

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March 26, 2012 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Forbes 2012 Tax Guide

ForbesThe Forbes 2012 Tax Guide:

Whether you’re still wrestling with your 2011 tax return or planning for tax savings for 2012 and beyond, Forbes can help. In this 2012 Tax Guide, we’ve assembled some of the most useful recent articles by Forbes staff and contributors.

March 26, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, March 25, 2012

TaxProf Blog Weekend Roundup

Tamanaha: The Quickly Exploding Law Student Debt Disaster

Student LoansFollowing up on Friday's post, Law School Rankings by Debt Load Per Graduating Student:  Balkinization, The Quickly Exploding Law Graduate Debt Disaster, by Brian Tamanaha (Washington U.):

The average indebtedness figures for 2011 law graduates are stunning. Last year, 4 law schools had graduates with average debt exceeding $135,000. This year 17 law schools are above $135,000. Last year the highest average debt among graduates was $145,621 (Cal. Western); this year the highest average debt is $165,178 (John Marshall). ...

What's remarkable is that the majority of graduates from [the 20 schools with the highest average law school debt] -- with the exception of Northwestern -- do not obtain jobs with salaries sufficient to make the monthly loan payments due on the average debt. At some of these schools 90% or more of graduates with debt do not earn enough to make the loan payments on this level of debt. ...

Eight of the law schools on the above list are in the bottom tier of US News, and 16 of the 20 schools are outside the top 100. At a number of these schools only half or fewer of the graduates will have obtained full time jobs as lawyers (these statistics should be available soon), and most of those who land lawyer jobs will earn $65,000 or less. At these debt levels, only graduates who obtain NLJ 250 jobs can manage the monthly loan payments -- and on the above list only Northwestern places a significant percentage of graduates in these jobs.

Thousands of 2011 law graduates across the country will not earn enough to manage the debt they incurred to obtain their law degree. When will law schools decide that they cannot continue to inflict ever increasing levels of unmanageable debt on their students? ... This financial insanity will not stop until significant changes are made to the federal student loan program.

The Legal Whiteboard, Unsustainable Law Student Debt, by WIlliam D. Henderson (Indiana):

Viewing recently released 2011 data, Brian cites 17 law schools where the average debt exceeds $135,000 per student.  The vast majority of students at these schools will be forced into Income Based Repayment (IBR), which is, functionally, a federally administered insurance program for indebted law school graduates who fail to make a high five-figure or low six-figure income. It caps debt payment at 15% of income above some basic poverty level threshold. (In future years, it will drop to 10%.)  The downside of IBR is that unpaid interest is quickly capitalized, so a graduates total debt load explodes upward, making it very difficult to afford things like cars and home using debt finance. Then, as Brian suggests, buyer's remorse is going to set in for a whole generation of law school graduates. 

As a political issue, this is not going away.  I 100% agree with Brian's final line:  "This financial insanity will not stop until significant changes are made to the federal student loan program."  When this happens, every law school in the U.S. will be be affected.  As I said last week, it is time we get our houses in order.

March 25, 2012 in Legal Education | Permalink | Comments (2) | TrackBack (0)

CRS: An Economic Analysis of Tax Base Broadening

CRS LogoThe Congressional Research Service has released The Challenge of Individual Income Tax Reform: An Economic Analysis of Tax Base Broadening (R42435) (Mar. 22, 2012), by Jane G. Gravelle & Thomas L. Hungerford:

When evaluating tax expenditures as potential base broadening provisions, it is useful to consider the general kinds of behaviors they affect or the general objectives in determining the feasibility of eliminating or modifying specific tax expenditures. Consequently, tax expenditures are divided into seven major categories: saving, business investment, consumption, owner-occupied housing (which is a combination of an investment choice and a consumption choice), labor supply, government programs (which in many cases would have no behavioral effects but are simply income transfers), and a category termed structural (which provides benefits based on family circumstances rather than affecting behavior).

The analysis in this report suggests there are impediments to base broadening by eliminating or reducing tax expenditures, because they are viewed as serving an important purpose, are important for distributional reasons, are technically difficult to change, or are broadly used by the public and quite popular. Given the barriers to eliminating or reducing most tax expenditures, it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues through base broadening. This amount could have a significant effect on reducing the FY2014 budget deficit—reducing the projected $345 billion deficit by 30% to 43%. This additional tax revenue, however, is equivalent to about 6% to 9% of projected FY2014 individual income tax revenue, and, consequently, would not allow for significant reductions in tax rates (about a one or two percentage point reduction for each bracket).

Wall Street Journal, Tax Breaks Exceed $1 Trillion: Report:

A congressional report detailing the value of major tax breaks shows they amount to more than $1 trillion a year—roughly the size of the annual federal budget deficit—and benefit wide swaths of the population.

The figures could be useful to lawmakers of both parties and President Barack Obama, who are looking for ways to shrink future deficits and offset the anticipated cost of overhauling the much-criticized U.S. tax code, an effort likely to include tax-rate cuts. Both parties are looking to trim or eliminate tax breaks to achieve those goals. ...

The new report, by the nonpartisan Congressional Research Service, underscores how far-reaching many of the tax breaks are, which makes changing them a politically daunting task. ... The report, citing political opposition, technical challenges and other reasons, said that "it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues" by eliminating tax breaks. That likely would leave little for reducing tax rates, perhaps only enough for one or two percentage points in the top individual rate, while maintaining the same level of revenue, the report said.

WSJ Chart

March 25, 2012 in Tax | Permalink | Comments (2) | TrackBack (0)

WSJ: Estate Tax Repeal Momentum Builds in the States

Weekend Wall Street Journal editorial, Death Tax Defying: Estate Tax Repeal Gains Momentum in the States:

While Washington continues to debate what to do with the federal death tax—the top rate is now 35% and is scheduled to rise to 55% next year—states are starting to recognize that their high estate taxes are a good way to chase away wealth producers.

Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. Indiana's legislature recently passed by big margins a bill to phase out its death tax by 2021, and Governor Mitch Daniels signed it this week. Heated debates are going on in Tennessee and Nebraska over the issue. Even in Oregon taxpayer groups are attempting to put an initiative on the November ballot to abolish the death tax, and polls show it could win.

The left has long been flummoxed by polls showing that roughly two of three Americans want this tax abolished. Why would Americans oppose a tax that politicians say is aimed at the top 1%?

The answer is that Americans instinctively understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed once, or sometimes twice. ...

[E]ven on purely economic grounds, death taxes are spectacular failures as revenue raisers or a tool of income redistribution. This is because the people who are subject to these taxes often move across state borders to avoid paying. They do this so they can pass businesses and property to their children and grandchildren. ...

A November 2011 study of tax return data by economists Arthur Laffer and Wayne Winegarden [The Economic Consequences of Tennessee’s Gift and Estate Tax] shows how people avoid state death taxes. The study compared Florida and Tennessee high-income returns. Both states have no income tax, but Tennessee is one of only two states that imposes an estate and a gift tax. (Connecticut is the other.) ...

The authors point out that this year there is a $5 million exemption on the federal estate tax and gift tax (a once-in-a-lifetime wealth transfer for the living), but in Tennessee the exemption is a meager $13,000 for estates and gifts. With a gift and death-tax rate that reaches 9.5%, a Tennessean with a $5 million estate would pay $462,000 more estate tax than someone living in the 29 states with no such tax, such as Florida. Tennessee is a very expensive state to die in.

The Tennessee tax really does cause the rich to flee. The authors found that in 2010 Florida had nearly twice as many federal tax returns with taxable estates (per 100,000 population) as did Tennessee. The average estate is also larger in Florida—$7.4 million versus $4.4 million in Tennessee.

Here's the kicker: Because wealthy people avoiding the estate tax take their businesses and spending with them, the study concludes that "had Tennessee eliminated its gift and estate tax 10 years ago, Tennessee's economy would have been over 14% larger in 2010." They also find the estate tax cost Tennessee state and local governments over $7 billion in tax collections. Could there be a more self-defeating tax?

With Ohio and Indiana zeroing out their estate taxes and others likely to follow suit, the remaining high-rate states will have an increasingly hard time holding onto their mobile high-income citizens as they get older.

March 25, 2012 in Tax | Permalink | Comments (10) | TrackBack (0)

Saturday, March 24, 2012

Top 5 Tax Paper Downloads

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

1.  [489 Downloads]  Giving Useful Tax Planning Advice, by Heather M. Field (UC-Hastings)

2.  [391 Downloads]  Scriveners’ Errors, Drafting Errors, Operational Failures, Retroactive Amendments, Reformations, ERISA, and the Tax Qualification of Pension Plan Trusts, Part I, by Albert Feuer (Law Offices of Albert Feuer, Forest Hills, NY)

3.  [304 Downloads]  Scriveners’ Errors, Drafting Errors, Operational Failures, Retroactive Amendments, Reformations, ERISA, and the Tax Qualification of Pension Plan Trusts, Part II, by Albert Feuer (Law Offices of Albert Feuer, Forest Hills, NY)

4.  [293 Downloads]  Accepting the Limits of Tax Law and Economics, by Alex Raskolnikov (Columbia)

5.  [245 Downloads]  2011 Developments in Connecticut Estate and Probate Law, by Jeffrey A. Cooper (Quinnipiac) & John R. Ivimey (Reid and Riege, Hartford)

March 24, 2012 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0) | TrackBack (0)

More on IRS, Tea Party Groups, and § 501(c)(4) Tax-Exempt Status

IRS Increased Audit Rate of Richest Americans by 63% in 2011

Data Book CoverThe IRS has released the 2011 IRS Data Book (84 pages).  The big news is the 62.8% increase in the audit rate on the wealthiest taxpayers, to an all-time high of 30%:

The IRS expanded its audits of Americans earning more than $500,000 last year, with a stark increase for those making more than $1 million.

The agency, in an annual report released Thursday, said it performed audits in the year ended Sept. 30 on 5.4% of the tax returns of Americans who made between $500,000 and $1 million in 2010. That was up from 3.4% of this group who were audited the previous year.

The jump was even bigger for those making between $1 million and $5 million, with 12% of this group audited last year, up from 6.7% the previous year. For those making between $5 million and $10 million, 21% were audited in 2011, compared with just 12% last year.

The most heavily audited group, as a percentage of filers, were Americans who reported making more than $10 million, with 30% of this group audited last year, up from 18% of these filers the year before.

The IRS said it audited just 1.1% of all individual tax returns last year and 1.5% of corporate tax returns. The chances of being audited were much higher for those making more money. {Click on chart to enlarge.] ...


Despite doing more audits of the wealthy, the IRS hasn't seen a big spike in the income it collects from those who it finds aren't paying their taxes correctly. In fiscal 2011, the IRS collected $31.1 billion in what it calls "enforcement revenue," which includes taxes, interest, and penalties from multiple years. That was up from $29.1 billion in fiscal 2010.

March 24, 2012 in IRS News, Tax | Permalink | Comments (3) | TrackBack (0)

Friday, March 23, 2012

The Hunger Games: Law Review Article Submission Edition

Miriam A. Cherry (Saint Louis) & Paul M. Secunda (Marquette), The Law Review Games:

A Parody in which The Hunger Games meet the law review submission process.

March 23, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

More on The Three Keys to Faculty Performance (and Satisfaction)

Law School Rankings by Debt Load Per Graduating Student

U.S. News LogoU.S. News & World Report, 10 Law Schools That Lead to the Most Debt:

Among 195 ranked law schools surveyed annually by U.S. News, 191 reported the average indebtedness of graduating students in 2011, the most recent figures available. Overall, law students graduated with an average of $100,584 in debt. ... Among the 10 law schools that lead to the most debt load per graduating student, the average debt burden was $147,717 in 2011.

Law School                 
Tuition & Fees   
Average Debt   
US News Rank
John Marshall (IL) $38,100 $165,178 129
California Western $42,600 $153,145 RNP
Thomas Jefferson $41,000 $153,006 RNP
American $45,096 $151,318 49
New York Law School $47,800 $146,230 135
Phoenix $37,764 $145,357 RNP
Southwestern $42,200 $142,606 129
Catholic $41,830 $142,222 82
Northwestern $51,920 $139,101 12
Pace $40,730 $139,007 142

U.S. News & World Report, 10 Law Schools That Lead to the Least Debt:

Among the top 10 law schools with the lowest average indebtedness per student, the figure is $37,792—more than $60,000 lower than the overall average debt burden for law graduates.

Law School                   
Tuition & Fees   
Average Debt   
US News Rank
Georgia State $14,770 $19,971 58
Southern $10,124 $22,138 RNP
Rutgers-Camden $25,464 $27,423 99
Texas Southern $16,262 $32,449 RNP
Drexel $36,051 $33,562 119
Barry $33,630 $41,190 RNP
Kansas $16,460 $41,574 89
Nebraska $13,887 $52,396 89
SUNY-Buffalo $20,718 $52,447 82
BYU $10,600 $54,766 39

March 23, 2012 in Law School Rankings, Legal Education | Permalink | Comments (10) | TrackBack (0)

Florida Tax Review Publishes New Issue

Fla. Tax Rev. The Florida Tax Review has published Vol. 11, No. 9:

This paper and its companion (The Lessons of Stateless Income [65 Tax L. Rev. ___ (2011),]) together comprehensively analyze the tax consequences and policy implications of the phenomenon of “stateless income.” Stateless income comprises income derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group’s ultimate parent company, but which is subject to tax only in a jurisdiction that is neither the source of the factors of production through which the income was derived, nor the domicile of the group’s parent company. Google Inc.’s “Double Irish Dutch Sandwich” structure is one example of stateless income tax planning in operation.

This paper focuses on the consequences to current tax policies of stateless income tax planning. The companion paper extends the analysis along two margins, by considering the implications of stateless income tax planning for the reliability of standard efficiency benchmarks relating to foreign direct investment, and by considering in detail the phenomenon’s implications for the design of future U.S. tax policy in this area, whether couched as the adoption of a territorial tax regime or a genuine worldwide tax consolidation system.

This paper first demonstrates that the current U.S. tax rules governing income from foreign direct investments often are misapprehended: in practice the U.S. tax rules do not operate as a “worldwide” system of taxation, but rather as an ersatz variant on territorial systems, with hidden benefits and costs when compared to standard territorial regimes. This claim holds whether one analyzes these rules as a cash tax matter, or through the lens of financial accounting standards. This paper rejects as inconsistent with the data any suggestion that current law disadvantages U.S. multinational firms in respect of the effective foreign tax rates they suffer, when compared with their territorial-based competitors.

This paper’s fundamental thesis is that the pervasive presence of stateless income tax planning changes everything. Stateless income privileges multinational firms over domestic ones by offering the former the prospect of capturing “tax rents” – low-risk inframarginal returns derived by moving income from high-tax foreign countries to low-tax ones. Other important implications of stateless income include the dissolution of any coherence to the concept of geographic source, the systematic bias towards offshore rather than domestic investment, the more surprising bias in favor of investment in high-tax foreign countries to provide the raw feedstock for the generation of low-tax foreign income in other countries, the erosion of the U.S. domestic tax base through debt-financed tax arbitrage, many instances of deadweight loss, and – essentially uniquely to the United States – the exacerbation of the lock-out phenomenon, under which the price that U.S. firms pay to enjoy the benefits of dramatically low foreign tax rates is the accumulation of extraordinary amounts of earnings ($1 trillion or more, by the most recent estimates) and cash outside the United States.

Stateless income tax planning as applied in practice to current U.S. law’s ersatz territorial tax system means that the lock-out effect now operates in fact as a kind of lock-in effect: firms retain more overseas earnings than they profitably can redeploy, to the great frustration of their shareholders, who would prefer that the cash be distributed to them. This tension between shareholders and management likely lies at the heart of current demands by U.S.-based multinational firms that the United States adopt a territorial tax system. The firms themselves are not greatly disadvantaged by the current U.S. tax system, but shareholders are. The ultimate reward of successful stateless income tax planning from this perspective should be massive stock repurchases, but instead shareholders are tantalized by glimpses of enormous cash hoards just out of their reach.

March 23, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Buchanan: What Is Wrong With Incomplete Tax Policy Analysis?

Neil H. Buchanan (George Washington), What Is Wrong With Incomplete Tax Policy Analysis?:

My new Verdict column [Why Do We Simply Accept on Faith That Taxes Are Always Harmful? ] discusses some recent positive changes in the public debate about taxes. I have always been struck by the weakness of the empirical evidence regarding the supposed harms and dangers of taxes, yet even the more liberal big-name economists have always been rather passive on the issue. It is not surprising, I suppose, when Paul Krugman gets on the case; but I was pleased to see that Christina Romer and Uwe Reinhardt are also now beginning to push back against some of the conventional wisdom. They are both reliably center-liberal, of course, but at least we are finally seeing some fight from the mainstream non-conservative economists on taxes.

In part, my column is a continuation of my Verdict column last month, in which I discussed how unsurprising it is that economists are largely incapable of contributing usefully to the public debate. In today's column, I recount an incident from a few years ago, in which a highly prominent tax economist told me bluntly that he simply refused to believe the overwhelming weight of the evidence about the estate tax -- evidence that generally shows no effect of estate taxes on behavior. The economist's response -- essentially, "It does not fit my theory, so the evidence cannot be believed" -- captures the acquired mindset of far too many mainstream economists.

March 23, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Zelinsky: The Constitutionality of the § 107 Parsonage Allowance

Edward A. Zelinsky (Cardozo), Do Religious Tax Exemptions Entangle in Violation of the Establishment Clause? The Constitutionality of the Parsonage Allowance Exclusion and the Religious Exemptions of the Individual Health Care Mandate and the FICA and Self-Employment Taxes:

In Freedom From Religion Foundation v. Geithner, the Freedom From Religion Foundation (FFRF) argues that § 107 and the income tax exclusion that section grants to “minister[s] of the gospel” for parsonage allowances violate the Establishment Clause of the First Amendment. This case has important implications for a new federal law mandating that individuals maintain “minimum essential” health care coverage for themselves and their dependents. That mandate contains two religious exemptions. One of these exemptions incorporates a pre-existing religious exemption from the federal self-employment tax. These sectarian exemptions raise the same First Amendment issues as does the Code’s exclusion from gross income of clerical housing allowances.

I ultimately find unpersuasive the indictment of § 107 as constitutionally entangling. For the same reasons, I also conclude that the religious exemptions of the Social Security taxes and of the individual health mandate pass First Amendment muster. In the modern world, extensive contact between tax systems and religious institutions is unavoidable. Whether religious entities and actors are taxed or exempted, there are inevitable tensions between the contemporary state and sectarian institutions and their personnel. Whether religious entities and actors are taxed or exempted, there are no disentangling alternatives, just imperfect trade-offs between different forms of entanglement.

Thus, § 107 and the exclusion from gross income it grants to clerical recipients of housing and parsonage allowances are constitutionally permitted, though not constitutionally required, responses to the problems of entanglement inherent in the relationship between modern government and religion. Similarly, the Code’s sectarian exemptions from the individual health care mandate and from the FICA and self-employment taxes are acceptable, though not obligatory, means under the First Amendment of managing the inevitable contacts and tensions between the contemporary state and the religious community.

However, as a matter of tax policy, the exclusion of § 107(2) for cash parsonage allowances stands on weaker ground than does the exclusion of § 107(1) for in-kind housing provided to “minister[s] of the gospel.” The taxation of such cash allowances, in contrast to the taxation of housing provided in-kind, does not involve problems of valuation or of taxpayer liquidity and is thus more practicable as a matter of tax policy.

March 23, 2012 in Scholarship, Tax | Permalink | Comments (2) | TrackBack (0)

Crawford & Blattmachr: The Tax Man Wins the Nobel Prize

Tax AnalystsBridget J. Crawford (Pace) & Jonathan G. Blattmachr (Eagle River Advisors, New York), The Tax Man Wins the Nobel Prize, 133 Tax Notes 1421 (Dec. 12, 2011):

[T]he authors review the income tax treatment of prizes and awards, using the Nobel Prize as an example. They examine the unusual case of Dr. Ralph Steinman, who died before being named a Nobel laureate in medicine, and consider whether the cash prize should be treated as income in respect of a decedent.

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March 23, 2012 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

ABA Podcast: The Law School Bubble

ABAABA Podcast, Law Deans and a Law Professor Respond to the ‘Law School Bubble’:

The Law School Bubble cover story in [the January 2012 ABA Journl] showed how traditional U.S. legal education paradigms, driven by federal loan underwriting, are not responding to the market forces as law schools continue to add students and raise tuition rates in a mature legal services industry. Hear ABA Journal business of law reporter Rachel M. Zahorsky host follow-up discussions with law school deans and professors to explore the merits and critiques of federal loan programs, examine the root causes of the deep debt students face and propose potential solutions to combat future tuition hikes [podcast; transcript].

  • Craig M. Boise (Tax Prof & Dean, Cleveland State)
  • Paul E. McGreal (Dean, Dayton)
  • Brian Z. Tamanaha (Washington U.)

March 23, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Tax Analysts, Georgetown Host Conference Today on The IRS -- What It Does, What It Needs

Tax AnalystsTax Analysts and the Georgetown University Law Center host a conference today on The IRS: What It Does and What It Needs:

  • Christopher Bergin (President and Publisher, Tax Analysts)
  • Fred T. Goldberg (Skadden; former IRS Commissioner)
  • Michael Mundaca (Ernst & Young; former Assistant Treasury Secretary for Tax Policy)
  • Nina Olson (National Taxpayer Advocate)
  • Jon Talisman (Capitol Tax Partners; former Assistant Treasury Secretary for Tax Policy)
  • Jeff Trinca (Vice President, Van Scoyoc Associates; former Chief of Staff, National Commission on Restructuring the IRS)
  • Michael Udell (Ernst & Young; former economist, Joint Committee on Taxation)
  • Lisa Zarlenga (Tax Legislative Counsel, Treasury Department)

March 23, 2012 in Conferences, Tax | Permalink | Comments (0) | TrackBack (0)

TIGTA: IRS 21%-26% Error Rate Results in $14-$17 Billion/Year in Erroneous EITC Payments

TIGTA The Treasury Inspector General for Tax Administration yesterday released The IRS Is Not in Compliance With All Improper Payments Elimination and Recovery Act Requirements (2012-40-028):

The IRS estimates that 21 to 26 percent of EITC payments were issued improperly in Fiscal Year 2011. This equates to $13.7 billion to $16.7 billion in EITC improper payments.

March 23, 2012 in IRS News, Tax | Permalink | Comments (9) | TrackBack (0)

NPR: A History of the Income Tax, From Abraham Lincoln to Donald Duck

NPR, From Abe Lincoln to Donald Duck: History of the Income Tax:

The story of how the U.S. wound up with the income tax is the story of two wars, a Supreme Court justice on his death bed, and Donald Duck. It's also the story of how the government overcame three obstacles.

(Hat Tip: Francine Lipman, David Miller, Ann Murphy.)

March 23, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, March 22, 2012

Call for Speakers: CALI Conference -- Some Assembly Required

CALIRegistation is now open for the 22d Annual Conference for Law School Computing to be held Thursday, June 21 through Saturday June 23 in San Diego at Thomas Jefferson School of Law (and its fabulous new building). The theme of this year's conference is "Some Assembly Required":

We are constructing our future, here in the present. We have many excellent technologies, but figuring out how to use them to serve the educational, scholarly, professional and public service missions of law school is an ongoing challenge. This year’s theme is a double entendre meant to explicitly evoke that our future is not pre-packaged or purchased from a vendor -- some assembly is required to make the pieces fit into our institutional cultures. Secondly, face-to-face meetings are still necessary in education, community-building and friendships. We need to assemble with each other to make connections and share experiences, so come assemble with your colleagues and friends - new and old in San Diego.

For 22 years, the CALI Conference has organized its schedule at nearly the last minute in order to bring the most relevant and up-to-date presentations to attendees. This year is no different and we are looking for people with strong opinions, great ideas, interesting projects and useful advice. Come and share and be challenged. If you are willing and able to speak, your conference registration fee is FREE!

CALI has issued a Call for Speakers to law faculty, librarians, and IT staff. The deadline for proposals is April 1. (Disclosure:  I am Vice President of the CALI Board of Directors.)

March 22, 2012 in Conferences, Legal Education | Permalink | Comments (0) | TrackBack (0)

Law School Transparency Rankings

CoverWhich Law Schools Are Failing With Employment Transparency?, National Jurist (March 2012):

Despite lawsuits and Congressional action over employment data, many schools are still reporting misleading data on their websites.  But that is starting to change, thanks to a new report that details transparency on law school websites.  The National Jurist turns that report into grades. ...

Law School Transparency does not rank or score schools.  But based on feedback from {Kyle] McEntee and others, The National Jurist derived a calculation to grade each school.  The result is that 41% of law school websites are failing, and an additional 15% receive a D.  The National Jurist gave an A to any school that reported information equivalent to what NALP collects and reports in the aggregate.  Schools that report data equivalent to what was included in the 2012 ABA Official Guide to Law Schools received at least a C. ... Six schools received an A+ in our study [, 9 received an A, and 11 received an A-]:

A+ Schools

A Schools

A- Schools




Michigan State



St. John's

Florida State







George Mason



New Hampshire



Northern Illinois


Seton Hall

Northern Kentucky


Thomas Jefferson

Oklahoma City





Wayne State

March 22, 2012 in Legal Education | Permalink | Comments (2) | TrackBack (0)

Census Data: Inequality Is Linked to Education, Not Taxes

Tax Policy Blog, Census Data Shows Inequality Linked to Education, Not Taxes:

There have been a number of reports published recently that purport to show a link between rising inequality and changes in tax policy -- especially tax cuts for the so-called rich. The latest installment comes from Berkeley professor Emmanuel Saez, Striking it Richer: The Evolution of Top Incomes in the United States.  

Saez and others who write on this issue seem so intent on proving a link between tax policy and inequality that they overlook the major demographic changes that are occurring in America that can contribute to -- or at least give the appearance of -- rising inequality; a few of these being, differences in education, the rise of dual-earner couples, the aging of our workforce, and increased entrepreneurship.

Today, we will look at the link between education and income. Recent census data comparing the educational attainment of householders and income shows about as clearly as you can that America's income gap is really an education gap and not the result of tax cuts for the rich.

The chart below shows that as people's income rise, so too does the likelihood that they have a college degree or higher. By contrast, those with the lowest incomes are most likely to have a high school education or less. Just 8% of those at the lowest income level have a college degree while 78% of those earning $250,000 or more have a college degree or advanced degree. At the other end of the income scale, 69% of low-income people have a high school degree or less, while just 9% of those earning over $250,000 have just a high school degree.

... Census data also shows that in 2010, a worker with a high school degree made an average of $50,561, while a person with a bachelor's degree made an average of $94,207 -- 86% more. Someone with a master's degree made an average of $111,149 -- roughly 120% more. ...

This raises two questions for those who advocate for using the tax code to address inequality. First, how will higher tax rates on highly educated individuals make them less successful? And, how will taxing the educated rich somehow make the legions of workers with high school degrees more successful?

March 22, 2012 in Tax | Permalink | Comments (24) | TrackBack (0)

Henderson: Transparency on Employment Data is Like Cancer Treatment

The Legal Whiteboard, Transparency on Employment Data is Like Cancer Treatment, by WIlliam D. Henderson (Indiana-Bloomington):

Over the last several months, I have reluctantly concluded that law school employment transparency is a lot like cancer treatment:  it can beat back symptoms and buy time, but it won't necessarily cure the disease. 

Over the last 18 months, three separate ABA groups -- the Questionnaire Committee, Standards Review Committee, and the Council on Legal Education -- have given sincere and focused attention to the law school employment controversy.  Frankly, I am in awe of the breadth and depth what they have accomplished.  ...

With the ABA getting its house in order, and yesterday's dismissal of the alleged deceptive employment data against New York Law School (albeit there are cases pending against other law schools under different consumer protection laws), it is possible to begin conceiving of US legal education in a new post-scandal era. This is all very good.

Going back to the cancer metaphor, however, the ABA industry-level transparency efforts are going to beat back a lot of symptoms of what ails us.  But they won't provide a permanent cure.  Further, the relief will be, at best, temporary. Going forward, every ABA-accredited law school needs to seek out additional aggressive treatment in order to increase our odds of beating back the long term threat.

On this score, we legal educators cannot lose sight of the fact that the lack of transparency was precipitated by structural problems in legal education that aren't going away:

  1. Our costs are too high
  2. The market for traditional legal jobs is stagnant and likely in long term decline
  3. There is industry overcapacity (50,000+ 1L seats per year)
  4. Public subsidies are going away
  5. Near total financial dependence on loans from the US Dept. of Education
  6. Law is on the precipice of a radical information revolution led by technology, knowledge management, and process engineering
  7. Tenured faculty control hiring and curriculum and have a limited appetite for retooling
  8. We law professors don't understand that we are running a business
  9. Our rankings are based on high costs and admissions sorting
  10. Thus, based on #9, there is no market reward for innovation or value-add in legal education.  In fact, the concept--that education can trump sorting--still needs to be proven.

In the short to medium term, industry-level transparency will have two effects that pull in opposite directions. First, the legal education industry, at least at the ABA self-regulation level, will have clean hands.  That really matters.  But second, and pulling in the opposite direction, transparency will give rise to a whole new rankings industry that will rival and potentially supplant US News.

Why? Because law students don't really care about rankings per se -- instead, they care about the number and quality of employment options created by their law school investment.  In the US News rankings, top law schools rankings are highly correlated with a multitude of wonderful options.  But in the new transparency era, it will be possible to use hard data to make more precise decisions for all the other law schools. ...

To be clear, transparency will not create law jobs for law school graduates.  Instead, it will reveal in minute detail the value proposition of every ABA accredited law school. Everything needed for the new Employment Transparency Rankings will be in the public domain. ...

For those of us that accept change as the one bankable constant, change is less a threat than an opportunity.  Over the next five to ten years, maybe slightly longer, a more sustainable Post-Langdellian business model for legal education will emerge.  This new model will likely place a higher emphasis on communication, collaboration, and problem solving, which are the skills needed to price, allocate and manage risk.  Winning a case in court is only a sliver of the calculus.  Technology and new pedagogy will pack a much better education into three years.   At least some scholarship will be highly applied.  And at the best schools, teaching, service and scholarship will merge, and the most valuable faculty will be less ivory tower.   It will be an exciting place for students, professors and alumni.

If we pursue the right treatments, we can survive to help create and experience this new era.

March 22, 2012 in Legal Education | Permalink | Comments (1) | TrackBack (0)

The Delicate Balance – Tax, Discretion and the Rule of Law

DelicateThe Delicate Balance – Tax, Discretion and the Rule of Law (Chris Evans (University of New South Wales), Judith Freedman (Oxford University) & Richard Krever (Monash University), eds.) (IBFD 2011):

Few aspects of revenue law generate stronger feelings than the exercise of discretionary power by tax administrations. A delicate balance often needs to be struck between the legitimate needs of revenue authorities and the equally legitimate interests and rights of taxpayers. On the one hand, the executive and administration need to have sufficient capacity to apply the law; on the other, there is a need to maintain the principle of the rule of law that it is the elected legislature, and not the executive or tax administration, that establishes tax burdens. The chapters in this volume explore that delicate balance.

The Delicate Balance - Tax, Discretion and the Rule of Law considers the critical questions that arise from the intersections of tax, discretion and the rule of law in modern common and civil law jurisdictions: What do we mean by tax discretion and how does it vary in conceptual and practical terms in different tax regimes? What role should discretion play in tax systems that operate under the rule of law and how large should that role be? What are the legal, political, institutional and other constraints that can prevent abuse of discretion? To what extent can, and should, the legislature safely delegate discretionary powers to tax administrations?

Table of Contents:

  1. Tax, Discretion and the Rule of Law, by Dominic De Cogan
  2. The Delicate Balance: Revenue Authority Discretions and the Rule of Law – Some Thoughts in a Legal Theory and Comparative Perspective, by Ana Paula Dourado
  3. The Promise and the Reality of U.S. Tax Administration, by Kristin E. Hickman
  4. A Reasonable Balance: Revenue Authority Discretions and the Rule of Law in Canada, by Kim Brooks
  5. HMRC’s Management of the U.K. Tax System: The Boundaries of Legitimate Discretion, by Judith Freedman & John Vella
  6. The Delicate Balance: Revenue Authority Discretions and the Rule of Law in Australia, by Michael Walpole & Chris Evans
  7. Revenue Authority Discretions and the Rule of Law in New Zealand, by Shelley Griffiths
  8. Revenue Authority Discretions and the Rule of Law: South Africa, by Ernest Mazansky
  9. Revenue Authority Discretions and the Rule of Law in Hong Kong, by Andrew Halkyard
  10. Balancing of Powers in Dutch Tax Law: General Overview and Recent Developments, by Richard Happé & Melvin Pauwels
  11. The Delicate Balance Between Revenue Authority Discretions and the Rule of Law in France, by Christophe Grandcolas
  12. Revenue Authority Discretions and the Rule of Law: The Quest for a Recta Ratio, by Marco Greggi
  13. Tax Discretion in Hungary, by Borbála Kolozs & Richard Krever
  14. The Rule of Law in Chinese Tax Administration, by Wei Cui

March 22, 2012 in Book Club, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Law Prof Resigns After Arrest for Exposing Himself to Female Student

Clark-griffithClark Calvin Griffith, a 70-year old adjunct law professor at William Mitchell (and son of the late Minnesota Twins owner), has resigned from the school after being charged with exposing himself to a female law student.  For the tawdry details, see:

March 22, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Obama's Budget Raises Taxes for 27% of Households

TPCTax Policy Center, Tax Proposals in the 2013 Budget:

The Tax Policy Center has released a resource guide to the tax provisions of President Obama's 2013 Budget. The guide includes descriptions of the proposals, links to more detailed commentary on key provisions, and a new TPC distributional analysis of the overall proposal as well as major elements of the plan.

The guide includes information about both the individual and business provisions of the revenue section of the budget. It also provides analysis of proposed changes in the estate tax.

The distributional analysis shows that, compared to current law, about three-fourths of taxpayers would get a tax cut under the Obama plan. Measured against a current policy baseline—continuing the temporary tax cuts in place in 2012, maintaining the estate tax at its 2009 level, and indexing 2011 parameters of the alternative minimum tax—about one-sixth of tax units would see their taxes go down in 2013 while roughly a third would face higher taxes.

March 22, 2012 in Tax, Think Tank Reports | Permalink | Comments (1) | TrackBack (0)

New Yorker: The Things Rich People Do to Avoid Paying Taxes

New YorkerThe New Yorker, Tax Me if You Can: The Things Rich People Do to Avoid Paying Up, by James B. Stewart:

Relatively scant media attention has been paid to residency requirements, even though enormous revenue is at stake. Tax audits and hearings are ordinarily confidential, but several published opinions and related appeals reveal how some New Yorkers take advantage of the residency requirement. (New York City tax laws don’t apply to people who are deemed to be nonresidents, even if they own a residence in the city and work there. Nonresidents are allowed to spend no more than half a year—a hundred and eighty-three days—in New York City.) Many states have such requirements. Relatively few cities levy personal income taxes, but the largest ones that do, besides New York City, are Baltimore, Cleveland, Denver, Detroit, Philadelphia, Pittsburgh, Portland, San Francisco, and St. Louis. The problem is especially acute for cities like New York, which are geographically close to nearby lower-tax jurisdictions. People who want to avoid both New York State and New York City income taxes are permitted to own a residence and work in the city and the state but must maintain a primary residence outside the state. The residency loophole provides an obvious financial motive to lie. One prominent tax lawyer said that “cheating is rampant.” Discusses the residency-requirement cases of hedge-fund manager Julian Robertson, criminal-defense attorney Thomas Perry, and Martha Stewart.

(Hat Tip: Ann Murphy.)

March 22, 2012 in Tax | Permalink | Comments (3) | TrackBack (0)

House Holds Hearing Today on IRS Operations and the 2012 Tax Return Filing Season

House LogoThe Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on Internal Revenue Service Operations and the 2012 Tax Return Filing Season:

In fiscal year 2011, the IRS collected $2.4 trillion in taxes, processed 144.7 million individual tax returns, and issued $345 billion in refunds.  With the 2012 tax return filing season underway, the Subcommittee will review IRS performance with a focus on taxpayer service, taxpayer rights, and refund administration. 

In conjunction with the review of the current tax return filing season, the Subcommittee will review IRS operations in general.  Specifically, the Subcommittee will consider: (1) the recently reported delays in tax refunds; (2) fairness in examinations and tax administration; and (3) efforts to prevent fraud, waste, and abuse.  As part of its consideration of IRS operations, the Subcommittee will also review the Administration’s fiscal year 2013 budget proposal for the IRS of $16.1 billion, an increase of $1.3 billion over the fiscal year 2012 enacted level.

Witness:  IRS Commissioner Douglas Shulman

March 22, 2012 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 21, 2012

Blogging Contest for Tax Students

The TaxGirl invites tax students to write a guest post on "any hot tax policy issue" to be published on the site:

I’m not asking for a treatise or a law review article. You don’t have to cite like crazy, though clearly you need to credit any sources or quotes. I’m looking for thought-provoking, well written posts about tax policy. Oh, and relatively short ones, at that. This is a blog, after all. Posts must weigh in, for purposes of the contest, at between 500 and 1500 words. ... You must be a part time or full time law student at an accredited US law school or a part time or full time paralegal student participating in an ABA accredited paralegal program. And yes, an LL.M. student counts.

The winner will have their post featured on the site which carries with it some bragging rights. I’ll post the winning entry – and maybe some standouts – in April. You’ll also win a taxgirl mug ... and a pound of coffee, caffeinated, of course. And … I’ll send a note to prize winner’s professor in any tax course and ask them to give that winner an A.

March 21, 2012 in Tax | Permalink | Comments (1) | TrackBack (0)

The Injustice of Not Taxing Forgiven Mortgage Debt

Bradford P. Anderson (California Polytechnic State University), Robbing Peter to Pay for Paul's Residential Real Estate Speculation: The Injustice of Not Taxing Forgiven Mortgage Debt, 36 Seton Hall Legis. J. 1 (2011):

Part 1 of this Article examines the discharge of indebtedness as a form of income that should be taxed. Part 2 evaluates the so-called “mortgage meltdown” and the resultant legislation providing a windfall to those who benefit from non-payment of mortgage debt. Part 3 analyzes the public policy and ethical issues associated with the tax-free windfall under the Mortgage Forgiveness Debt Relief Act of 2007 ("MoFoDRA"). Part 4 proposes practical and equitable solutions to the disparate treatment and inequities from the tax exemption contained in MoFoDRA.

March 21, 2012 in Scholarship, Tax | Permalink | Comments (1) | TrackBack (0)

Joint Tax Committee Says 'Buffett Rule' Would Produce 'Meager' Tax Revenue

The Joint Commitee on Taxation yesterday reported that the "Buffett Rule" would generate less than $5 billion per year, less than 0.7% of the deficits projected under President Obama's budget (original letterupdated letter). From The Examiner:

BuffetRule Chart

Update #1:  Wall Street Journal editorial, The Bottom 0.1%: The Buffett Rule Yields a Pittance:

There goes the Buffett rule. Remember that political gambit, in which billionaire Warren Buffett pretended he was going to pay a much higher tax bill and President Obama pretended that raising rates on millionaires would make a dent in his hemorrhaging budget deficits? In one fell swoop Wednesday, Congress's tax scorekeeper punctured both phony claims. ...

If the Buffett ruse is ever enacted, expect it to become a kind of Super Alternative Minimum Tax, slowly grabbing less affluent taxpayers—perhaps even Mr. Buffett's secretary—as inflation and income growth push people into higher tax brackets. That's where the real money is.

Update #2:  Think Progress, Conservatives Falsely Claim the Buffett Rule Would Only Raise a ‘Meager’ Amount of Revenue

March 21, 2012 in Tax | Permalink | Comments (11) | TrackBack (0)

Judge Dismisses Placement Data Class Action Against New York Law School

NYLS LogoA New York trial judge today dismissed a proposed class action brought against New York Law School by nine alumni who claimed that the school misrepresented its placement data. Gomez-Jimenez v. New York Law School, No. 65226/11 (NY Sup. Ct. Mar. 21, 2012):

The court does not view these post-graduate employment statistics to be misleading in a material way for a reasonable consumer acting reasonably. By anyone’s definition, reasonable consumers — college graduates — seriously considering law schools are a sophisticated subset of education consumers, capable of sifting through data and weighing alternatives before making a decision regarding their post-college options, such as applying for professional school. ...

It is also difficult for the court to conceive that somehow lost on these plaintiffs is the fact that a goodly number of law school graduates toil…in drudgery or have less than hugely successful careers. NYLS applicants, as reasonable consumers of a legal education, would have to be wearing blinders not to be aware of these well-established facts of life in the world of legal employment.

March 21, 2012 in Legal Education | Permalink | Comments (1) | TrackBack (0)

Tax Court to Major Tom: Mars Exploration is a Hobby, Not a Business

Barker v. Commissioner, T.C. Memo. 2012-77 (Mar. 20, 2012):

We do not fault petitioner's strong passion for Mars exploration and its related technology. We believe he pursues a noble cause that one day could provide benefits to all humanity. However, passion is not synonymous with a profit motive. In the absence of other factors supporting his passion, we do not believe this factor supports a finding of a profit motive.

March 21, 2012 in Tax | Permalink | Comments (0) | TrackBack (0)

Blank Presents Corporate Shams Today at Duke

BlankJoshua Blank (NYU) presents Corporate Shams, 87 N.Y.U. L. Rev. ___ (2012) (with Nancy Staudt (USC)) at Duke today as part of its Tax Policy Seminar hosted by Lawrence A. Zelenak:

Many people—perhaps most—want to make money and lower their taxes, but few want to unabashedly break the law. These twin desires have led to a range of strategies, such as the use of “paper corporations” and off-shore tax havens, that produce sizable profits with minimal costs. The most successful and ingenious plans do not involve shady deals with corrupt third-parties, but strictly adhere to the letter of the law. Yet the technically legal nature of the schemes has not deterred government lawyers from challenging them in court as “nothing more than good old-fashioned fraud.”

In this Article, we focus on the government challenges to corporate financial plans—often labeled corporate shams—in an effort to understand how and why courts draw the line between legal and fraudulent behavior. Quite a few scholars and commentators have investigated this question and nearly all agree: judicial decision making in this area of the law is erratic and unpredictable. We build on the extant literature with the help of a large dataset—the first of its kind—and uncover important and heretofore unobserved trends. Indeed, courts have not produced a confusing morass of outcomes as some have argued, but have generated more than a century of opinions that collectively highlight the point at which ostensibly legal planning shades into abuse and fraud. After discussing our empirical results, we show how they can be exploited by both government and corporate attorneys and explore how they bolster many of normative views set forth by the scholarly and policymaking communities.

March 21, 2012 in Colloquia, Scholarship, Tax | Permalink | Comments (1) | TrackBack (0)

IRS Forms 'SWAT Team' to Go After Corporate Tax Cheats

IRS SwatReuters, IRS Forms 'SWAT Team' for Tax Dodger Crackdown:

The IRS is staffing up with high-powered talent to crack down on companies shifting profits from country to country to lower their tax bills, a strategy the agency has targeted before with only limited success.

The IRS showed its elevated concern on the issue, known as "transfer pricing," last May by hiring Samuel Maruca to fill the newly created post of transfer pricing director. He has since brought aboard specialists from Big Four audit firms KPMG and Ernst & Young, as well as law firm Mayer Brown and boutique consultancy Horst Frisch.

Maruca, who came from law firm Covington & Burling, is still recruiting. He told Reuters the agency previously had "had a difficult time attracting and retaining economists." Now, he said, the IRS's international group "has significant external hiring authority."...

"Anybody who thinks the IRS can ultimately enforce transfer pricing is either an eternal optimist or delusional," said Richard Harvey, a tax professor at Villanova University and former senior adviser to the IRS's Shulman. The staff changes and hiring at IRS "will help them on the margins," Harvey said. "But they're still fighting a very difficult battle where the deck is stacked against them."

March 21, 2012 in IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

More on the Facebook Billionaires GRAT Tax Strategy

FacebookFollowing up on my prior post, Facebook Billionaires Used GRATs to Transfer More Than $200 Million Free of Gift Tax:  Forbes, How Facebook Billionaires Dodge Mega-Millions In Taxes, by Deborah L. Jacobs:

Buried in recent SEC filings for Facebook, Zynga and LinkedIn are other examples of legal moves the ultrarich use to shield big dollars from the ­taxman. These techniques are available to the merely well-off, too, but they produce the most dramatic savings when executed early in a hot company’s—or hot entrepreneur’s—life.

How early? Facebook billionaire cofounders Mark Zuckerberg and Dustin Moskovitz are both 27, unmarried and have no children we know of. Yet back in 2008 they both set up grantor retained annuity trusts (GRATs) that we estimate will allow them to transfer a total of at least $185 million of wealth to future offspring or others, gift tax free. That compares to a supposed gift-tax exemption of just $1 million in 2008 and $5.12 million today.

Both the Obama Administration and congressional Democrats have proposed new limits on GRATs. Meanwhile, you may want to copy the social tech wizards, if you have high-growth investments to shelter.

March 21, 2012 in Tax | Permalink | Comments (3) | TrackBack (0)

The Beginning of the End of the Law School Tuition Bubble?

American Lawyer, U.S. News Data Show 2011 May Be Beginning of End for Law School Tuition Bubble, by Matt Leichter:

U.S. News is the first organization to publish standardized data on ABA–accredited law schools each year. ... [A]verage full-time tuition at private law schools grew less than 1%, with most of that growth occurring at the country's more expensive schools. This is a significant break from previous years, and indicates that down-market law schools are responding to the decline in applicants. In other words, 2011 may be the beginning of the end of the law school tuition bubble. ...

Here's real adjusted law school tuition from 2004-2011. ...

Chart 1

In 2011, the schools in each quintile increased their tuition at a slower rate than in previous years, and this year's distribution looks more like 2005's than in the other years.

Chart 3

What caused such a change? Last June, Brian Tamanaha wrote an article for Balkinization titled, The Coming Crunch for Law Schools [TaxProf Blog coverage here and here], in which he argued that the less-prestigious law schools would face the fiscal consequences from over-expansion and applicant declines first. Thus, it's almost certain that the slower tuition growth, weighted down-market, reflects the impact of an applicant nosedive. In the past, some law schools reacted to these situations by increasing tuition to cover the shortfall, e.g. Albany Law School. ... It appears this option is no longer available. Schools that have fewer applicants have less of a reason to invest in new faculty and new buildings, preferring to wait out the storm caused by scambloggers and the media. ...

The number of applicants per law school is projected to reach a record low. ... People who normally would've applied to law school are either choosing other graduate-level programs or none at all instead of law school. This is an unprecedented event facing the legal academy, and it is very likely to continue. The real question is at what point law programs will start retrenching by excusing staff, cutting salaries, and reducing tuition, or when universities begin shutting them down.

March 21, 2012 in Legal Education | Permalink | Comments (4) | TrackBack (0)

More on ABA Backs Off Making Law Schools Report Graduates' Salaries

The Effect of Bankruptcy on State Tax Enforcement and Proceedings

Tax Analysts Andrew W. Swain (Indiana Office of the Attorney General), The Effect of Bankruptcy on State Tax Enforcement and Proceedings, 63 State Tax Notes 947 (Mar. 19, 2012):

Business owners allegedly evading sales taxes and stealing trust money will also argue that the automatic stay prevents taxing authorities from administratively revoking a sales tax license or prosecuting them for conducting business without a sales tax license. Conducting a retail business without a sales tax license is itself often a crime. Business owners will attempt to use the protections afforded to them through bankruptcy to continue unlicensed operations despite the state’s desire that the business close. This article discusses the use of the bankruptcy process to confound a state’s prosecution of tax crimes and avoid the state’s efforts to close a retail business accused of sales tax theft and evasion.

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

March 21, 2012 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 20, 2012

More on Why Non-Elite Law Grads Outperform Elite Law Grads in the BigLaw Partner Derby

Following up on my prior posts on Why Non-Elite Law Grads Outperform Elite Law Grads in the BigLaw Partner Derby (here and here): The Careerist, Right Resume, Wrong Attitude, by Vivia Chen:

[G]rads of top law schools are a bunch of spoiled dilettantes who score exceptionally well on standardized tests but don't want to do any heavy (document) lifting. Much wiser then to hire someone who worked through State U., majored in some dreadful subject like accounting (obviously more practical for practice than knowing ancient Greek), then managed to go to Gonzaga Law School and graduate in the top 5%. Talk about class warfare!

[D]oes that mean that hiring partners will think twice about recruiting some spacey Yale Law student over a kid who's in the top of the class at the University of Buffalo Law School? Henderson seems hopeful: "Perhaps it is time we focused on the skills and attributes of successful law graduates rather than the name of the law school on their diplomas."

Do I believe that will happen? What are you smoking?

March 20, 2012 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Morse Presents International Corporate Tax Reform Today at NYU

MorseSusan C. Morse (UC-Hastings) presents International Corporate Tax Reform and a Corporate Offshore Excise Tax at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU):

Part I discusses the framing of the choice of U.S. worldwide consolidation as opposed to U.S. territoriality in the existing literature and uses a numerical example to demonstrate objections raised by adherents of capital ownership neutrality theory to a lower U.S. corporate tax rate. Part II describes [corporate offshore excise tax ("COET")] design constraints, including revenue, Constitutionality, tax treaty compliance, minimizing tax avoidance, and avoiding giving corporate taxpayers incentives or messages with unfortunate results. Part II contends that the financial accounting measure of permanently reinvested earnings is the right base for a COET and considers a range of tax rates, from 0% to 35%. Part III considers the relationship between rational expectations and the possibility that a COET would produce unfortunate results such as increased incentives for expatriation. It defends a COET at a modest rate of 5.25% and develops an argument for a higher-rate COET.

March 20, 2012 in Colloquia, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

A Peek Behind the U.S. News Rankings Curtain: Law School Hiring of Graduating 3Ls

U.S. News LogoBernard A. Burk (North Carolina) reports some eye-popping numbers of unemployed graduates hired on a short-term basis by several law schools to improve their placement data, which count 18% in the U.S. News rankings (employed at graduation (4%) and employed nine months after graduation (14%)):


     School Hires




@ Grad

@ 9 Mos

@ Grad

@ 9 Mos

@ Grad

@ 9 Mos

Wash & Lee
























Notre Dame








Arizona St.
















Update: Paul Campos (Colorado), How Bad Things Really Are:

Here are a few numbers to add to Burk's list:

  • Fordham:  70 graduates (14.7% of those reporting employment status)
  • Virginia:  40 graduates  (10.9% of the class)
  • Michigan State:  37 graduates   (10.6% of those reporting employment status)
  • Ohio State:  Approximately 14 (6.7% of the class ... )


March 20, 2012 in Law School Rankings, Legal Education | Permalink | Comments (0) | TrackBack (0)

2012 Tannenwald Tax Writing Competition

Tannenwald Writing Competition_Page_1

For students writing tax seminar papers this semester (or having completed a tax paper last semester):  the Theodore Tannenwald, Jr. Foundation for Excellence in Tax Scholarship and American College of Tax Counsel are sponsoring the 2012 Tannenwald Writing Competition:

Named for the late Tax Court Judge Theodore Tannenwald, Jr., and designed to perpetuate his dedication to legal scholarship of the highest quality, the Tannenwald Writing Competition is open to all full- or part-time law school students, undergraduate or graduate. Papers on any federal or state tax-related topic may be submitted in accordance with the Competition Rules.


  • 1st Place:  $5,000, free trip to the 2013 ABA Tax Section Mid-Year Meeting in Orlando, and publication in the Florida Tax Review
  • 2nd Place:  $2,500
  • 3rd Place:  $1,500

Deadline:  9:00 p.m. EST, July 3, 2012. Mail papers to: Tannenwald Foundation, Ste. 200, 1275 Pennsylvania Ave., N.W., Washington, D.C. 20004, Attn: Melnie Moore.

For more information, contact Nancy Abramowitz.

For a list of participating law schools, see here. For a list of winners from prior years, and their tax faculty sponsors, see here.

March 20, 2012 in ABA Tax Section, Legal Education, Scholarship, Tax, Teaching | Permalink | Comments (0) | TrackBack (0)

Decline in LSAT Test-Takers Portends 'Death Spiral' for Low-Ranked Law Schools

Following up on yesterday's post, LSAT Test-Takers at Ten-Year Low:

Legal diplomas are apparently losing luster.

The organization behind the LSAT reported that the number of tests it administered this year dropped by more than 16%, the largest decline in more than a decade. ...

The decline reflects a spreading view that the legal market in the United States is in terrible shape and will have a hard time absorbing the roughly 45,000 students who are expected to graduate from law school in each of the next three years. And the problem may be deep and systemic.

Many lawyers and law professors have argued in recent years that the legal market will either stagnate or shrink as technology allows more low-end legal work to be handled overseas, and as corporations demand more cost-efficient fee arrangements from their firms.

That argument, and news that so many new lawyers are struggling with immense debt, is changing the way law school is perceived by undergrads. Word is getting through that law school is no longer a safe place to sit out an economic downturn — an article of faith for years — and that strong grades at an above-average school no longer guarantees a six-figure law firm job.

For some law schools, the dwindling number of test-takers represents a serious long-term challenge. What I’d anticipate is that you’ll see the biggest falloff in applications in the bottom end of the law school food chain,” said Andrew Morriss of the University of Alabama School of Law. “Those schools are going to have significant difficulty because they are dependent on tuition to fund themselves and they’ll either have to cut class size to maintain standards, or accept students with lower credentials.”

If they take the second course, Mr. Morriss said, it would hurt the school three years later because there is a strong correlation between poor performance on the LSAT and poor performance on the bar exam. If students start failing the bar, then the prestige of the school will drop, which would mean lowering standards even more. “At that point,” Mr. Morriss said, “the school is risking a death spiral.”

Yesterday, news came out that the number of people taking the LSAT declined for the second year in a row. Sharply declined. ... So what’s going to happen to the law schools that exist by the grace of the stupidity of prospective law students? Well, the New York Times is eager to start throwing dirt on the graves of the law schools at the bottom…. Fewer applicants will put some pressure on law schools that shouldn’t be here, and discourage other universities from opening up a new one.

[W]e should anticipate about 66,000 law school applicants this cycle, which would represent nearly a 25% decline in the course of the past two years. These numbers would wreak havoc with law school admissions if law schools kept their admissions standards constant. Two years ago 69% of applicants were admitted to at least one school, and 18% of admitted applicants didn't end up enrolling. ... Retaining those ratios would yield a total of 37,300 matriculants for this year's class at ABA schools, i.e., a shortfall of about 27.5% relative to the total 2011 entering class.

Since large numbers of lower-tier schools, which are heavily tuition-dependent, could not reduce the size of their classes on anything like that scale without wrecking their balance sheets, they will engage in some combination of cutting admissions standards, decreasing class size more modestly, and cutting their operating budgets. This will especially be the case at the 20 or so proprietary ABA schools who can't ask central university administration for a break on the skim, that is, the portion of law school revenue extracted by central for the law school's share of general university expenses -- this is a legitimate operating expense like any other -- and, more controversially, for cross-subsidization of other university programs. ...

It seems unlikely that any of this will have any immediate fiscal effect on elite schools, where demand for admission will remain relatively high. ... But at some point down that line a harsh fiscal reality is already kicking in for schools that aspire to be a homeless person's Harvard.  And it seems likely that point in the line is going to be moving up the law school hierarchy at a brisk pace.

March 20, 2012 in Legal Education | Permalink | Comments (4) | TrackBack (0)

ABA Backs Off Making Law Schools Report Graduates' Salaries

ABA LogoNational Law Journal, ABA Backs Off Making Law Schools Report Graduates' Salaries, by Karen Sloan:

It looks as though the ABA may not require law schools to disclose detailed graduate salary information after all.

The ABA's Council of the Section of Legal Education and Admission to the Bar on March 17 gave preliminary approval to a new accreditation standard that would require law schools to report additional details about their scholarship retention rates and the jobs that their graduates land.

But the council rejected a recommendation that it require law schools to report school-specific salary data. Transparency advocates said the omission would leave prospective students without important information about their earning prospects.

"This is the council's latest mistake in a string of mistakes," said Kyle McEntee, executive director of Law School Transparency, a nonprofit organization that pushes for better law school consumer information. "It's a pattern of consumer-disoriented information."

Council chair John O'Brien, dean of the New England School of Law, was traveling on March 19 and unavailable for comment, but said last week that the ABA is working to improve law school consumer information. ...

After about an hour of discussion, the council gave initial approval to the committee's recommended rewriting of Standard 509 and Rule 16 [redlined version showing changes from current version here]. Schools would be required to publicly disclose on their Web sites their admissions data; tuition rates and fees; enrollment data; faculty size; curricular offerings; library resources and facilities; employment data; and bar passage rates. They would have to disclose the number of graduates who factor into any published salary figure.

The standard itself does not spell out what details the schools must report; rather, they were included on a supplemental chart developed by the standards review committee. Schools would also have to report the number of graduates employed in jobs that require bar passage; jobs in which a juris doctor degree is preferred; professional and nonprofessional jobs; and the numbers of graduates pursuing further education and unemployed.

For each of those categories, schools would have to report whether those graduates were in full-time or part-time jobs, and whether they were long-term or short-term positions. Finally, the committee recommended that schools report the number and percentage of graduates with jobs that are funded by the law schools themselves.

The committee recommended that for each of those job categories, schools report the 25th, 50th, and 75th percentile salaries their graduates earn. Those salary figures would also have to be provided for 15 jobs categories ranging from small and large firms to government, public interest and academia.

Against the advice of the standards committee, the council decided to eliminate all salary fields from the chart — meaning that schools would not have to report that salary data at all. ...

By striking the salary data, the council has brought the accreditation requirements in line with changes already made by the ABA's questionnaire committee — a separate group that designs the questionnaire that all accredited law schools must fill out every year. The questionnaire committee decided last year that instead of school-specific salary data, schools should disclose the three states in which the largest percentage of their graduates found jobs. Prospective students or other interested parties could then look at state-specific salary information.

Without the school-specific salary reporting, there is no way for prospective law students to differentiate between the graduate salaries of lower and higher-ranking law schools in any given state, McEntee said. ...

The council's March 17 vote was not the final word on the matter. With preliminary approval secured, the council is soliciting public comments and will hold a public hearing in the future. After the comment period and possible revisions, the council will again vote on the standard. The standard will not be final until the ABA's House of Delegates votes on the entire package, which will happen no sooner that August.

March 20, 2012 in Legal Education | Permalink | Comments (2) | TrackBack (0)

Burman: Capital Gains Tax Rates and Economic Growth

Leonard Burman (Syracuse University, Maxwell School), No Obvious Relationship between Capital Gains Tax Rates and Economic Growth:

If you read the editorial page of financial newspapers, you might conclude that no aspect of tax policy is more important for economic growth than the way we tax capital gains.  You’d be wrong.

The chart displayed above shows top tax rates on long-term capital gains and economic growth (measured as the percentage change in real GDP) from 1950 to 2011. If low capital gains tax rates catalyzed economic growth, you’d expect to see a negative relationship–high gains rates, low growth, and vice versa–but there is no apparent relationship between the two time series.  The correlation is 0.12, the wrong sign and not statistically different from zero.  I’ve tried lags up to five years and also looking at moving averages of the tax rates and growth.  There is never a statistically significant relationship.

March 20, 2012 in Tax | Permalink | Comments (2) | TrackBack (0)

When Immigration and Tax Converge

Tax Analysts Linda Dodd-Major (Washington, D.C.) & Paula N. Singer (Vacovec, Mayotte & Singer, Newton, MA), When Immigration and Tax Converge, 65 Tax Notes Int'l 917 (Mar. 19, 2012):

Linda Dodd-Major and Paula N. Singer provide an extensive look at the confusion that exists between two important aspects of U.S. law -- tax and immigration.

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March 20, 2012 in Scholarship, Tax, Tax Analysts | Permalink | Comments (1) | TrackBack (0)