Monday, March 19, 2012
Congress uses the income tax to regulate. Because states impose their own income taxes on the federally-defined income tax base, rather than on separately determined state tax bases, states automatically import federal policies into their own tax systems. But federal tax policies reflect national, not state, political choices. This article calls attention to the practice of tax base conformity and to its advantages and drawbacks. Conformity conserves legislative, administrative, and judicial resources, and it reduces taxpayers’ compliance burdens. At the same time, however, conforming states cede tax autonomy to the federal government, thereby jeopardizing federalism values, such as regulatory diversity and competition, and exposing themselves to revenue volatility stemming from the ever-changing federal tax law. While the significant administrative and compliance advantages of federal-state tax base conformity generally outweigh these concerns, this article makes recommendations for reducing the adverse impact of base conformity and for further study.
LSAT Blog reports that the number of LSAT test-takers is at a 10-year low, with the largest single-year reduction in history:
LSAT Blog then discusses:
- What happened?
- What does this mean for current applicants, law schools, and the legal job market?
- Is this the new normal?
Update: Wall Street Journal Law Blog, Whither the LSAT Takers?
The International Fiscal Association is sponsoring the 2012 International Tax Student Writing Competition (rules here):
- Subject: Any topic relating to U.S. taxation of income from international activities, including taxation under U.S. tax treaties.
- Open to: All students during the 2011-12 academic year pursuing a graduate degree with a tax specialty.
- Submission Deadline: September 30, 2012.
- Prize: $2,000 cash, plus expenses-paid invitation to IFA USA Branch Annual Meeting
Here are the recent winners:
- 2011: Bradford Craig (J.D. 2012, Temple), Congress, Have a Heart: Practical Solutions to Punitive Measures Plaguing the Heart Act’s Expatriate Inheritance Tax, 26 Temp. Int'l & Comp. L.J. ___ (2012)
- 2010: Kevin L. Preslan (J.D. 2011, Cleveland State), Turnabout is Fair Play: The U.S. Response to Mexico’s Request for Bank Account Information, 1 Global Bus. L. Rev. 203 (2011)
- 2009: Samuel J. Lee (LL.M. 2009, Boston University), A Recommendation, in Light of the Current Economy, for Revising the Way § 304 Applies to International Transactions, 38 Tax Mgmt. Int'l J. 500 (Aug. 2009)
- 2008: Jason Sullivan (LL.M. 2008, Florida), Debt-Equity Hybrid Instruments in a Cross-Border Setting: A Focus on the U.S. Foreign Tax Credit, 53 Tax Notes Int'l 817 (Mar. 2, 2009)
- 2007: David Pozen, Tax Expenditures as Foreign Aid, 116 Yale L.J. 869 (2007)
In Fiscal Year 2010, taxpayers filed over 230 million tax returns that contained sensitive financial information. Because many IRS employees must have access to sensitive taxpayer information to administer the Nation’s tax system, the IRS must be particularly cognizant of hiring only those applicants who hold themselves to the highest standards of integrity. The IRS uses several controls to deter and detect the abuse of sensitive information. Pre-screening applicants and conducting background investigations on them are the initial steps in the process of ensuring that the IRS meets the highest standards of honesty, integrity, and security.
The IRS has implemented controls designed to ensure that applicants pursuing permanent or temporary employment with the IRS are suitable, and background investigation requests are properly initiated. However, our review at four of nine Employment Operations branch offices revealed that nearly 77% of the cases reviewed (507 of 662 cases) did not have sufficient documentation that would allow us to verify that the Employment Operations offices completed all of the required pre-screening steps before the employee reported for duty.
In conjunction with the weekend meeting of the ABA Council of the Section of Legal Education and Admission to the Bar in Fort Lauderdale, the ABA released two documents:
- ABA Statement on Law School Rankings (March 16, 2012)
Neither the American Bar Association nor its Section of Legal Education and Admissions to the Bar endorses, cooperates with, or provides data to any law school ranking system. Several organizations rank or rate law schools; however, the ABA provides only a statement of accreditation status. No ranking or rating system of law schools is attempted or advocated by the ABA.
Prospective law students should consider a variety of factors in making their choice among schools. A discussion of those factors can be found in Chapter 5 (Choosing a Law School) of the ABA-LSAC Official Guide to ABA-Approved Law Schools.
- Updated Statement of the ABA’s Section of Legal Education and Admissions to the Bar Regarding Collection of New Job Placement Data (March 15, 2012):
Today, new law school graduate employment data for the class of 2011 is due to be reported by accredited U.S. law schools to the ABA’s Section of Legal Education and Admissions to the Bar. The newly revised questionnaires were distributed to accredited law schools in February 2012 seeking more detailed and comprehensive information than had previously been required. The data due back to the Section today will be compiled and published on the Section’s website as early as June 2012.
The Section of Legal Education and Admissions to the Bar announced in December 2011 significant changes to its collection and publication of graduate placement data provided by accredited law schools. These changes enhance the accuracy, timeliness, completeness, and specificity of the employment data.
For the class of 2011, law schools must report directly to the Section for each graduate:
- Employment status (employed, unemployed/seeking, unemployed/not seeking, pursuing graduate degree full-time, unknown)
- Employment type (law firm, business, government, public interest, clerkship, academia)
- Employment location
- Whether a position is short or long term
- Whether a position is funded by the school itself
- Bar passage required
- J.D. advantage
- Other professional/nonprofessional
- Full time or part time
The data being reported will include the number of law graduates joining law firms by law firm size, and will report the number of students that responded to the surveys.
“There should be no doubt that the Section is fully committed to the clarity and accuracy of law school placement data,” said New England Law/Boston Dean John O’Brien, chair of the Section. “Current and prospective law students will now have more timely access to detailed information that will help them make important decisions about their futures.”
Martin A. Sullivan discusses how the divided interests of corporate America could create a stumbling block to corporate tax reform.
When it comes to taxes, corporate America is divided into two parts. First, there are companies that pay full freight. Their effective tax rates are close to the statutory 35 percent rate. They tend to be low-tech and labor-intensive, and -- most of all -- they have most of their profits in the United States. Then there are those companies that collectively save tens of billions of dollars each year by taking advantage of loopholes in the transfer pricing and anti-deferral rules. Their effective tax rates are significantly less than 35 percent. They are technology-intensive and pack a lot of their profits in tax havens.
As the drumbeat for tax reform grows louder, the priority for members of the first group is easy to understand. Existing tax breaks don't do much for them, so a tax reform that cleaned up the code and lowered the rate could be a big plus. The membership of the RATE Coalition, a group dedicated to reducing the corporate tax rate, is made up mostly of this type of company. Its membership includes AT&T, Home Depot, Disney, and Macy's.
The tantamount concern of members of the second group is international taxation. That manifests itself in three general policy thrusts: (1) thwarting President Obama's perennial proposals to raise taxes on foreign profits; (2) securing a repeat of the 2004 tax holiday for repatriated foreign profits; and (3) moving the United States from a worldwide to a territorial system of international taxation. For territorial taxation, the proposal must be devoid of any significant expense allocation, thin capitalization, and anti-deferral rules to get the support of this group. (The revenue-neutral territorial proposal by House Ways and Means Committee Chair Dave Camp, R-Mich., does not make the grade.) Companies with this profile can be found among the members of the WIN America Campaign, a coalition dedicated to securing tax relief for repatriated foreign profits, and they include Apple, Microsoft, Pfizer, and Cisco Systems.
Figure 1 shows the share of foreign profits as a percentage of worldwide profits for the coalitions' members that are publicly traded corporations. These are three-year figures from each company's latest SEC Form 10-K. The difference between the two coalitions is striking. Of the 21 RATE members, only one, Nike, has more than half of its pretax profits outside the United States. Of the 19 WIN America members, 11 have more foreign than domestic profits. Four companies -- Brocade, Autodesk, Pfizer, and Broadcom -- reported losses in the United States even though they were profitable on a worldwide basis. [Click on chart to enlarge.]
All Tax Analysts content is available through the LexisNexis® services.
India will claim capital gains tax on cross-border acquisitions completed in the past six years through an amendment after Vodafone won a case against such levies, according to Finance Secretary R.S. Gujral.
Finance Minister Pranab Mukherjee on March 16 proposed changing the law two months after the Supreme Court ruled that Vodafone doesn’t have to pay $2.2 billion in tax on its purchase of the local business of Hutchison Whampoa Ltd. (13) in 2007. Taxation experts at firms including KPMG said the changes applicable retrospectively from 1962 may slow foreign investments into the South Asian nation.
Forbes, Owe The IRS? TaxMasters Bankruptcy Shows Why Not To Get Help From TV Pitchmen, by Janet Novack:
If you’ve got problems paying the IRS, don’t look for help from the ads on late night cable television. That’s one of the lessons from an SEC filing Friday by TaxMasters Inc., disclosing the publicly-traded company will file for voluntary bankruptcy. As ABC reported last April, even after Houston-based TaxMasters had been accused of deceptive business practices by the attorney generals of Texas and Minnesota, it continued to buy millions of advertising on CNN, FoxNews and other cable channels. (The ads featured Patrick Cox, the red-bearded TaxMasters CEO, assuring potential clients that his staff of tax pros, including former IRS agents, had helped “many good people just like you.”)
Moreover, this is just the latest bankruptcy by a “tax resolution” service that advertised heavily—and made allegedly exaggerated claims–on cable TV. JK Harris & Co., a South Carolina-based firm which once operated hundreds of locations in dozens of states, filed for bankruptcy last October after being sued by both states and unhappy customers. ...In 2010, California Attorney General (now Governor) Jerry Brown sued “Tax Lady” Roni Deutch, who also had a big presence on TV, claiming she “engaged in a scheme to swindle taxpayers” by overstating the ability of her firm to gain concessions from the IRS. Deutch called the charges politically motivated. But lat year, she filed for bankruptcy and surrendered her law license.
Update: Forbes, Bankrupt TaxMasters Lists Less Than $50,000 In Assets, Up To 5,000 Creditors, by Janet Novack:
In a bare-bones three-page bankruptcy filing Sunday, TaxMasters Inc. reported it owes 1,000 to 5,000 creditors up to $10 million, but has less than $50,000 in assets. The filing, which became available on the web site of the U.S. Bankruptcy Court for the Southern District of Texas this morning, calls into question whether the Houston-based tax resolution firm will be able to continue to operate. The lengthy creditors list no doubt include thousands of individuals who have paid TaxMasters for help resolving their IRS debts and now could be left in the lurch.
- Placement Data Controversy Hits Elite Law Schools
- GAO: IRS Continues to Put Taxpayer Information at Risk; 89 of 105 Internal Control Weaknesses Remain
- Law School Targeted in Placement Data Litigation Responds
- WSJ: Two New Tax Traps for Small Businesses
- WSJ 'Numbers Guy': Law School Placement Data Reporting
- Top 5 Tax Paper Downloads
- NY Times: Capital Gains vs. Ordinary Income
- Nichol: Rankings, Economic Challenge, and the Future of Legal Education
Sunday, March 18, 2012
Wall Street Journal, The Numbers Guy: Job Prospects for Law Grads? The Jury's Out, by Carl Bialik:
Law students, lawsuits and law schools' own accrediting body have shed light on a troubling truth for freshly minted legal graduates: Some of the numbers about their predecessors' employment and pay are suspect.
Since the mid-1980s, law schools have surveyed their recent graduates on how they made out in the job market, then reported the results. For many schools, the numbers were surprisingly rosy: employment rates above 90% and starting salaries in the six figures. The data have appeared on schools' websites, in magazines' law-school rankings and in marketing materials aimed at prospective students.
But the numbers aren't what they seem, say some recent graduates, a few of whom have joined lawsuits against their alma maters for allegedly misrepresenting their job prospects. The employment figures include part-time positions, short-term work and jobs for which a juris doctor, or law-school degree, wasn't a requirement or even a help—details not mentioned in many schools' reports. And the salary numbers exclude some alumni who aren't willing to report their wages, a group many believe earns less than those who do disclose their salaries. ...
[M]ore than a dozen schools have been sued, mostly in state courts, by graduates saying they were misled. The lawyers who filed most of the suits said Wednesday they were seeking plaintiffs for 20 more schools. ... One irony: Some of the targeted schools were among the several dozen that in the last few months have voluntarily shared more detailed survey data with Law School Transparency, a nonprofit advocacy group founded in 2009 by two Vanderbilt law students. Those numbers show how many of the reported jobs were in the legal field and how many respondents didn't report their salaries. The figures have aided some suits against these schools. "We've used that," said David Anziska, a New York attorney who has co-filed most of the suits. ,,,
The gulf between bottom-line employment figures and what Mr. McEntee and other critics consider the relevant numbers can be seen in an annual report from the National Association for Law Placement, a legal-careers organization that collates schools' employment-survey results, including data not published by the schools. Last year's report, the latest available, shows that 87.6% of 2010 graduates who responded to the surveys were employed as of Feb. 15, 2011—the lowest rate for the previous year's graduates since 1996. Meanwhile, just 68.4% of graduates who responded were in jobs that required passage of bar exams. And those respondents who reported their salaries represented just half of all employed graduates.
Critics of the law-school data say measures such as the ABA section's more detailed questionnaire won't allay all concerns. Schools gather the data that are used to evaluate them, which critics say poses a conflict of interest. Since at least two schools have admitted to submitting false data on a different subject, the credentials of admitted students, "it would be naive to assume that no law schools have falsified employment numbers," said Brian Tamanaha, a professor at Washington University's law school in St. Louis.
WSJ The Numbers Guy Blog, Law-School Jobs Data Under Review:
My print column examines controversy over how law schools report statistics about the employment of their recent graduates. Each year, schools survey their graduates nine months after graduation and report the numbers. A series of lawsuits filed against the schools claim these numbers have misled potential students, by lumping together all jobs, including ones that don’t require a law-school education and ones that are short-term or part-time. The schools respond that they followed procedures outlined by the ABA’s Section of Legal Education and Admissions to the Bar, which accredits the schools.
David Anziska, the New York attorney who has co-filed most of the suits, this week announced 20 more schools he was targeting, seeking plaintiffs to file suits against them. He said that nearly all of the country’s 199 accredited law schools are potential targets, and that the latest schools were chosen because they operate in the same states as do participating law firms — not necessarily because they were particularly egregious. “Nearly every school in the country engages in some sort of manipulation of placement rates,” he said. ...
“The best solution, in my view, is to have law schools highlight one number above all else: What percentage of the graduating class obtained jobs as lawyers,” said Brian Tamanaha, a professor at Washington University’s law school in St. Louis.
There 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 #1:
2. [384 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. [300 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. [295 Downloads] Important Developments in Federal Income Tax (2010-11), by Edward A. Morse (Creighton)
In a column etitled Capital Gains, Ordinary Income and Shades of Gray, the Harvard economist N. Gregory Mankiw, who advises Mitt Romney in his presidential campaign, offers a fine teaching piece on the tenuous and often confusing line between ordinary income and capital gains under our tax code. As Professor Mankiw reminds us, the highest tax rate on ordinary income is now 35% while that on capital gains is only 15%. ...
Professor Mankiw touches in passing what for me is the crux of the issue. He writes:
Critics of current law think it is unfair that these private equity partners are taxed at capital-gains rates, whereas other high-income individuals like doctors and lawyers pay the much higher tax rates for ordinary income. It is a reasonable point, and some reform may well be appropriate. But ... it is not obvious what the best approach would be. Not all problems have easy answers.
On this point, I beg to differ with my colleague. Why is the answer so difficult? To my mind, the best approach would be to abolish the distinction between capital gains and ordinary income altogether and desist from using the tax system for any kind of economic or social engineering. ...
The case for granting preferential tax treatment to the real-estate transactions that Professor Mankiw describes — and to carried interest in private equity firms — strikes me as extremely shaky on grounds of both horizontal equity and plain economics. ... If the partners at Bain Capital are granted a low 15% tax rate on what basically is an earned commission for hours smartly worked, rather than a return on their own invested capital, should not the return on the neurosurgeon’s own investment in his or her human capital be granted the same preference? ...
My bottom line on the issue of tax preferences is that although Congress may wish to encourage some transactions leading directly to the formation of new capital — including human capital — that preference is best expressed with explicit subsidies that show up in government budgets and for which politicians can be held accountable, rather than through tax expenditures that spare politicians explicit accountability for their indirect spending.
Update: Linda Beale (Wayne State), More on Greg Mankiw's Weak Arguments for the Bain Capital Gains Preference:
The ugly truth about the insistence on the capital gains preference is that it rewards people at the top of the income and wealth distribution and serves to maintain the status quo of the allocation of resources. This is what is really meant by "fiscal conservatism" these days--ensuring that resources remain inequitably distributed to the very wealthy who are the "shakers and movers" of society through the influence their money can buy. The right-leaning Supreme Court has made that even more inevitable than it was before, through the Citizens United decision upholding the right of corporations to contribute any amount to influence political campaigns, based on the laughable assertion that such "super-PAC" rights undergird free speech.
Gene R. Nichol Jr. (North Carolina), Rankings, Economic Challenge, and the Future of Legal Education, 61 J. Legal Educ. 345 (2012):
This essay is based on the keynote address Nichol delivered at the annual ABA law deans meeting in 2010. There he claims, in brief: “I believe, given the economics, that we are in for more than a modest dose of change in legal education — public and private, national and regional, elite and virtuously middle-tier. I also think that we are not as well positioned as we should be to deal with the unfolding challenge. We have gone far, in the last twenty-five years or so, toward breaking the bank, pushing costs beyond both call and sustainability. I doubt that we have done so to good end, that we have made optimum investments. I am quite sure that we have failed to bolster a mission in the common good.”
Saturday, March 17, 2012
Following up on Monday's post, NY Post: Columbia, NYU, Fordham Law Schools Inflate Employment Stats:
- The Careerist, Columbia and NYU's Dubious Job Stats, by Vivia Chen:
Are they all lying? Or just careless—conveniently so?
Maybe we've all been too snobby, assuming that only low-ranking law schools cook their employment data to reel in gullible students. So far, at least, it's the lower-tier schools like New York Law School and Cooley Law School that are getting hit with class action suits by former students for promulgating false job data.
But here's the shocker: Even top schools like Columbia and NYU (number four and number six, respectively, in the latest U.S. News and World Report) may be playing fast and loose with their job numbers. Both schools had to "revise" their stats after The New York Post asked them for detailed information.
- The Careerist, Titans' Wrath—Columbia and NYU Strike Back, by Vivia Chen:
Both schools are speaking up. Essentially, they take issue with how the NLJ gathered its data and the way the Post wrote the article. Specifically, they argue that the NLJ's data was incomplete because some firms do not report their hiring to that publication.
But that's where the similarity between the two schools ends. While Columbia's response was fairly short and concise, NYU kind of went to town, lambasting the NLJ and the Post for being inaccurate if not unfair. More curious, though, is NYU's personal attack on University of Colorado Law School professor Paul Campos, who was quoted in the Post. NYU titled the press release (is that what it is?) "Lies, damned lies, and (law school) statistics," with the subheads "Professor Paul Campos and his tainted numbers" and "Inaccuracy wrapped in innuendo inside omission: The New York Post weighs in."
Much more colorful than your average press release, but kind of over the top. It certainly seems like a lot of internecine score settling. (Is NYU particularly angry that Campos, in one of his posts, mentioned that the law school's 40 percent placement rate with big firms is not worth the cost of its tuition, which he says is "realistically pushing $250K?")
I find that the indignation and sarcasm of NYU's statement distract from the arguments that it's trying to make. Frankly, it didn't help that NYU started its tirade with sanctimony that's almost worthy of parody (in italics, no less!), "Truth can be hard to pin down . . . so it is with the many statistics that journalists and others are offering up these days about law schools." Oy. ...
In the end, though, I think it's all a confusing mess. The fundamental questions remain unanswered: Are law schools fibbing about their placement record? Or are the discrepancies the result of misunderstandings (or loopholes)?
In any case, it's interesting how even the sacred cows of legal education—namely, the top schools—are being questioned about their veracity. Also fascinating is how these schools are feeling defensive as a result. All in all, that's not a bad thing.
- Inside the Law School Scam, Say Anything, by Paul Campos (Colorado):
This chart shows a comparable collapse in big law hiring at most elite law schools for the class of 2009, which continued and deepened for the classes of 2010 and 2011. [CLlick on chart to enlarge.]
- Above the Law, Elite Law Schools Are Suffering the Consequences From Their Lack of Credibility, by Elie Mystal:
It should be a sad day when you are looking at something in the New York Post versus contradictory information from an Ivy League law school like Columbia, yet you don’t know who to believe. But thanks to years of statistical shenanigans that the ABA didn’t put a stop to, we live in a world where we can’t really trust anything that comes out of the mouth of a law school administrator. It’s like what’s happened in baseball because of the steroids scandal: not every ballplayer took steroids, but all are assumed to be guilty because Major League Baseball did not act to stop the problem.
This week, the law schools at Columbia, NYU, and Fordham have come under fire for their allegedly inflated employment statistics. A story in the New York Post specifically called out the top New York-area law schools for shady reporting of graduate outcomes when it comes to graduates employed by the schools. Paul Campos also wrote a post highlighting the discrepancy between the number of Biglaw jobs reported by the schools versus the National Law Journal’s reporting — where the NLJ gets information directly from employers. ...
[S]ome of the best law schools in New York City have put out a statistic about how many graduates get jobs, and the New York Post and a bunch of other people immediately called “bulls**t.” Think about that. Even if the law schools can somehow convince people that, technically, their published information isn’t riddled with lies, we’re living in a world where such data can be assumed to be false absent a long and detailed explanation and discussion from the law schools. When somebody notices a discrepancy between a school’s numbers and what’s in the newspaper, we assume the school was full of crap, not that the newspaper got it wrong.
That’s not the fault of the New York Post, or Paul Campos, or “the media.” That’s the fault of the American Bar Association. The ABA is supposed to represent lawyers and law schools to the public. It’s supposed to relegate them so that the public can trust that moral and ethical standards are being upheld and enforced. And on that scale, the ABA has been an unmitigated failure. It’s done a disservice to all law schools. Nobody can trust any law school because the ABA has failed to impose effective oversight over all of them.
That’s tragic. A society is supposed to be proud of its institutions of higher learning, but the ABA has robbed us of that pride in our nation’s law schools. We no longer get to feel like our justice system is populated by people trained to the highest ethical standards, because we can’t even trust our law schools to tell us the truth about how many people got hired.
Columbia Law should be able to win a credibility war with the New York freaking Post without firing a shot.
GAO: IRS Continues to Put Taxpayer Information at Risk; 89 of 105 Internal Control Weaknesses Remain
The Government Accountability Office yesterday released IRS Needs to Further Enhance Internal Control Over Financial Reporting and Taxpayer Data (GAO-12-393):
IRS implemented numerous controls and procedures intended to protect key financial and tax-processing systems; nevertheless, control weaknesses in these systems continue to jeopardize the confidentiality, integrity, and availability of the financial and sensitive taxpayer information processed by IRS’s systems. Specifically, the agency continues to face challenges in controlling access to its information resources. For example, it had not always (1) implemented controls for identifying and authenticating users, such as requiring users to set new passwords after a prescribed period of time; (2) appropriately restricted access to certain servers; (3) ensured that sensitive data were encrypted when transmitted; (4) audited and monitored systems to ensure that unauthorized activities would be detected; or (5) ensured management validation of access to restricted areas. In addition, unpatched and outdated software exposed IRS to known vulnerabilities, and the agency had not enforced backup procedures for a key system.
An underlying reason for these weaknesses is that IRS has not fully implemented a comprehensive information security program. IRS has established a comprehensive framework for such a program, and has made strides to address control deficiencies—such as establishing working groups to identify and remediate specific at-risk control areas; however, it has not fully implemented all key components of its program. For example, IRS’s security testing and monitoring continued to not detect many of the vulnerabilities GAO identified during this audit. IRS also did not promptly correct known vulnerabilities. For example, the agency indicated that 76 of the 105 previously reported weaknesses open at the end of GAO’s prior year audit had not yet been corrected. In addition, IRS did not always validate that its actions to resolve known weaknesses were effectively implemented. Although IRS had a process in place for verifying whether each weakness had been corrected, this process was not always working as intended. Of the 29 weaknesses IRS indicated were corrected, GAO determined that 13 (about 45 percent) had not yet been fully addressed.
Considered collectively, these deficiencies, both new and unresolved from previous GAO audits, along with a lack of fully effective compensating and mitigating controls, impair IRS's ability to ensure that its financial and taxpayer information is secure from internal threats. This reduces IRS's assurance that its financial statements and other financial information are fairly presented or reliable and that sensitive IRS and taxpayer information is being sufficiently safeguarded from unauthorized disclosure or modification. These deficiencies are the basis of GAO’s determination that IRS had a material weakness in internal control over financial reporting related to information security in fiscal year 2011.
Following up on Wednesday's post, 20 More Law Schools to be Sued Over Allegedly Fraudulent Job Placement Data: David Yellen, Dean at Loyola-Chicago, one of the targeted schools, sent this forceful email to faculty, students, and staff:
A group of lawyers has sued a number of law schools regarding allegedly misleading employment information. They recently announced that they are seeking plaintiffs among recent graduates to sue an additional 20 law schools, including us. I can assure you that any such suit against Loyola would be without merit. We take very seriously our commitment to our students, and provide only true and complete employment information. As a member of the ABA's Standards Review Committee, and chair of its subcommittee on consumer information, I have been a strong advocate of requiring schools to provide detailed employment information. Our own website goes far beyond what the ABA requires, a fact that has been noted favorably by many, including Kyle McEntee, the director of Law School Transparency.
Check out the detailed placement data on Loyola-Chicago's website, which includes several charts like these:
Weekend Wall Street Journal, Tax Report: Traps for Small Businesses, by Laura Saunders:
A pair of changes for 2011 could mean big headaches for taxpayers who report business or partnership income on their individual tax returns. Both changes involve so-called 1099 forms, which are reports submitted to the IRS so it can cross-check information from different taxpayers.
The first change is momentous: It requires third parties—credit- or debit-card firms, PayPal and the like—to tell the IRS about their payments to businesses. For 2011 and after, these firms must issue 1099-K forms to the IRS and the taxpayer giving the amount of such payments. ...The other potential trap: two new lines on several forms, including Schedule C (for sole proprietorships), Schedule E (landlords), 1120S (Subchapter S corporations) and 1065 (partnerships). They say: "Did you make any payments in 2011 that would require you to file Form(s) 1099?" and "If 'Yes,' did you or will you file all the required Forms 1099?" These simple-seeming questions could cause large penalties for some taxpayers.
Here is why: Firms usually are required to issue 1099 forms to providers of more than $600 worth of services during the year, unless the vendors are incorporated. That could include, for example, an accountant, a plumber, a website designer or a consultant.
In 2010 Congress stiffened the penalties on taxpayers who neglect to provide 1099 forms. The higher penalties took effect in 2011, and now the penalty for nonfiling is $100 per violation—$200, in most cases, because two forms are due, one to the IRS and one to the provider. The penalty for "intentional failure to file" is $250.
Friday, March 16, 2012
Following on Sunday's post, Top 14 Law School Grads: Too Good for BigLaw?:
- Christopher Zorn (Penn State), Pedigree and Performance,
I just couldn't help myself from digging into the data a little. ... I found the same NLJ data from 2010, and did a little comparison.
Red "Xs" are the "Top 14" law schools, while black dots are the rest; I labeled a few of the outliers. The data are noisy: the simple (Pearson) correlation between the two years is 0.32. But the correlation is driven almost entirely by the difference between elite and non-elite schools: the correlation among non-elite schools only is 0.06, while that among elite schools only is a paltry 0.02. Moreover, the aggregate differences between Top 14 and non-Top 14 schools are large, averaging 17.2% vs. 28% in 2010 and 15.9% vs. 40.5% in 2011.
So, while the data are noisy, the larger pattern still holds: More elite schools have consistently lower "partner yield rates" than do less elite, tier-one schools. While this doesn't begin to get at the various reasons why this might be happening, it does lend some support to the idea that there's something here worth looking into.
- Dan Rodriguez (Dean, Northwestern), Sorting, Part I:
This post by some empirically-minded law profs is getting some buzz. The principal claim is that young lawyers from lower-ranked schools will be more likely to make partner than those from higher-ranked schools. This conclusion (with the notable data caveats described in the post) is followed by various speculative explanations.
- Dan Rodriquez (Dean, Northwestern), Law School Sorting and the Partnership Track: Northwestern Empiricists Weigh In:
Some extremely interesting, powerful comments on the Henderson argument from my able empirical-legal colleagues.
New York Times, Worker Who Hid Lottery Win Must Share $38.5 Million Prize:
There were some dark twists in the plot line, inevitable, perhaps, when friends fight over $38.5 million in lottery winnings.
The friends, construction workers from New Jersey, said they had pooled their money for lottery tickets for years. Five of them relied on a member of their little group, Americo Lopes, to buy the tickets. In November 2009, he collected their money and bought a Mega Millions ticket that won, but he told no one except lottery officials. He cashed in the ticket as if it were his alone. The lottery deducted taxes and sent Mr. Lopes a check for $17,433,966. ...
On Wednesday, a jury in Union County ordered Mr. Lopes to share the winnings with the five former co-workers. ...
Eric Kahn, a lawyer for Mr. Lopes’s former colleagues, said some details had to be worked out, like how much each man would receive and how much each might owe in taxes. “The lottery paid him,” Mr. Kahn said, referring to Mr. Lopes, “and the lottery withheld a chunk of taxes. We’ve got to work on the taxes,” he said.
- New York Post, Hey, Lottery Louse, Pay Up
Exam question: Explain the 2009 and 2012 tax consequences of these events to Mr. Lopes. (Hat Tip: Les Book.)
Update: David Elkins (SMU) passed along the remarkably similar article by Dave Barry, The Lavender Hill Mob Takes On The IRS
Contemporary critiques of legal education abound. This arises from what can be described as a perfect storm: the confluence of softness in the legal employment market, the skyrocketing costs of law school, and the unwillingness of clients and law firms to continue subsidizing the further training of lawyers who failed to learn how to practice in law school. As legal jobs become more scarce and salaries stagnate, the value proposition of law school rightly is being questioned from all directions. Although numerous valid criticisms have been put forth, some seem to be untethered from a full appreciation for how the current model of legal education developed. Indeed, a historical perspective on legal education is sorely missing from this debate, as many of the criticisms merely echo charges that have been lodged against legal education for well over a century, but do not draw lessons from how those former critiques ultimately failed to deliver fundamental change. This Article reviews the historical development of legal education in America, including the critiques and reforms made along the way, to see what insight we can gain that will inform our own efforts to make law schools better at preparing lawyers for practice.
For an extended discussion of the article, see our sister Legal Skills Prof Blog, More on the Influence of the Langdellian Tradition and Langdellian Bargain on Contemporary Legal Education:
In sum, like the Neumann article, Spencer shows how the Langdellian Tradition and "Langdellian Bargain" (discussed here) have shaped and restricted contemporary legal education. As Spencer recognizes, "Unfortunately, the fraying of the foundation for the justification and perpetuation of the Langdellian approach is not likely to usher in fundamental change with ease. Law faculty benefit from the current structure of the course delivery system and may be loathe to take on work that will compromise time for other pursuits or impose burdens without increasing compensation." "Further, the profile of current law faculty—having been educated under the Langdellian system and having had little to no practice experience—renders them less sympathetic to the urge toward practice-relevance and less competent to devise and deliver a program with such an orientation."
Some of the changes Spencer proposes include:
- "Modernize the first year to include an introductory overview of the legal system and the legal profession, as well as subjects more pertinent to contemporary legal practice such as transnational law and administrative law;
- Impose a live-client experience requirement, having all students participate in either a clinical course or an externship;
- Extend legal research and writing education into the second year, featuring more extensive simulation training focused on certain areas such as litigation and transactional skills;
- Redesign the content of traditional courses away from an emphasis on cases toward more source material and practice documents, while redesigning the delivery of courses around more group work and problem-solving exercises in the lawyer role during class meetings;
- Hire full-time, part-time, and adjunct faculty who can bring more extensive and contemporary practice experience to bear on the design and delivery of the curriculum;
- Develop capstone courses that enable third-year law students to synthesize their learning across courses and apply it in practice settings."
Following up on yesterday's post, Dems, GOP Spar Over IRS Investigation Into § 501(c)(4) Groups: Washington Examiner, Why Is The IRS Asking Tea Party Groups If They Know Me?, by Justin Binik-Thomas:
In a 2009 commencement speech at Arizona State, the president joked about using the IRS as an enforcement agent for dissenters. Little did I know that less than three years later the IRS would be asking groups about their association with . . . me.
The American Center for Law and Justice has reported that the IRS is targeting the nonprofit tax status of Tea Party and liberty groups across the nation. These conservative groups are now experiencing the targeted enforcement the President “joked” about.
The IRS questionnaires are quite detailed containing pages of multi-step questions. ... Some of the questions are baffling. ... Still others are overreaching, such as whether officers serve on other organizations or have any plans to run for political office. ... A recent IRS request of one of the liberty groups in the Cincinnati region moved into new and dangerous territory by asking about family members and specific individuals. Well, one individual: Me. The question asked:”Provide details regarding your relationship with Justin Binik-Thomas.” ...
Why ask about me? ... A caseworker assigned to me by my congresswoman said that I am the first individual she has seen listed in an IRS query during her decade-long career. I'm not sure I want this "first" attached to me. ...Does it relate to communications work I’ve done? Is it because I am Jewish Conservative? ... I am an active conservative and conservatism is a common thread between me and each of the organizations.
I again wonder how I tie in exactly. Am I so successful in my roles so as to be a threat to this administration? Am I so well known to be a valuable target? Or am I a pawn in a witch-hunt in the pursuit of another group or individual? How high does this go? Perhaps it is time for Congress to ask some pointed questions of the IRS.
(Hat Tip: Glenn Reynolds.)
Robert Morse, Director of Data Research for U.S. News, announced yesterday that "University of St. Thomas School of Law in Minneapolis advised U.S. News that it overreported the number and proportion of its 2010 graduates who had jobs at graduation." St. Thomas moved up to #119 in the rankings this year, making it the second-highest law school in Minnesota (behind #19 University of Minnesota). Last year, St. Thomas tied with William Mitchell at #135 (William Mitchell is #127 this year).
St. Thomas reported an 80.6% employed at graduation rate, which counts 4% in the U.S. New methodology. (University of Minnesota reported a 79.6% employed at graduation rate.) St. Thomas now admits that the correct figure was 32.9%. Last year, St. Thomas was one of 59 schools that did not report its employed at graduation data to U.S. News, apparently taking advantage of the rankings loophole that U.S. News closed this year.
Update: National Law Journal, Law School's Ranking Might be Based on Faulty Data
The Florida Tax Review has published Vol. 11, No. 8:
- Julia A.D. Manasfi (Whittier), The Global Shadow Bank--Systemic Risk and Tax Policy Objectives: The Uncertain Case of Foreign Hedge Fund Lending to U.S. Borrowers and Transacting in U.S. Debt Securities, 11 Fla. Tax Rev. 643 (2011)
- Douglas A. Kahn (Michigan), Exclusion From Income of Compensation for Services and Pooling of Labor Occurring in a Noncommercial Setting, 11 Fla. Tax Rev. 683 (2011)
This short column is part of the annual Tax Notes issue that highlights noteworthy law review articles published during the previous year. In this piece, I identify articles relating to estate and gift tax taxation that practitioners likely will find of interest, not withstanding Chief Justice Roberts' view that academics don't publish work that is of "much help to the bar." The articles reviewed (in alphabetical order by author's last name) are:
- Martin D. Begleiter (Drake), Son of the Trust Code -- The Iowa Trust Code after Ten Years, 59 Drake L. Rev. 265 (2011)
- Frances H. Foster (Washington U.), Should Pets Inherit?, 63 Fla. L. Rev. 801 (2011)
- Thomas P. Gallanis (Iowa), The New Direction of American Trust Law, 97 Iowa L. Rev. 215 (2011)
- Wendy C. Gerzog (Baltimore), The New Super-Charged PAT (Power of Appointment) Trust, 48 Hous. L. Rev. 507 (2011)
- Victoria J. Haneman (La Verne), Changing the Estate Planning Malpractice Landscape: Applying the Constructive Trust to Cure Testamentary Mistake, 80 UMKC L. Rev. 91 (2011)
- Adam J. Hirsch (Florida State), Freedom of Testation/Freedom of Contract, 95 Minn. L. Rev. 2180 (2011)
- Kristine S. Knaplund (Pepperdine), The New Uniform Probate Code's Surprising Gender Inequities, 18 Duke J. Gender L. & Pol'y 335 (2011)
- Kristine S. Knaplund (Pepperdine), Synthetic Cells, Synthetic Life, and Inheritance, 45 Val. U. L. Rev. 1361 (2011)
- Carla Spivack (Oklahoma City), Let's Get Serious: Spousal Abuse Should Bar Inheritance, 90 Or. L. Rev. 247 (2011)
- Lee-ford Tritt (Florida), The Limitations of an Economic Agency Cost Theory of Trust Law, 32 Cardozo L. Rev. 2579 (2011)
All Tax Analysts content is available through the LexisNexis® services.
Law school is a gamble. It’s extremely pricey, and grads aren’t guaranteed a lucrative career. But if you invest in one of the country’s top programs, you can end up earning a six-figure paycheck right out of school. Forbes turned to PayScale.com to find the law schools whose graduates make the most in the early stages of their career. ...
Payscale combed through the profiles of its 30 million unique users who supply compensation information on its website to find which law school grads make the most. They looked at starting salaries of graduates from 98 popular law schools and found roughly 30,000 of them in their database who had reported salary information, including 8,900 working in the private sector with less than five years of experience (the study excluded those working in the public sector).
The salaries below from Payscale are current median salaries (as of the first quarter of 2012) for recent law school graduates who in almost all cases finished law school within the last five years. The median work experience for this group is two years, and their median age is 29. ...
- Columbia -- $162,000 (Starting Median Pay, Private Sector)
- Harvard -- $143,000
- Stanford -- $133,000
- Virginia -- $130,000
- Chicago -- $119,000
- NYU -- $115,000
- Georgetown -- $114,000
- Duke -- $112,000
- Northwestern -- $110,000
- Michigan -- $108,000
- Yale -- $107,000
- Pennsylvania -- $102,000
- UC-Berkeley -- $102,000
- UCLA -- $96,900
- USC -- $90,800
- Catholic -- $85,600
- Fordham -- $84,200
- Cornell -- $84,100
- Texas -- $84,000
- San Francisco -- $83,900
- Vanderbilt -- $83,700
- Boston College -- $82,800
- San Diego -- $82,500
- UC-Hastings -- $82,500
- Emory -- $80,900
Thursday, March 15, 2012
Following up on Tuesday's post on the new 2013 U.S. News Law School Rankings: Constitutional Daily has a great chart listing the changes from 2012 to 2013 for all 195 ranked law schools in three categories:
- Overall Ranking
- LSAT (25th & 75th Percentile)
- GPA (25th & 75th Percentile)
Here are the data for the Top 14 law schools [click on chart to enlarge]; the complete chart for all 195 law schools is here.
The aftermaths of the Great Recession and the Great Depression produced sharply different changes in U.S. incomes that tell us a lot about tax and economic policy.
The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90%.
In 2010, we saw the opposite as the vast majority lost ground. National income gained overall in 2010, but all of the gains were among the top 10%. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent. Just 15,600 super-rich households pocketed an astonishing 37% of the entire national gain. ...
The updated figures illustrating income changes, all in 2010 dollars, come from analysis of the latest IRS data by economists Emmanuel Saez and Thomas Piketty. ... Saez and Piketty show that the vast majority’s average AGI, of which wages are just a part, was $29,840 in 2010. That was down $127 from 2009 and down $4,842 from 2000. Most shocking? The average income of the vast majority of taxpayers in 2010 was just a smidgen more than the $29,448 average way back in 1966.
At the top, the super-rich saw their 2010 average income grow by $4.2 million over 2009 to $23.8 million. Compared to 1966 their income was up on average by $18.7 million per taxpayer.
Saez shows that the top one percent’s share of real income growth is increasing with each economic expansion and it matters not whether the president is a Democrat or Republican. The top one percent enjoyed 45% of Clinton-era income growth, 65% of Bush-era growth and 93% of Obama-era growth, though that is only through 2010. ...
Government policy can change again and for the better. ... If we don’t, the vast majority will see their incomes go on eroding slowly while those at the top enjoy an ever-larger share of national income and wealth. The inevitable result will be economic, political and social instability – not a pretty picture for anyone.
Wall Street Journal editorial, Big Oil, Bigger Taxes: The Industry Sends More Money to Washington Than to Shareholders:
President Obama says he wants to end subsidies for what he calls "the fuel of the past," but lucky for him oil and gas will be the fuels of the future too. His budget-deficit blowout would be so much worse without Big Oil, because the truth is that this industry is subsidizing the government.
Much, much worse, actually. The federal Energy Information Administration reports that the industry paid some $35.7 billion in corporate income taxes in 2009, the latest year for which data are available. That alone is about 10% of non-defense discretionary spending—and it would cover a lot of Solyndras. That figure also doesn't count excise taxes, state taxes and rents, royalties, fees and bonus payments. All told, the government rakes in $86 million from oil and gas every day—far more than from any other business.
Not paying their "fair share"? Here's a staggering fact: The Tax Foundation estimates that, between 1981 and 2008, oil and gas companies sent more dollars to Washington and the state capitols than they earned in profits for shareholders. Exxon Mobil, the world's largest oil and gas company, says that in the five years prior to 2010 it paid about $59 billion in total U.S. taxes, while it earned . . . $40.5 billion domestically. ...
Mr. Obama ... wants to put the risky and capital-intensive process of finding, extracting and producing oil and gas at a competitive disadvantage against other businesses. He does so because he ultimately wants to make them more expensive than his favorites in the wind, solar and ethanol industries.
Why he would still want to do this amid the political panic over $4 per gallon gasoline is a mystery. Even Mr. Obama now claims to want lower gas prices, commenting recently that "Do you think the President of the United States going into re-election wants gas prices to go up higher?" Too bad his every policy choice, and especially his tax agenda, would lead to higher prices.
Newlyweds Ruth Berman and Connie Kurtz are gearing up to file their first tax return as a married couple. Typically, couples grapple with the financial pros and cons of filing separately or jointly. Though either way, they tell the IRS they are married.
However, for Ruth and Connie, prominent gay activists who were married last summer in New York after the state approved gay marriage, income taxes are far more fraught. The U.S. government does not recognize their marriage. By law they must file their federal income tax returns individually. The trouble is, they believe that to do this would be a lie. ...
The tension between what is legal and what is truthful when it comes to taxes and gay marriage is in the spotlight this tax season, as an increasing number of states -- six plus Washington, D.C. -- sanction same-sex unions.
While there are no statistics available on the number of gay married couples who do file joint federal income taxes, a website launched last April called Refuse to Lie offers advice and testimonials from couples who have decided to defy the law. ...
The gay rights community is divided on the issue, however. Many say that following the law when it comes to taxes is the first priority for married couples. "If you get audited and they discover that you should have filed separately, you could owe them money plus the interest," said Bruce Bell, a spokesperson with the Gay & Lesbian Advocates & Defenders, a legal rights organization. "You're breaking the law and if you're caught, you will pay."
It's not clear that anyone actually gets caught, however. The IRS does not ask for gender on tax returns. And it's not always easy to tell if a couple is same-sex or not (Ruth and Connie? Jamie and Pat?) ... [A]ccountants reached by The Huffington Post said that while it's against the law for same-sex couples to file as married for their federal tax returns, it is unlikely the IRS would investigate. ...
The IRS for its part would not comment on whether it investigates tax returns based on marriage, but reiterated its support of federal laws. "The IRS follows the federal Defense of Marriage Act (DOMA) and as such, same-sex partners cannot file their federal income tax returns using the married filing jointly or the married filing separately filing status," said IRS spokeswoman Sara L. Eguren in an email.
(Hat Tip: Francine Lipman, Ann Murphy.)
Some changes are obvious and we've been remarking on them for years (e.g., better oversight of employment reporting by schools), and some are beyond the power of law schools to affect (e.g., federally guaranteed student loans, which insure a market for even non-marketable law degrees). But here are ones law schools could affect, and are at least worth considering, though there are serious obstacles (and objections) to each:
1. Higher education in America includes research universities and teaching colleges (the latter placing less emphasis on research); law schools need the same division of labor, so that we have some law schools that are Harvard and Chicago, and some law schools that are Oberlin and Reed. ...
2. Judge Posner suggested some time ago that law school be shortened to two years, with a third year optional depending on a student's career goals. Those who want to be tax lawyers could do what is, in effect, the LLM in tax in the third year; those who want to be legal scholars could devote the third year either to cultivating scholarly skills or teaching skills, depending on their academic goals (per #1); those who haven't secured permanent employment after two years could use the third (at some appropriately reduced cost) in externships designed to enhance marketability, with some supervision from academic or clinical faculty; and so on. ...
3. Cut the number of law reviews by 75%, and turn the remaining ones over to faculty supervision, with students still working on them, but no longer vested with editorial control. This would immediately eliminate a huge amount of worthless scholarship. ...
4. Finally, and no doubt most controversially, law schools need real tenure standards and real post-tenure review. Real tenure standards means law schools should deny tenure two or three times as often as they presently do, and on the basis of a genuine qualitative review of scholarship. Post-tenure review--say, once every ten years--should operate within the current tenure framework, which means termination only for good cause. But far too many faculty appear to satisfy the "good cause" standard, but get a free pass because law schools, and universities generally, are too reluctant, or too lazy, to follow the proper procedures for establishing "good cause". Surely one rather good reason for student anger about the high cost of law school is that it is obvious to them that some faculty don't actually do their jobs. ... Unsurprisingly, alleged "legal education reformers" ... never discuss the need for law schools to review, sanction and possibly fire tenured faculty who don't do their job, and for obvious reasons. But if law faculty are hired to teach and write, and if some don't teach well and don't write, there should be consequences. Tenure was never meant to protect dereliction of duties, and it endangers the institution of tenure, and the integrity of academic institutions, when it does. It also, of course, raises the costs of running a law school if some portion of your faculty don't really do the job (and especially when they are the more senior and expensive faculty, as typically happens).
On behalf of LexisNexis and the Graduate Tax Series Board of Editors (Ellen Aprill (Loyola-L.A.), Elliott Manning (Miami), Philip Postlewaite (Northwestern) & David Richardson (Florida)), I am delighted to announce the publication of Employee Benefits Law: Qualification and ERISA Requirements (2d ed. 2012), by Kathryn Kennedy (John Marshall) & Paul Shultz (Director, IRS Employee Plans Rulings & Agreement).
The Graduate Tax Series is the first and only series of course materials designed for use in tax LL.M. programs. Like all books in the Series, Employee Benefits Law was designed from the ground-up with the needs of graduate tax faculty and students in mind:
- More focus on Internal Revenue Code and regulations, less on case law
- Analysis of complex, practice-oriented problems of increasing sophistication
- Teacher’s manual with solutions to problems and other guidance
- On-line access to the comprehensive and current Code and regulations, designed to complement the book
Employee Benefits Law differs from other employee benefits casebooks and practicing legal education materials because it teaches the materials using a series of problems that begin with the basic concept and build upon those concepts in order to teach sophisticated legal issues. the material is also discusses in the context of how ERISA and the applicable sections of the Internal Revenue Code have evolved over time in reaction to different public policy considerations and changing employee benefits needs.
Employee Benefits Law is divided into two sections. Part 1 addresses qualification rules generally applicable to employee retirement plans. Part II addresses tax rules applicable to welfare benefits and nonqualified deferred compensation plans and ERISA rules applicable generally to all employee benefits plans. Sophisticated realistic problems are an integral part of the materials, and are included throughout. These problems will require careful analysis and application of code and regulation provisions, administrative pronouncements, case law, and other relevant sources. Perhaps more important for a graduate tax program, the problems not only require careful analysis, but the application requires dealing with situations when the most careful reading of the materials does not supple an answer.
Ten other books in the Series also are available for adoption:
- Civil Tax Procedure (2d ed. 2007) & 2011 Supp.), by David Richardson (Florida), Jerome Borison (Denver) & Steve Johnson (Florida State)
- Corporate Taxation, by Charlotte Crane (Northwestern) & Linda Beale (Wayne State).
- Estate and Gift Taxation (2011), by Robert Danforth (Washington & Lee) & Brant Hellwig (South Carolina)
- Federal Tax Accounting, by Michael Lang (Chapman), Elliott Manning (Miami) & Mona Hymel (Arizona)
- Federal Taxation of Property Transactions (2011), by Elliott Manning (Miami) & David Cameron (Northwestern)
- Partnership Taxation (2d ed. 2008), by Richard Lipton (Baker & McKenzie, Chicago), Paul Carman (Chapman & Cutler, Chicago), Charles Fassler (Greenebaum, Doll & McDonald, Louisville) & Walter Schwidetzky (Baltimore)
- Regulation of Tax Practice (2010), by Linda Galler (Hofstra) & Michael Lang (Chapman)
- Tax Crimes (2008), by Steve Johnson (Florida State), Scott Schumacher (Washington), Larry Campagna (Adjunct Professor, Houston) & John Townsend (Adjunct Professor, Houston)
- Taxation and Business Planning for Real Estate Transactions (2012), by Bradley Borden (Brooklyn)
- United States International Taxation (2d ed. 2011), by Allison Christians (Wisconsin), Samuel Donaldson (Washington) & Philip Postlewaite (Northwestern)
- For more details about the Graduate Tax Series, see here.
- Click on these links to purchase a copy of Civil Tax Procedure, Corporate Taxation, Employee Benefits Law, Estate and Gift Taxation, Federal Tax Accounting, Partnership Taxation, Regulation of Tax Practice, Tax Crimes, Taxation and Business Planning for Real Estate Transactions, and United States International Taxation. Faculty can request a complimentary review copy by emailing here (in the body of your email, note the title of the book you are requesting and your contact information).
- Email me if you would like more information about the Series or if you would like to submit a book proposal.
Carmen G. Gonzalez (Seattle) & Angela P. Harris (UC-Davis), Presumed Incompetent: The Intersections of Race and Class for Women in Academia (Utah State University Press, June 2012):
Presumed Incompetent is a pathbreaking account of the intersecting roles of race, gender, and class in the working lives of women faculty of color. Through personal narratives and qualitative empirical studies, more than 40 authors expose the daunting challenges faced by academic women of color as they navigate the often hostile terrain of higher education, including hiring, promotion, tenure, and relations with students, colleagues, and administrators. The narratives are filled with wit, wisdom, and concrete recommendations, and provide a window into the struggles of professional women in a racially stratified but increasingly multicultural America.The downloadable document contains the Introduction to Presumed Incompetent.
- Democrats (Michael Bennet, Al Franken, Jeff Merkley, Charles Schumer, Jeanne Shaheen, Tom Udall, Sheldon Whitehouse) Press Release and Letter to IRS
- Republicans (Lamar Alexander, Bob Corker, John Cornyn, Chuck Grassly, Orrin Hatch, Kay Bailey Hutchison, Jon Kyl, Mitch McConnell, Rand Paul, Rob Portman, Pat Roberts, John Thune) Press Release and Letter to IRS
Press and blogosphere coverage:
- Bloomberg (here and here)
- The Hill (here and here)
- Politico (here and here)
- Washington Post (here and here)
Bradley Borden (Brooklyn), From Allocations to Series LLCs: 2011’s Partnership Tax Articles,134 Tax Notes 1433 (Mar. 12, 2012):
This article reviews the partnership tax articles published in student-edited journals in 2011. The articles comprise a rich output on timely topics and demonstrate that partnership tax is primed for even more scholarly attention.
1. Bradley T. Borden (Brooklyn), The Allure and Illusion of Partners’ Interests in a Tax Partnership, 79 U. Cin. L. Rev. 1077 (2011).
2. Andrea Monroe (Temple), Too Big to Fail: The Problem of Tax Partnership Allocations, 30 Va. Tax. Rev. 465 (2011).
3. Gregg D. Polsky (North Carolina), Deterring Tax-Driven Tax Partnership Allocations, 64 Tax Law. 97 (2010).
B. Profits Interests
4. Note, Taxing Partnership Profits Interests: The Carried Interest Problem, 124 Harv. L. Rev. 1773 (2011).
C. Definition of Limited Partner
5. Kristin Balding Gutting (Charleston), Keeping Pace With the Times: Exploring the Meaning of ‘Limited Partner' for Purposes of the Internal Revenue Code, 60 U. Kan. L. Rev. 101 (2011).
D. TEFRA Rules
6. Peter A. Prescott (Indiana-Indianapolis), Jumping the Shark: The Case for Repealing the TEFRA Tax Partnership Audit Rules, 11 Fla. Tax Rev. 503 (2011).
E. Liability of General Partners
7. Venessa Haberbush (J.D. 2012, Whittier), Note, Be Careful What You Wish For: The Unforeseen Repercussions of the IRS’ Desired Outcome in United States v. Galletti on the IRS’ Ability to Collect Tax Partnership Taxes Against General Partners, 32 Whittier L. Rev. 533 (2011).
8. Bradley T. Borden (Brooklyn) & Mathews Vattamala (J.D. 2012, Brooklyn), Series LLCs in Real Estate Transactions, 46 Real Prop., Trust & Est. L.J. 255 (2011).
G. Blockers and Stoppers
9. Willard B. Taylor (Sullivan & Cromwell, New York), ‘Blockers,’ ‘Stoppers,’ and the Entity Classification Rules, 64 Tax Law. 1 (2010).
H. Financially Troubled Tax Partnerships
10. David B. Newman, Tax Aspects of Financially Troubled Tax Partnerships and LLCs (With a Few Thoughts on Subchapter S Corporations), 5 Charleston L. Rev. 229 (2011).
I. Future Scholarship
The academic work in this area of the law must continue. In fact, as tax partnerships become more popular and draw additional attention from lawmakers and the public, the demand for scholarly work in this area of the law will increase. The partnership tax rules are complex, and scholarship that further explores any aspect of them and recommends improvements is welcome. Also, scholars must begin to grapple with the complexity that tax partnerships create because of the overlap of state law, tax law, accounting, and finance. Without that work, the nature of tax partnerships and the proper tax treatment of them will continue to stymie important developments in this area. In short, more sophisticated work can be done in this area to help explain the nature of tax partnerships, and the times demand such work.
All Tax Analysts content is available through the LexisNexis® services.
The first graph is academic rank against overall rank and estimates a linear regression. The second uses score on the horizontal axis, and estimates a non-linear exponential fit. In neither case did I try to control for special types of error structures (and there's clearly some heteroskedastic "fanning" of the errors), nor did account for the integer nature of rankings. But neither of those corrections would do much. Based on this quick pass, knowing academic peer rank / score appears to explain around 90% of the variation in overall USNWR score. (The scatterplots omit all unranked schools, since they do not lend themselves to this sort of analysis.)
Wednesday, March 14, 2012
Jennifer Gravelle (Congressional Budget Office) presents Corporate Tax Incidence: Review of General Equilibrium Estimates and Analysis at Pennsylvania today as part of its Center for Tax Law and Policy Speaker Series convened by Chris Sanchirico and Reed Shuldiner:
This paper reviews the current evidence on the incidence of the corporate tax from Harberger-type general equilibrium models, with special attention to the open economy. The analysis identifies the major drivers of the results from open-economy models and compares estimates from four major studies that have examined corporate tax incidence in an open economy. The studies vary in the assumptions of critical elasticities, and the variations account for differences in the reported estimates. Adjusting the estimates from the studies to reflect central empirical estimates of key elasticities suggests that capital bears the majority of the corporate tax burden. This paper details drawbacks to the use of these models, such as their focus on the long-run when the adjustment from the short-run could be very long.
The paper also presents an alternative method for allocating the corporate tax burden. The proposed method draws on the new view of incidence of the property tax and, in a similar fashion, distinguishes between the global effects of corporate taxes and excise effects that vary among nations. In this view, capital bears the full burden of the worldwide average corporate tax. Deviations from the average worldwide corporate tax are allocated according to the central estimate derived from the review of the general equilibrium models of corporate tax incidence. This alternative method suggests that, even in an open economy, capital could bear virtually the entire tax burden and that the open-economy assumption is not sufficient to shift the burden of the corporate tax from capital to labor.
Above the Law and the National Law Journal report that the law firms suing 14 law schools over their placement data reporting are planning to sue an additional 20 law schools (including, for the first time, two law schools ranked in the Top 50):
- New England
- Roger Williams
- St. John’s
- St. Louis
- St. Thomas University
- Western New England
Prior TaxProf Blog coverage:
- 12 More Law Schools Sued Over Allegedly Fraudulent Job Placement Data (Feb. 1, 2012)
- Class Actions Filed Against Cooley, NYLS Over Fraudulent Placement Data (Aug. 10, 2011)
- Grad Files $50m Class Action v. Law School for Misrepresenting Placement Data (May 27, 2011)
Unlike many social and physical sciences, including economics, biology, and physics, legal scholarship includes little or no discussion of what models mean, how they are connected to the real world of law and policy, or how models should and should not be used by legal scholars and policymakers. This void exists notwithstanding legal scholarship’s increasing reliance on explicit modeling, including, for example, work in law and economics. This article uses the example of economic modeling in tax scholarship to investigate how legal scholarship uses models, and how models in legal scholarship work.
The article lays out a path between two extremes. At one extreme is scholarship that employs models without either reflection or self-consciousness to make real-world recommendations; on the other, scholarship that rejects models because their assumptions are too far from reality. I argue that neither approach is correct. Models are useful and important for legal scholarship, but not in the way that both critics and proponents seem to believe.
Drawing from literature in the philosophy of science, the article argues that we reason from models the same way that we reason from common law cases: through a mix of deductive and inductive logic, through leaps, creativity, and intuition. Models cannot provide certainty about what the law should be; rather, economic models are one kind of voice in an ongoing, necessarily inconclusive conversation. The article then uses this deeper understanding of models and modeling to propose ways that legal scholarship can and should use models.
ABA Journal, NYU Law School Pays $3.6M for Faculty Condo:
New York University law school has purchased another condo.
This time the school paid $3.6 million for an Upper West Side condo, International Business Times reports. Law school spokesman Michael Orey says the condo will be used by a faculty member who will pay rent. The publication has photos.
According to the story, “The four bedrooms have ensuite baths with Calacatta gold and marble, as well as radiant heat floors.” Songwriter Judy Collins was a former building resident.
Last year the law school paid $3.5 million for a condo about a mile from its campus, and in 2008, it paid $4.2 million for a condo overlooking Central Park.
The 2011-12 Federal Student Expense Budget to attend NYU Law School is $74,704.
The one thing on which our political leaders seem to agree is the need for corporate tax reform. Barack Obama and Mitt Romney unveiled new proposals on the same day last month, with President Obama cutting the top corporate tax rate to 28% and Mr. Romney reducing it to 25%. Rick Santorum would cut the rate to 17.5%, and to zero for manufacturing. Congressional action is bubbling below the surface as well.
This flurry of proposals is a result of increased awareness of how out of step America is with the rest of the world. The U.S. is currently an outlier within the 34-member Organization for Economic Cooperation and Development, with a combined state and local corporate tax rate that is about 15 percentage points higher than the average of our trading partners.
But amid all of the promising rhetoric there is significant cause for concern. Many proposals, particularly those of Messrs. Obama and Santorum, seem to have unlearned many of the lessons of modern economics. Three shifts in the economic environment since the 1960s, each recognized by most economists, provide an essential guide to reform.
First, U.S. tax policy can no longer treat the U.S. as a closed economy. Capital and business activity are increasingly mobile across national boundaries and highly responsive to variation in the net tax paid across locations. Second, the word "business" is not synonymous with "corporation"—pass-through (noncorporate) businesses are almost as important in the aggregate as old-fashioned corporations. Third, economic research has stressed that both corporate taxes and investor-level taxes on dividends and capital gains contribute to the tax burden on corporate equity. Investors factor in the total capital tax, both individual and firm level, when making decisions. ...
Mr. Obama's plan, as if designed by Rip Van Winkle, is blind to this major shift and is thus a weak tonic for the flagging economic recovery. While the president proposes reducing the corporate tax rate, other changes that are portrayed as "loophole closing" on multinational firms make his plan a net increase in corporate taxes collected.
Mr. Obama, ignoring the second reality, would also raise taxes on noncorporate business, in the interest of requiring the "rich" to pay for the "privilege" of being an American, to paraphrase a recent statement by Treasury Secretary Tim Geithner. ...While cutting corporate tax rates with his left hand, Mr. Obama would increase tax rates with his right by radically increasing tax rates on dividends and capital gains. Modern economic theory and empirical evidence—including a series of papers by one of us (Hassett) and Alan Auerbach of the University of California, Berkeley—show that raising taxes on dividends at the individual level increases the cost of equity capital and lowers asset prices, harming consumers while hindering firms' ability to hire workers.
The plans of Messrs. Romney and Santorum have significantly more promise. Both would bring down rates on corporate and noncorporate income, though only Mr. Romney would do so in a revenue-neutral way (the Santorum plan adds greatly to federal deficits). According to one study, a top marginal tax rate on individual incomes of 28% as proposed by Mr. Romney, compared with Mr. Obama's proposed top marginal rate of 39.6%, would increase the wage bill of noncorporate businesses by over 6%, raise investment by 10%, and push business receipts up by 16%.
And by proposing special tax breaks for manufacturing, Mr. Santorum follows Mr. Obama's incorrect lead and introduces a significant economic distortion. In a world with highly mobile capital, tax policy needs to be neutral toward different forms of business activity and not succumb to the temptation to pick winners and losers. We are aware of no serious economic argument to support such a policy direction. ...
Mr. Obama's tax reform proposal takes a wrong turn in each area and appears motivated by a poor understanding of the impact of capital taxation on business behavior and the welfare of middle-class Americans.
Here are the new 2013 U.S. News Tax Rankings, along with last year's rankings. For the second year in a row, Florida is ahead of Georgetown at #2:
The biggest movers are:
- +3: Boston University (#6)
- +3: Michigan (#11)
- +2: Virginia (#8)
- +2: USC (#12)
- +2 Boston College (#14)
- +2: San Diego (#14)
- +2 Chicago (#20)
- -7: Stanford (#17)
- -4: Miami (#9)
- -4: Texas (#14)
- -2: Columbia (#12)
Denver, Duke, Indiana, and Florida State were unraked last year and are ranked this year. Washington (#20), Chapman (#21), and UC-Hastings (#22) were ranked last year and are unranked this year.
Here are the rankings of the graduate tax programs, along with last year's rankings. For the first time, Boston University is ranked higher than Miami.
Denver was unranked last year and is ranked this year. Washington (#10) and Chapman (#11) were ranked last year and are unranked this year.
For the 2008-2011 U.S. News tax rankings, see here.
The U.S. News tax survey instrument states that it is intended "to identify the law schools having the top programs in tax law." The survey is sent "to a sample of law school faculty listed in the AALS Directory of Law Teachers 2009-2010 as currently teaching a course or seminar in tax law." Recipients are asked "to [i]dentify up to fifteen (15) schools that have the highest-quality tax law courses or programs. In making your choices consider all elements that contribute to a program's excellence, for example, the depth and breadth of the program, faculty research and publication record, etc."
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.
For more on tax rankings, see 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)
On Friday, Prof. Allan Meltzer of Carnegie Mellon University, a well-known conservative economist, offered a commentary in The Wall Street Journal arguing against policies to equalize the distribution of income.... [But] hhe seems to have missed an important implication of his own conclusion.
If the rich are going to continue to get richer in low-tax countries and high-tax countries alike, then it must mean that high tax rates have far less of a disincentive effect on the rich than conservatives like Professor Meltzer continually proclaim. ...
[T]here is another very good reason to raise taxes on the ultrawealthy: the government needs the revenue. ... In the real world, it is impossible to balance the budget with revenues at 16.4% of GDP. Therefore, taxes will have to rise. The only question is who will pay more? ....
Republicans, however, are quite adamant that not only must the wealthy not pay any more in taxes – but, in fact, must have their taxes further reduced. Every Republican presidential candidate favors lower taxes on the wealthy. Mitt Romney, for example, has proposed cutting the top income tax rate to 28% from 35 %. ...
A common reason given by conservatives for why tax rates must not be increased is that the government won’t get much, if any, additional revenue and might even get less due to the Laffer Curve. If tax rates are too high, they say, the rich will stop working and investing in job-creating businesses and instead spend all their time vacationing and seeking out tax shelters. Therefore, revenues will fall.
However, one never sees conservatives cite any empirical evidence in support of their contention. It is simply asserted as self-evident that the rich will go on strike, as they did in Ayn Rand’s famous novel, “Atlas Shrugged,” even though the nation clearly did quite well during times when the top income tax rate was far higher than it is now.
The reason for the conservative reluctance to estimate the revenue-maximizing top tax rate is that academic research generally shows that it is much, much higher than the current top rate or any that has been proposed by the Obama administration. The two latest studies are these:
- A National Bureau of Economic Research working paper published in November by Thomas Piketty, Emmanuel Saez and Stefanie Stantcheva found virtually no supply-side effect from cuts in the top tax rate since 1975. That is, there was no significant increase in output resulting from them; hence there would be little negative output effect from raising the top rate. Consequently, the revenue-maximizing top rate may be as high as 83%, they estimate.
- A National Bureau of Economic Research working paper published last month by Christina Romer and David Romer estimates that the revenue-maximizing rate is 84 percent. Even assuming a higher response by the wealthy to earning income – something economists call elasticity – than the Romers believe is likely, the top rate could still rise to 73% before a Laffer curve effect set in.
No one is suggesting that the United States go back to the top rate of 50 percent that prevailed during most of Ronald Reagan’s administration, let alone the 91 percent rate of Dwight Eisenhower’s. But it’s clear that there is going to be continuing pressure to raise rates on the wealthy as long as the budget deficit remains a problem.
If, as Professor Meltzer has shown, the rich get richer regardless of the tax rates, there is no economic reason not to raise the top rate. Perhaps unwittingly, his research confirms that of other economists who say that we could get substantial additional revenues even if the top rate doubled.
(Hat Tip: Bill Turnier.)
This article highlights recent academic international tax scholarship that might be of interest to tax academics, practitioners, policymakers, and others. The list below is by no means comprehensive; many excellent articles are not included. In selecting the articles listed below, I have limited my consideration to those written by tax academics in 2011 for publication in student- or faculty-edited law reviews. One well-known problem with law reviews is that there is often a long lag between the submission of an article and its publication. Academics solve that problem by reading articles when they are posted as working papers on the Social Science Research Network (SSRN).[Fn.1] In accordance with that practice, and to create a more timely list, I have considered for inclusion not only articles that were actually published in law reviews in 2011-12 but also articles that were posted on SSRN as working papers (and accepted for publication in law reviews) in 2011.
N.1: There are several good ways to keep up with tax scholarship on SSRN ). One is to subscribe to one or more of its Tax Law & Policy e-Journals (Int'l & Comp. Tax; Practitioner Series; and Tax Law & Pol'y). Another is to read Paul Caron's TaxProf Blog, which will keep you informed about recent tax working papers posted on SSRN, as well as scholarship presented at various tax colloquia and news of interest to tax academics and others.
The following articles are arranged alphabetically by the first-listed author's last name, except when articles are paired because one is a response to the other.
- Allison Christians (Wisconsin), How Nations Share,"87 Ind. L.J. ___ (2011)
- Edward D. Kleinbard (USC), The Lessons of Stateless Income, 65 Tax L. Rev. ___ (2011); and Stateless Income, 11 Fla. Tax Rev. 699 (2011)
- Michael S. Knoll (Pennsylvania), Reconsidering International Tax Neutrality, 64 Tax L. Rev. 99 (2011); Fadi Shaheen (Rutgers-Newark), International Tax Neutrality: Revisited, 64 Tax L. Rev. 131 (2011)
- Michael S. Knoll (Pennsylvania) & Ruth Mason (Connecticut), What Is Tax Discrimination?, 121 Yale L.J. 1014 (2012); and Michael J. Graetz (Columbia) & Alvin C. Warren Jr. (Harvard), Income Tax Discrimination: Still Stuck in the Labyrinth of Impossibility, 121 Yale L.J. 1118 (2012)
All Tax Analysts content is available through the LexisNexis® services.
Beth Stetson, Alexis Downs, Evan Shough & Dana Blake (all of Oklahoma City University), Courts Don’t Follow: Reasonable Compensation Rulings and the Exacto Spring Approach, 15 Chapman L. Rev. 343 (2011):
Courts have been reluctant to follow Exacto Spring‘s return on equity approach in reasonable compensation cases. We agree with their reluctance. Multiple objective factors analysis better accords with § 162, better implements applicable regulations, is more consonant with collective judicial wisdom, and is more attuned to the manner in which unrelated parties actually determine compensation. A likely more efficacious approach to lessening taxpayer uncertainty regarding reasonable compensation would be issuance of additional regulatory guidance, including methodological guidance (especially regarding intangibles), documentation guidance, and pre-filing agreement procedures.
Tuesday, March 13, 2012
Most states with a retail sales tax exempt from the tax base food purchased for home consumption. The rationale for these exemptions is that taxing food would make an already regressive tax even more regressive, a concern validated by data on food consumption by income level. Nevertheless, public finance scholars have long criticized food tax exemptions as a costly and inefficient means of accomplishing this objective. In addition to the administrative complexity involved in determining which food is taxable and which is exempt, food tax exemptions distort consumer choice and exacerbate state revenue volatility. This paper considers the taxation of food within state retail sales taxes and evaluates a new proposal for a federal subsidy designed to compensate households for the estimated state sales tax cost of food purchased for home consumption. Properly designed and implemented, such a subsidy could have the dual benefit of (1) mitigating the regressivity and food security concerns associated with taxing food, while (2) eliminating (or at least reducing) the volatility, efficiency and administrative costs of state laws that exempt food from the sales tax base. An intergovernmental “bribe” of sorts, this new subsidy would be available only to full-time residents of states that include food for home consumption in the base of a general retail sales tax—a group that presently includes 7 states: Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota. In the presence of a new federal subsidy, it is expected that states with food tax exemptions would amend their retail sales taxes to include food in the tax base since doing so would increase state revenues at little or no cost to state taxpayers. This proposed policy—i.e., a progressive federal subsidy designed to encourage the adoption of regressive state tax changes—is in stark contrast with current federal law, which provides regressive federal subsidies (such as the deduction for state and local taxes) that encourage progressive state taxes. This paper uses the food tax example to highlight the potential benefits associated with a fundamental reorientation of federal law to encourage the adoption of state tax structures consistent with principles of normative fiscal federalism.
Almost simultaneously in the late nineteenth century, medicine, law, and architecture entered the university as subjects of serious study. But they entered in different ways and on different terms. This article traces the parallel histories of the casebook classroom, the teaching hospital, and the architectural design studio. The comparison shows how and why legal education diverged from norms being established in the other two fields. The divergence left legal education stronger within universities than it otherwise might have been, but it also left it relatively insulated from its own profession and vulnerable to later discontent.
Leigh Osofsky (Miami), Getting Realistic About Responsive Tax Administration, 66 Tax L. Rev. ___ (2012):
Responsive Regulation is a popular regulatory theory across a broad array of disciplines. The influence of Responsive Regulation on tax administration has greatly increased over the past decade, producing a theory of “Responsive Tax Administration.” This work has proven powerful in the United States, causing scholars to advocate remodeling the tax compliance system under a Responsive Tax Administration framework. Extensive, scholarly focus on related areas of tax compliance research, such as reciprocity and service, has supplemented these calls for reform. The Internal Revenue Service (“Service”) has remodeled the large business tax compliance sphere under the influence of Responsive Tax Administration and the related research. The large business tax sphere has a crucial impact on tax revenues, making this remodeling especially significant during a time of fiscal crisis. Despite this crucial remodeling, there has been little critical analysis of this application of Responsive Tax Administration to the United States large business sector. This Article begins the overdue task of critiquing the application of Responsive Tax Administration to the United States large business sector by using the case-study of the Compliance Assurance Process (“CAP”). CAP is a revolutionary, pre-audit initiative that the Service has signaled may be the way of the future for large business tax administration. CAP finds its academic support in Responsive Tax Administration and is consistent with part, though, importantly, not all, of Responsive Tax Administration theory. This Article argues that CAP problematically leverages faith in the perceived transformative powers of Responsive Tax Administration programs to reduce accountability at the very time when increased accountability is needed, fails to use penalties meaningfully, potentially reducing transparency and resulting in a “test drive” effect for taxpayers that may undermine sound tax administration, and creates self-selection bias problems. The Article argues that these problems result from both a failure to appreciate the inherent weaknesses of Responsive Tax Administration and the related research, and the unfaithful application of the theory into practice. The Article suggests potential solutions to each of these problems and, more generally, serves as a first step in a broader critique of the application of Responsive Tax Administration in the United States. While the innovative nature of Responsive Tax Administration theory has much to offer, this Article counsels that we need to get more realistic about its potential limitations.