Saturday, June 30, 2012
The United Nations is considering a new Internet tax targeting the largest Web content providers, including Google, Facebook, Apple, and Netflix, that could cripple their ability to reach users in developing nations.
The European proposal, offered for debate at a December meeting of a U.N. agency called the International Telecommunication Union, would amend an existing telecommunications treaty by imposing heavy costs on popular Web sites and their network providers for the privilege of serving non-U.S. users, according to newly leaked documents.
The documents (No. 1 No. 2) punctuate warnings that the Obama administration and Republican members of Congress raised last week about how secret negotiations at the ITU over an international communications treaty could result in a radical re-engineering of the Internet ecosystem and allow governments to monitor or restrict their citizens' online activities.
Following up on my previous posts:
- The Affordable Care Act and the Taxing Power (June 28, 2012)
- Does the Taxing Clause Give Congress Unlimited Power? (June 29, 2012)
- CCH: Supreme Court Upholds Health Care Law; All Tax Measures Preserved
- Berkeley Blog: The Supreme Court’s Health Care Decision and the Problem With Relying on the Taxing Power, by David Gamage (UC-Berkeley)
- Forbes: Julian Block on the Tax in the Health Care Act That Everybody Knew Was a Tax, by Peter Reilly
- Huffington Post: The Taxing Power and the ACA: Cravenness Is Not Unconstitutional, by Edward Kleinbard (USC)
- National Review: The Umpire Blinks, by Rich Lowry
- New York Times: Justices Allow the Term ‘Tax’ to Embrace ‘Penalty’, by Floyd Norris
- PrawfsBlawg: Chief Justice Roberts: Pro-Taxation Kind of Guy?, by Rick Hills (NYU)
- San Francisco Chronicle op-ed: Health Care Decision Means More Work for IRS, by David Gamage (UC-Berkeley)
- Tax.com: Well, It's a Tax, by Chris Bergin
- Tax.com: The Great Anti-Climax: Using Tax Law to Deliver Economic Incentive Is Constitutional, by Martin Sullivan
- Volokh Conspiracy, Is the Individual Mandate a “Tax” According to the Original Meaning?, by David Kopel
- Wall Street Journal op-ed: Chief Justice Roberts and His Apologists: Some Conservatives See a Silver Lining in the ObamaCare Ruling. But It's Exactly the Big-Government Disaster It Appears to Be, by John Yoo (UC-Berkeley)
- Washington Examiner: Randy Barnett Says Roberts’ Tax Power Argument Is “Lame” but “Easily Fixed”
S. Douglas Hopkins (Kestrel Consulting), Factual Distortions Derail Productive Debate on Tax Reform, 135 Tax Notes 1518 (June 18, 2012):
Public understanding of U.S. tax policy is characterized by grossly flawed and distorted facts that effectively derail productive dialogue about potential reform alternatives. Hyperpartisan debate built on erroneous facts and assumptions offers mutually flawed options and false choices. Progress toward broadly shared prosperity and growth can best be obtained by illuminating the underlying facts and reconciling the conflict between them and the dogmatic hyperbole of opposing positions.
All Tax Analysts content is available through the LexisNexis® services.
Friday, June 29, 2012
Best place to live and teach in the U.S.: The University of Montana School of Law, the only law school in the State, anticipates hiring a full-time, tenure-track professor beginning in the 2013-2014 academic year to teach courses primarily in the area of federal taxation, including income taxation, partnership taxation, corporate taxation, taxation of property transactions and related courses.Required Experience
- JD degree and an LLM in Taxation from an ABA accredited law school ...
Application review will begin September 15, 2012, and continue until the position is filled.
[4:52] Law Schools … the broken amongst the broken.
One generation passing along their mistakes to the next.
You inherit the sins, you inherit the flames.
What’s worse: a classroom that still looks the way it did in 1970, or a classroom decked out in the newest technology with a professor who doesn’t use one damn bit of it.
We know how millennials learn, we know how brain chemistry works, we know, and we ignore it.
We come not to bring peace, but a sword.
(Hat Tip: The Legal Whiteboard.)
Balkinization: A Massive Victory for Liberalism, by Joseph R. Fishkin (Texas):
The decision was the most important court victory for liberalism in my lifetime. For all that Chief Justice Roberts gave conservative movement activists in his compromise ruling yesterday—and he gave them a lot—he gave liberals something even more precious. ...
by leaving undisturbed the functional provision of the law—5000A(b), which says you have to pay a penalty on your income taxes if you don’t have insurance—the Chief Justice hands supporters of Obamacare an essentially complete policy victory.
One way to understand this compromise, already filtering out into the blogosphere, is that Roberts pulled a Marbury, giving in on the outcome in this specific case but claiming a longer-term victory on the level of constitutional doctrine and high politics. This view seems to me mistaken. The specific new doctrine announced yesterday—the activity/inactivity distinction that yesterday’s opinion created out of whole cloth—has little future utility. There are simply not all that many times that the federal government has ever or will ever want to regulate inactivity (and anyway, from now on, lawmakers are on notice that they should use the taxing power). The Commerce Clause language certainly moves the needle back from Raich in the direction of Lopez, but that is a subtle shift of interest only to constitutional lawyers. (It’s not even clear that the Commerce Clause language is formally a holding; I think there is a strong case that it is all dicta, since it is not necessary to reach any part of the Court’s result.) The spending clause holding could well have more substantial doctrinal reverberations, but that is very hard to predict.
Stepping back from constitutional doctrine, what happened yesterday? Basically, one really important thing happened. The Affordable Care Act was upheld essentially in its entirety. This means we are headed for a long-term change in the basic social bargain in the United States. Once this law has been in place a few years, it will simply become politically impossible to go back to a world in which large swaths of the population were regularly denied access to health insurance because of pre-existing conditions, as they are today. The glib libertarian vision of young men (and it is always young men) free to go without health insurance (and freeload if they get sick, of course) will gradually lose its grip on the public consciousness. Americans of the future will simply come to expect that they are going to have health insurance—either they will literally have insurance coverage, or else they will be paying a tax that entitles them to a de facto catastrophic policy in the sense that if they get really sick, they can always buy insurance then, and cannot be turned away. This will be part of our social compact.
Of course, some people will disagree with Obamacare for decades to come; I’m sure people will fight Obamacare for as long as people fought Social Security and Medicare. But over time these things become part of the firmament. They stop being actively politically contested. They become background facts of politics, assumptions most of us basically share. Yesterday’s decision sets that process in motion, and I don’t think it can be stopped. That is why, despite many doctrinal bones the Chief threw to the likes of Randy Barnett, the Federalist Society, and the Tea Party, despite all the foundations this decision tried to lay down for future limits on federal power, the decision was simply a massive victory both for President Obama and for American liberalism.
Highlights of the report include recommendations on the following key outcomes:
- Reinforcing standards for security, privacy, and fraud prevention
- Moving forward on e-file of employment tax and information tax returns,
- Creating Internet tools for taxpayers and tax professionals,
- Leveraging tax delivery service channels and
- Funding Modernized e-File and Customer Account Data Engine to completion
Erik M. Jensen (Case Western), Does the Taxing Clause Give Congress Unlimited Power?, 135 Tax Notes 1515 (June 18, 2012):
The idea has gained currency that the Taxing Clause in the Constitution gives Congress the power to do anything, or almost anything, that would be funded by taxation. Most recently, that argument has been advanced in connection with the litigation about the individual mandate in the Obamacare legislation — by, among others, legal philosopher Ronald Dworkin. If the penalty for failure to acquire suitable insurance will be a tax, then, it is argued, the requirement to acquire insurance, the mandate, will itself be a valid exercise of the taxing power. If that’s right, it certainly isn’t obviously so. Since almost everything the national government does is funded through taxation, that understanding would lead to a conception of congressional power that is effectively unlimited, and the Taxing Clause would trump almost all other grants of congressional power in Article I, section 8.
All Tax Analysts content is available through the LexisNexis® services.
Sullivan & Cromwell
Baker & McKenzie
McDermott, Will & Emery
Simpson, Thacher & Bertlett
Caplin & Drysdale
Weil Gotchal & Manges
Kirkland & Ellis
Latham & Watkins
For the fourth year in a row, Skadden is #1 and New York City tax firms take up the Top 6 slots. The city rankings are:
- New York (9)
- Chicago (4)
- D.C. (3)
- Boston (1)
For prior years' Vault Law Firm Tax Rankings, see:
Is there a catch? Not really. If you want to receive CLE credit for a course, then you have to pay. However, you do not have to decide until after you watch the course. Watch the course for free, if you like. At the end, if you want credit, simply click the button on the page that says, “Get credit,” and you will be taken to a payment page.
In opening up these courses for free, Lawline is also opening them to anyone. Schnurman anticipates that business owners and consumers may view some of the courses to educate themselves about legal issues. Attorneys may even want to refer clients to specific videos to help them understand key legal issues.
Current tax policies, while commonly thought to promote homeownership, have generally left low-income homeowners behind other homeowners. Using a number of simplifying assumptions, our estimates of lifetime homeowner tax subsidies suggest that the average homeowner in the lowest-income quintile may receive cumulative tax subsidies that are roughly one-thirteenth the size of those received by someone in the highest-income quintile. From an asset- and wealth-building perspective, the tax system thus places low-income households at a very large disadvantage -- both in their quest to become homeowners and in what happens after they achieve homeownership status.
Thursday, June 28, 2012
Michael Graetz (Columbia):
The Supreme Court upheld the individual mandate of the health care statute today in a 5-4 ruling stating that it is a valid exercise of the taxing power under the Constitution. There were only four votes to uphold the requirement as valid under the Commerce Clause. The majority opinion by Justice Roberts emphasized that folks who don’t want to purchase health insurance can avoid doing so simply by paying the fee imposed by section 5000A of the tax code, whose collection is enforced by the IRS. Chief Justice Roberts pointed out that the fee may cost considerably less than purchasing a health insurance policy and that the fee is not applicable to people whose income is so low that they are not required to file income tax returns. Interestingly, the four dissenters did not claim that imposing such a tax on the failure to purchase health insurance would be unconstitutional. Instead they relied on the constitutional significance of Congress calling the fee a penalty, not a tax. Justice Roberts insisted that this Congressional label was not relevant in assessing the provision’s constitutionality. In a twist, however, Justice Roberts held that the congressional label was determinative in deciding whether the Anti-Injunction Act—a statute which bars lawsuits challenging taxes before the time for their collection—applied, a holding with which the four dissenters agreed. So, the Court decided that even though the provision is a tax for interpreting the Constitution, it is not a tax for interpreting the Anti-Injunction statute. Around Congress, it has often been said about taxes that “if it walks like a duck and quacks like a duck, it is a duck.” Today, poultry just became far easier to identify than a “tax.”
Dan Shaviro (NYU):
Bottom line, evidently Chief Justice Roberts didn't want the Court that bears his name to go out as far and as visibly on a hyper-partisan limb as striking down the Act would have necessitated. I find this cause for relief, although he may continue to act more aggressively, in full cahoots with the other four, when the level of public scrutiny is lower.
Jack Bogdanski (Lewis & Clark):
For the tax geeks among us, a majority of the Court in the health care case did make some law about the scope of a "direct tax," which Congress is not allowed to impose without apportionment among the states:
A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person, "without regard to property, profession, or any other circumstance." Hylton at 175. ... The whole point of the shared responsibility payment is that it is triggered by specific circumstances -- earning a certain amount of income but not obtaining health insurance. The payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.
Bradley W. Joondeph (Santa Clara):
[T]here was a real danger to the Court that it might stain itself with the appearance of partisanship—especially in light of other recent decisions (i.e. Citizens United) and those headed its way (such as those involving affirmative action and the Voting Rights Act). The Chief Justice’s opinion rightly claims the mantle of bipartisanship and judicial modesty for the Court, and in this highest of high-profile cases. This will be, I think, enormously valuable to the Court’s long-term institutional standing. At the same time, the Chief Justice established some important (conservative) doctrinal beachheads — namely, reaffirming or establishing important limits on Congress’s powers to regulate interstate commerce and to spend for general welfare.
Joe Kristan (Roth & Co.):
Maybe the most depressing aspect of the decision is the way it seems to endorse using the tax law as the Swiss Army Knife of public policy. Things that Congress can't enact any other way are now possible if they can somehow be crammed into the tax law. The tax code is already groaning under its load of responsibilities for industrial policy, health policy, welfare policy and housing policy, for starters. The IRS Commissioner is now sort of a super cabinet member with a portfolio that dwarfs most of the "real" cabinet departments. Of course, the IRS is ill-suited to this role, resulting in poor policy administration and poor tax administration. Thanks, Justice Roberts!
- Americans for Tax Reform, If the Mandate Is a Tax, Obama Lied His Way Into Office
- Jack Balkin (Yale), Tax Power: The Little Argument That Could
- Bloomberg, Court Ruling Lets $813 Billion in Higher Taxes Proceed
- Len Burman (Syracuse), Health Insurance Mandate/Penalty is Just Another Tax
- Competitive Enterprise Institute, Supreme Court Concocts "Rational Tax Test" in Health Ruling
- Don't Mess With Taxes, Obamacare (and Associated Tax) Upheld by Supreme Court
- Forbes, How Health Insurance Individual Mandate Quacks Like a Tax
- Politico, Health Care Ruling: GOPers Pounce on SCOTUS Tax Talk
- Tax Girl, Tax Girl,When Is A Penalty A Tax? Sorting Through The SCOTUS Health Care Decision
- Tax Policy Center, Supreme Court Problematically Defines Individual Mandate as "Tax"
- Tax Vox, The Supreme Court Says the Health Care Mandate is a Constitutional Tax
- Wall Street Journal, The ObamaCare Tax
- WSJ Politics Blog, Unwanted Label of 'Tax' Saves Health Measure
Prior TaxProf Blog coverage:
- Erik M. Jensen (Case Western), The Individual Mandate and the Taxing Power, 134 Tax Notes 97 (Jan. 2, 2012)
- Calvin H. Johnson (Texas), Healthcare Penalty Need Not Be Apportioned Among the States, 128 Tax Notes 335 (July 19, 2010)
- Edward D. Kleinbard (USC), Constitutional Kreplach, 128 Tax Notes 755 (Aug. 16, 2010)
- Ruth Mason (Connecticut), Just How Broad is the Taxing Power (Jotwell)
- Steven J. Willis (Florida) & Nakku Chung (J.D. 2010, Florida), Constitutional Decapitation and Health Care, 128 Tax Notes 169 (July 12, 2010)
- Steven J. Willis (Florida) & Nakku Chung (J.D. 2010, Florida), Oy Yes, the Healthcare Penalty is Unconstitutional, 129 Tax Notes 725 (Nov. 8, 2010)
- Steven J. Willis (Florida) & Nakku Chung (J.D. 2010, Florida), Credits vs. Taxes: The Constitutional Effects on the Health Care Reform Debate
The Columbia Journal of Tax Law has published the third edition of its Tax Matters feature, with multiple short pieces responding to a specific cutting-edge tax law issue. This issue's prompt is by Michael J. Graetz (Columbia):
IRS Announcement 2010-75 created a reporting requirement that certain corporations with audited financial statements file a Schedule UTP (Uncertain Tax Position) Form beginning with the 2010 tax year. In the Schedule UTP, a corporation must disclose all uncertain US tax positions taken in its tax return for which the corporation has recorded a tax reserve for financial accounting purposes. In addition, the corporation must rank the magnitude of the reserves reported on the form. A corporation must also disclose uncertain tax positions for which no reserve is recorded for financial reporting purposes if the corporation believes that it is more likely than not that it would need to litigate the position to sustain the benefit.
Furthermore, the First Circuit ruled in United States v. Textron (2009) that the work product doctrine does not protect tax accrual workpapers created for financial filings and auditing purposes from discovery requests by the IRS.
What effects, if any, have the UTP requirement and Textron decision had on how tax directors and clients evaluate tax planning and documentation of transactions? Although the IRS has announced a policy of restraint for both, how much have the UTP requirement and Textron decision expanded the IRS’s ability to obtain tax reserve information? Do you believe that other jurisdictions will attempt to implement similar reporting regimes, and if so, how would this development affect the management of global tax controversies?
- Ken Kuykendall (PricewaterhouseCoopers), Reflections on the True Impact of the IRS’ Schedule UTP Reporting Requirements, 3 Colum. J. Tax L. Tax Matters 10 (2012)
- Neil Traubenberg (Former Vice President of Tax, Sun Microsystems), Evolving Tax Risk Analysis and Disclosure, 3 Colum. J. Tax L. Tax Matters 14 (2012)
- Yuni Yan (Wachtell, Lipton, Rosen & Katz, New York), Minimizing Potential Privilege Implications Caused by the UTP Schedule, 3 Colum. J. Tax L. Tax Matters 17 (2012)
Previous issues of Tax Matters
- Marvin A. Chirelstein (Columbia), Codification of the Economic Substance Doctrine, 2 Colum. J. Tax L. Tax Matters 1-11 (2011)
- Paul L. Caron (Cincinnati), Tax Strategy Patents, 3 Colum. J. Tax L. Tax Matters 1-9 (2012)
The Legal Whiteboard: More Job Market Data Showing a Structural Shift, by William D. Henderson (Indiana):
The U.S. Census Bureau just released its 2010 data for the County Business Patterns (CBP) dataset. ... The news for the legal sector is not good. Law Offices ..., which comprise 93.1% of the U.S. legal services industry, shrank by 21,600 jobs between 2009 and 2010. ...
"All Other Legal Services" seems to be doing pretty well, adding jobs while the number law office jobs declines. What is in "All Other Legal Services"? Almost certainly registry services for contract lawyers (doing e-discovery on a temp basis) and the domestic operations of legal process outsourcers. See here. The average job in this sector pays less than $46,000 per year compared to $79,900 in the law office sector.
What does all this mean? For law firms, it means a brutal competition over marketshare. Survival will require innovation. Yet, many lawyers are in denial. For law schools, it means the same thing -- there are too many law graduates chasing after a shrinking number of opportunities. ... For additional analysis, see The Hard Business Problems Facing U.S. Law Faculty.
It seemed as if the worst was behind him. But a former tax attorney and hedge fund manager who had settled investment fraud charges is back in court fighting the feds.
Lawrence Goldfarb, accused of misusing funds at his company, BayStar Capital Management, is supposed to be paying $14 million to investors as part of a deal with the SEC. Instead, he's spent lavishly on basketball tickets, chartered flights and a Pottery Barn shopping spree, court records say.
That didn't sit well with U.S. District Judge William Alsup, who recently held Goldfarb in civil contempt and even contemplated, but decided against, locking up the Marin County man. "The record is clear that, at least since entry of the final judgment in March 2011, defendant Goldfarb has spent hundreds of thousands of dollars on various personal indulgences, instead of paying down the outstanding balance on the final judgment," Alsup wrote in a June 20 order. The judge detailed spending on luxury hotels, an $11,666 engagement party at Goldfarb's San Anselmo home and more than $100,000 on Golden State Warriors tickets.
Goldfarb has paid only $80,000, plus interest, toward the SEC judgment, and instead used his resources "to continue to support his luxurious lifestyle," Alsup's order says. And now he's apparently so broke that taxpayers will have to pick up his legal bills. ...
Goldfarb had previously worked at Skadden, Arps, Slate, Meagher & Flom and at Milbank, Tweed, Hadley & McCloy, his website says.
Due to an unexpected, last-minute vacancy, the University of Wyoming College of Law seeks to hire a tax visitor for the 2012-13 academic year:
This would be a one year, full-time benefitted appointment with responsibility for teaching Income Taxation, Gift & Estate Tax, Taxation of Business Entities and Business Planning. We understand that we are past the American Association of Law Schools' March 15 deadline for extending offers of visiting positions to faculty members of member institutions and therefore do not intend this to be a solicitation of such people. However, if you do not fall into that category and are interested in the position, or if you know of someone who might be interested in the position, please email Jacquelyn L. Bridgeman, Associate Dean of Academic Affairs & Professor of Law.
Tax Court Denies Charitable Deduction for Home Donated to Fire Department and Burned Down in Training Exercise
Bloomberg: Letting Firefighters Raze House Isn’t Charity, Court Says, by Richard Rubin:
A Virginia couple who donated their house to local firefighters for a training exercise can’t deduct the property’s value from their federal income taxes, a divided U.S. Tax Court ruled today. [Patel v. Commissioner, 138 T.C. No. 23 (June 27, 2012)]
Upen and Avanti Patel gave a house they bought and planned to demolish to the Fairfax County Fire and Rescue Department. The firefighters destroyed it, and the Patels deducted $92,865 from their 2006 taxes.
The IRS challenged the deduction and the Tax Court sided with the government, deciding that the Patels hadn’t donated their full interest in the property. “The fire department does not acquire the right to eject the landowner from the building and cannot force the landowner to allow the destruction of the building should he change his mind before the house has been destroyed,” Judge Howard Dawson wrote. “The fire department has acquired a mere revocable license that does not vest any property interest in the fire department.” Seven other judges agreed with Dawson’s opinion and one other concurred in the result. Eight judges dissented.
Paul Caron, a law professor at the University of Cincinnati, said in an e-mail that the split on the Tax Court indicates that the issue “still burns brightly.” Caron added that the details of the decision, which turned on aspects of Virginia property law, may make it difficult to predict how courts will consider similar cases in other states.
Prior TaxProf Blog coverage:
- IRS Burns Kirk Herbstreit's Donation of Home to Fire Department (July 24, 2009)
- IRS Denies Deduction for Homes Donated to Fire Departments and Burned Down (Sept. 26, 2009)
- Court Denies Charitable Deduction for Donation of Home to Fire Department (July 26, 2010)
- Oregon Gubernatorial Race Roiled by Candidate's Charitable Deduction for Donation of Home to Fire Department (Oct. 7, 2010)
- Tax Court Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (Nov. 5, 2010)
- Charitable Deductions for Homes Demolished by Fire Department in Training Exercises (Dec. 11, 2011)
- 7th Circuit Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (Feb. 9, 2012)
The Supreme Court’s recent decision in Home Concrete was disappointing in every respect except for the taxpayer’s victory. The decision raised several significant issues concerning the application of the Chevron test for evaluating the validity of regulations, the scope of the Brand X rule for when agencies are permitted to overrule court decisions on issues of statutory interpretation, and the IRS’s authority to issue retroactive and temporary regulations. However, it also provided authoritative guidance on none of those issues, because of the lack of a majority opinion on the reason the regulation was substantively invalid and because the holding of substantive invalidity made it unnecessary to reach the retroactivity and procedural issues.
All Tax Analysts content is available through the LexisNexis® services.
The House Ways & Means Committee and Senate Finance Committee hold a Joint Hearing today on Tax Reform and the Tax Treatment of Capital Gains:
The hearing will focus on the taxation of capital gains in the context of comprehensive tax reform. It will explore several tax reform policy issues relating to the treatment of capital gains, including background on capital gains taxation and its history, the impact of the capital gains tax rate on investor behavior, the treatment of capital gains as compared to ordinary income, the revenue-maximizing rate on capital gains, the distribution of capital gains income across taxpayer income levels, and the types of assets eligible for capital gains treatment.
- David H. Brockway (Partner, Bingham McCutchen)
- Leonard E. Burman (Professor, Syracuse University)
- Lawrence B. Lindsey (President & CEO, The Lindsey Group)
- David L. Verrill (Founder and Managing Director, Hub Angels Investment Group)
- William D. Stanfill (Founding Partner, TrailHead Ventures)
Update: The hearing has been postponed.
Wednesday, June 27, 2012
The Volokh Conspiracy: If Health Reform Law Survives, Litigation Will Continue, by Jonathan H. Adler (Case Western):
Unless the Supreme Court decides to eliminate the Patient Protection and Affordable Care Act in its entirety, Florida v. Sebelius is not the end of health care reform litigation, but only the beginning. ... In tomorrow’s USA Today, Cato’s Michael Cannon and I discuss another potential lawsuit that will be filed if the health care law survives: A challenge to the IRS rule providing tax credits and premium assistance for qualifying health insurance plans sold on federally run exchanges. As I noted here and here, the text of the PPACA only authorizes tax credits and premium assistance for insurance plans purchased in state-run exchanges. If a state refuses to create an exchange, the federal government is supposed to create a “fallback” exchange, but the law does not provide for tax credits and premium assistance for insurance plans purchased on these “fallback” exchanges. The IRS rule tries to fix this by rewriting the statute, without any textual warrant. I discussed the rule in this Cato video. ...
[I]f and when a lawsuit is filed, I am reasonably confident the IRS rule will fall. The text of the statute is clear. When Michael Cannon and I first wrote about these provisions, and the then-proposed IRS fix, we considered the possibility that the PPACA’s text, however clear, was inadvertent. Having now had the opportunity to review the relevant legislative history, we are convinced the limitation of tax credits and premium assistance to state-run exchanges was intended as an incentive for states to create their own exchanges. The evidence in the record on this point is abundant and clear, which would explain why the IRS has had such a hard time citing any specific text or history in support of its rule. ... Michael Cannon has more here.
The report expresses particular concern about the taxpayer impact of expired and expiring tax provisions, the rise in tax fraud and tax-related identity theft, and attempts to limit the National Taxpayer Advocate’s formal input on issues that affect taxpayer rights and taxpayer burden via “Taxpayer Assistance Orders” and “Taxpayer Advocate Directives.”
Impact of Changes in Tax Law on Taxpayers and the IRS. “The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was,” Olson wrote. “Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk. The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.”
- Accounting Today, National Taxpayer Advocate Sees 2013 Filing Season ‘At Risk’
- Bloomberg, Fiscal Cliff Puts 2013 Tax Filing At Risk, Advocate Says
- The Hill, IRS Watchdog: ‘Fiscal Cliff’ Imperils 2013 Filing Season
- Reuters, A Mid-Year Look at the Coming Tax Mess
The Government Accountability Office today released Tax Debtors Have Received FHA Mortgage Insurance and First-Time Homebuyer Credits (GAO-12-592):
The Federal Housing Administration insured over $1.44 billion in mortgages for 6,327 borrowers with $77.6 million in federal tax debt who benefited from the 2009 American Recovery and Reinvestment Act. Of these borrowers, 3,815 individuals claimed and received $27.4 million in Recovery Act First-Time Homebuyer Credits.
New York Times Editorial Page Editor's Blog, No Income Tax? No Boost:
This past February, Oklahoma Governor Mary Fallin announced a plan to phase out her state’s income tax over ten years. “We’re going to have the most pro-growth tax system in the region,” she said, according to The Wall Street Journal. Lawmakers in Kansas and Missouri have also pushed to eliminate their state income taxes this year—convinced, like Ms. Fallin and like the majority of the Republican Party since the 1980s, that the best way to grow is to cut.
Too bad there’s no proof this theory is right. A new study from the Institute on Taxation and Economic Policy shows what liberals have always suspected: States that don’t impose an income tax are not more competitive. No income tax? No boost.
Drawing from the study, Bloomberg News reports that “the nine states with the highest personal income taxes on residents outperformed or kept pace on average with the nine that don’t tax their residents’ incomes.” From 2001 to 2010, per-capita economic output increased an average 8.1% across all 50 states. The nine no-tax states did slightly better: 8.7%. But the nine high-tax states did even better than that: 10.1%.
Jeff N. Mukadi (JP&MF Consulting, Peterborough, Ontario), FATCA and the Shaping of a New International Tax Order, 66 Tax Notes Int'l 1227 (June 25, 2012):
Jeff N. Mukadi gives his views on the future of FATCA enforcement around the globe, positing that there may come a time when nations work together so seamlessly that they will substantially constitute a virtual international tax coordination body.
All Tax Analysts content is available through the LexisNexis® services.
Of the 498 chief executive officers listed on the 2012 Fortune 500 list, 46 hold legal degrees. ... (Two chief executive officers hold CEO positions at multiple Fortune 500 companies, which is why there are 498 rather than 500.)
Here is a ranking of the law schools with Fortune 500 CEO graduates (along with each school's U.S. News rank):
CEO Rank School (US News Rank) No. of CEO Grads 1 Harvard (3) 9 2 Columbia (4) 3 2 Virginia (7) 3 2 SMU (51) 3 5 Stanford (2) 2 5 Pennsylvania (7) 2 5 Georgetown (13) 2 5 UCLA (15) 2 5 Minnesota (19) 2 5 Notre Dame (22) 2 5 Fordham (29) 2 5 West Virginia (101) 2 13 Yale (1) 1 13 NYU (6) 1 13 Boston University (26) 1 13 North Carolina (38) 1 13 Loyola-L.A. (51) 1 13 Kentucky (62) 1 13 Missouri (79) 1 13 DePaul (89) 1 13 Rutgers-Camden (99) 1 13 Villanova (101) 1 13 Akron (119) 1 13 South Texas (Tier 4) 1
In the New York Times Deal Book, Steven Davidoff (Ohio State) dismisses claims in this industry-sponsored paper that the proposal to price mutual fund money market accounts by their net asset value rather than a fixed dollar per share would "generat[e] minor taxable capital gains or losses, leading to nightmarish complexity for tax calculations." Stephen Bainbridge (UCLA) responds in Money Market Reform and Taxes:
[G]iven the minuscule returns money market funds are paying these days, I probably would stop using them and just leave my rainy day savings/cash flow management funds in my checking account rather than trying to deal with headaches come tax time of having a constantly fluctuating NAV. Who wants to deal with paying taxes on, say, 10 cents worth of capital gains because you sold 1000 shares at $1.00 and had a basis in those shares of $0.9999? And what if you want to use actual cost basis instead of average cost basis? Maybe it'd be worth doing if you're a billion dollar institution, but my guess is that a floating NAV would drive retail investors out of the money market industry.
Following up on my previous post, Arizona State to Launch Law Grad ‘Residency’ Program at Law School Law Firm Modeled After Teaching Hospital: Inside Higher Ed, A Residency Program for Lawyers:
Arizona State University plans to launch a nonprofit teaching law firm next summer to hire some of its recent graduates and provide on-the-job training -- a move the law school’s dean said is motivated by a desire to serve students, not to boost the employment data frequently used in law school rankings.
Plans for the firm – which debuted in the New York Law Journal earlier this month – include about five or six permanent attorneys who will operate the firm through its own nonprofit foundation, said Douglas Sylvester, dean of the university’s Sandra Day O’Connor College of Law, in an interview. The firm will eventually employ between 25 and 35 recent graduates, he said, adding that the firm’s main focus will be to teach and mentor young attorneys in the same way that hospital residency programs train newly minted M.D.s. ...
Sylvester said the firm will not cost the university any money. He said he's investigating different sources to help fund startup costs, and he expects the firm to be self-sufficient through its foundation once it is established. He said the firm differs from post-graduation options at other universities -- programs he called "solo practice incubators" which provide graduates with a mentor and real estate space so they can pool resources and work collaboratively -- because it puts graduates in a real law firm environment. ...
Sylvester said plans for the teaching firm were born out of a desire to help graduates find jobs and become better prepared for the workforce, and a positive effect on the U.S. News & World Report rankings would be an effect, not a cause, of creating the new firm. He said he thinks any criticism of the teaching firm as a tool to boost rankings does not consider the impact it has on job-seeking graduates....
Many universities fund fellowships, which pay graduates a stipend to work for nonprofit organizations or government agencies for a limited period of time. George Washington University’s fellowship program reached the news this week because of an announcement made Tuesday – and rescinded Wednesday following student outrage – that it planned to cut the fellowship's stipend from $15 an hour to $10.
Tuesday, June 26, 2012
Under the agreement, Texas A&M would acquire ownership and operational control of the law school as a going concern and all faculty and staff of the law school would be employees of Texas A&M. Texas Wesleyan University would retain ownership and control of the law school building and four city blocks of land at the downtown Fort Worth campus and would lease the facilities to Texas A&M. ... The agreement will be executed on or before June 1, 2013.
- ABA Journal
- Above the Law
- Dallas Morning News
- Faculty Lounge
- Fort Worth Star-Telegram
- Houston Chronicle
This paper discusses the consistency (matching) concept in the tax law, and how mismatches in the treatment of offsetting and other related items might be addressed by Congress, the Treasury and the IRS.
Following up on my previous post, ABA: Only 55.2% of the Class of 2011 Have Full-Time Long-Term Legal Jobs: The Legal Whiteboard: These Data Will Fundamentally Reshape the Legal Education Industry, by William D. Henderson (Indiana):
Now, with the ABA employment "phonebook" in spreadsheet format, those a with modicum statistical skills and an internet connection can analyze, simplify and ... publish truly relevant and useful information [on] the decision to attend law school. ... If I am applying to law school, my minimum hope is that nine months after graduation I will be able to obtain a full-time, permanent professional job. The phonebook has three columns of data that speak to this hope:
- Bar Passaged Required Jobs, FTLT (i.e., Full-time, Long-Term)
- JD-Advantage Jobs, FTLT
- Professional Jobs, FTLT.
All the other myriad data columns, parsing things by part-time, short-term, non-professional, unemployed, unknown, etc., do not meet the minimum hope. So they are lumped together as “Other Outcomes.” Clearly, for 1/3 of the Class of 2001, their full-time, permanent professional ambitions have not yet materialized.
A reasonable next question is how these figures vary by U.S. News rank. The answer is reflected in the chart below.
So what is going to happen? Notwithstanding the heady optimism of the "Kaplan kids", the ABA employment data, thanks to the blogosphere, is going to reduce information costs, making it easier for prospective law students to determine whether law school is a good investment. ...
The utter transparency of a changing and stagnant legal market has potentially more dire consequences for law schools. The lifeblood of the entire legal education establishment, including elite law schools, is federal student loans. Our students get the same generous terms as graduates of medical and dental schools, who are not struggling to make six figure incomes. The graphs above suggest that a large proportion of our students will be on Income-Based Repayment (IBR), which is -- functionally -- insurance in the event a high income fails to materialize in the years following graduation. The downside risk of that insurance -- lack of repayment of expected principal and interest -- is borne by U.S. taxpayers.
Right now, it is possible to estimate size and probability of this downside risk. All the Federal Government has to do is add-up the shortfall between the repayment of principal and interest in normal repayment versus the monies actually being collected. What percentage of graduates are on IBR? What portion of their current principal and interest are they able to pay? These are simple numbers that some enterprising journalist will eventually request. Further, they are legitimate public policy questions that we, the legal academy, should face long before the journalists get there.
Lawyers and law schools are not a favored interest group on Capitol Hill. We need to plan for the extremely high probability that the financing of law schools will be dramatically altered in the years to come. The longer we wait, the more painful and disastrous the transition. Every law school will need a damn good story to justify continued federal loans. And right now, many of us lack that story -- being in Tier 1 or T14 (where debt loads tend to be the highest) won't mean anything if the math falls short.
In summary, our ivory tower is crumbling. Putting the Employment data in downloadable format on its website is going to cause law schools to do something completely new and scary to us -- we are going to have to compete to keep our jobs and stay in business. The litmus test is going to be the ability of our graduates to obtain remunerative professional work in a highly competitive global economy. This is very serious work.
In recent times, the debate surrounding middle-class welfare has tended to focus on the issue of income inequality. In a popular 2006 paper [The Evolution of Top Incomes: A Historical and International Perspective (updated here)], economists Thomas Piketty and Emmanuel Saez use tax return data from the IRS to suggest that income inequality has widened significantly over the period 1913 to 2010. Another frequently cited statistic is that in 2010, approximately half of all reported income went to the top 10% of earners.
We argue in this paper that income data are not the best measure of overall welfare. What matters for household well-being is consumption, since households are better able to smooth consumption rather than income over their lifetime. To that end, we use two alternative sources of data to assess changes in consumption inequality.
Update: Dan Shaviro (NYU), Might Inequality Actually be Narrowing?
Steve R. Johnson (Florida State), Elephants, Mouse Holes, Non-Barking Dogs, and Statutory Interpretations, 64 State Tax Notes 911 (June 25, 2012):
This installment of Interpretation Matters examines a canon of statutory construction that has been applied in state and federal cases, both tax and nontax. Under the canon, a court will require clear legislative evidence before it holds that a statute was intended to effect a major substantive change. Inferences from wisps of textual or other evidence will not suffice. As the title of this installment suggests, and as will become clear below, the jurisprudence regarding this canon has been particularly rich in metaphors.
Part I below describes the U.S. Supreme Court cases that are the foundation of the canon, including a recent tax case. Part II surveys the canon's use in state and local cases, including tax cases. Part III analyzes the justification for the canon and its relations to other canons. Part IV sets out practical suggestions on how to use, and how to oppose the use of, the canon in actual cases.
All Tax Analysts content is available through the LexisNexis® services.
The Heritage Foundation: The President’s 2013 Budget: More Troubling Tax Increases in the Fine Print, by Curtis S. Dubay:
Buried in the fine print of President Obama’s FY 2013 budget proposal is an expansion of his cap on itemized tax deductions—to now include exemptions and exclusions. Applying the cap to exemptions and exclusions is yet another way the President has devised to increase the already sizeable tax burden shouldered by families and small businesses who earn $200,000 or more a year. This policy change so badly violates the basic tenets of sound taxation that it is little more than a move to further punish the most successful Americans with yet another confiscatory tax increase. Congress should reject the President’s cap, like it has in the past, and focus on revenue-neutral fundamental tax reform that would lower tax rates and improve neutrality to encourage economic growth.
Kalle Condliffe (J.D. 2012, Brooklyn), Note, Balancing the Equities: Considering the "Flip-Side" of the UBIT and Forming a Workable Solution, 6 Brook. J. Corp. Fin. & Com. L. 211 (2011):
This note argues that the policy proposed by Malani and Posner [The Case for For-Profit Charities, 93 Va. L. Rev. 2017 (2007)] is unworkable and inequitable. It draws on Malani and Posner's analogy to the UBIT to explain how a policy based on the UBIT principles undermines their laudable goals of increasing the production of public goods and the efficiency of the charitable sector. Finally, this note seeks to find an alternative approach to reaching these goals. Although the proposal above is by no means a perfect solution, it illustrates that a policy which accounts for the differences between organizations and their charitable efforts is more equitable than Malani and Posner's one-size-fits-all approach.
Monday, June 25, 2012
The Japan Times editorial, Law School Enrollment Blues:
Recruitment failed to meet enrollment goals at 63 of Japan's 73 law schools in 2011. The number of students enrolled was less than half the quota at 35 law schools, compared with only 14 under-filled schools last year.
Twenty law schools had fewer than 10 new students. The Justice Ministry's plan to increase the number of lawyers in the country, begun in 2004 with the opening of new law schools and the introduction of a new bar exam, needs serious reassessment.
Perhaps the right rate of expansion for law schools was miscalculated. Still, the need for more lawyers is evident. Japan has one lawyer for every 4,119 people, compared with one lawyer for every 250 people in the United States. More lawyers are needed, for example, for businesses expanding abroad and for clearing up the aftermath of the Tohoku disaster. In addition, judges, prosecutors and other law professionals are needed to develop Japan's domestic legal system, both civil and criminal.
Part of the reason for the drop in applicants to law schools is that the bar exam is so difficult to pass. In 2011, only 2,063 people, 23.5% of examinees, passed — the lowest rate since the new exam began in 2006. Though that is much higher than the 2% to 3% pass rate before the changes, many laws schools have had to sacrifice teaching how the law actually works to teaching techniques for taking and passing the bar exam. ...
[T]he Justice Ministry and the law schools have urgent work to do. Without more legal professionals, Japan's potential to develop the rule of law with greater transparency, efficiency and justice will remain uncertain.
The Law School Tuition Bubble, Failing Law Schools: Japan Edition:
[T]he 1:250 ratio is not the one I’d use. It’s probably the ABA’s number of lawyers active and resident in the United States, which includes down-to-earth folk like me who ain’t a-practicing. Given the 35-year rate of law degrees, the ratio is 1:231, which at least implies that the number of ABA grads who don’t take or pass a bar exam is fairly low. This appears good. The reality, though is that the ratio of employed lawyers is much lower. Nearly 1:300 for the Current Population Survey and 1:425 by the Occupational Outlook Handbook. This of course means there are more legally educated Americans than lawyer/judge/clerk/government jobs for them. Not a shining comparison to aspire to.
Forbes: Sauce for the Gander? Revenue Agent Loses Job for Losing In Tax Court, by Peter J. Reilly:
If you have a money losing side activity, you might consider the tax savings as easing the pain a little bit. ... [But] if you have persistent losses, there is a decent chance that the IRS will challenge your losses. ... Taxpayers and the IRS have mixed results in these cases. Horse breeders frequently win. Amway people almost always lose. Win or lose, though, it is just about the taxes and interest and penalties. Until you get to a case like that of Benjamin O. Agbaniyaka, whose loss in Tax Court in 2007 [Agbaniyaka v. Commkissioner, T.C. Memo. 2007-300] concerned, inter alia, his African arts and crafts sideline. Mr. Agbaniyaka’s loss in Tax Court prompted his employer to fire him. The Appeals Court for the Federal Circuit [Agbaniyaka v. Department of the Treasury, No. 2011-3211 (Fed. Cir. June 19, 2012)] upheld the decision.
How do you lose your day job over an audit of your tax reporting of a side job? Mr. Agbainyaka worked for the IRS as a Revenue Agent. The IRS Restructuring and Reform Act of 1998 mandates termination of any IRS employee found to have willfully understated his federal tax liability, unless such understatement is due to reasonable cause and not willful neglect. The agency determined that Mr. Agbaniyaka had willfully understated his tax obligation for the four-year period and, in the alternative, found that he had violated the agency’s code of ethics. He sought arbitration under the collective bargaining agreement with the National Treasury Employees Union. ... He appealed to the Merit Systems Protection Board, which agreed with the arbitrator. The Circuit Court ... upheld the MSPB decision.
This article examines the tax collection process to see how the IRS might enforce the individual mandate under the healthcare reform law. It concludes that resistant taxpayers can generally be forced to pay the tax penalty only if they are entitled to receive refundable tax credits that exceed their net federal tax liability.
All Tax Analysts content is available through the LexisNexis® services.
Donald Tobin (Ohio State), Ann Romney’s Tax Deductible Horse Activity -- The Tax Code Got This Right!:
Ann Romney’s love of horses and Steven Colbert’s infatuation with Rafalca, one of her dressage horses, have created a buzz about horses, money, and taxes. Romney owns a one-third interest in Rafalca, and Rafalca will be competing, with her rider, Jan Ebeling, in the Olympic dressage event. In the most recent uproar, the Romneys are criticized for deducting $77,731 for the Romney’s share of Rafalca’s expenses. But here is the catch: Because of anti-abuse provisions contained in the Tax Code the Romney’s only actually deducted $49 on their return. Assuming the Romney’s are in the 35% tax bracket, the benefit to the Romneys was about $17. Not much worth working yourself into a lather about.
Although it is not clear what expenses make up the $77,731 figure on the Romney’s return, assuming the figure is correct, the Romney’s effectively received no tax benefit from the activity. They will only recoup these expenses if the Rafalca activity returns a profit. Here is how it works.
Under Section 469 of the Code, losses from passive activities, generally activities where you are a passive investor and do not materially participate in the activity, are only deductible against passive gains. The passive loss provisions were added as part of the Tax Reform Act of 1986 as part of a series of changes to clamp down on abusive tax shelters. The idea was to prohibit taxpayers from deducting losses when the taxpayer was not primarily involved in the activity.
If a person actively runs a business, the activity is not a passive activity and the profit and loss from the business can be deducted on a tax return. So for example, pretend your spouse is a teacher making $50,000 a year and you run a hot dog stand. If the hot dog stand loses money (say $10,000), you can deduct the $10,000 loss from the $50,000 your spouse earned. That is what some news reports were implying when they said the Romney’s deducted $77,731 from the horse activity.
There is a catch however. If there were a passive investor in the hot dog stand who did not participate in its management or operation, and she incurred the $10,000 loss, she could not deduct the loss unless she had other passive gains. The idea is that the Code allows the loss once someone can show that he has some gain in some passive activity. The Romneys are arguably in that situation. Since the $77,731 is a passive loss it can be deducted only against passive gains. Since the Romneys had a lot of passive losses, they had to allocate the passive gains among the various losses. The Romneys generated $2,170 in passive gains, and had over $2 million in losses. The passive gains were thus spread across the losses. Once this allocation was done, $49 of the horse activity was deductible against the $2,170 in income. In effect, the Romneys were not able to deduct over $2 million in passive losses.
Now some have noted that the Romneys may still get the deduction because they can carry over the loss to future years. The Code provides that if an asset is fully sold, the loss generated from the activity, if it is an activity engaged in for profit, would not be a passive loss. Thus the Romneys will only get a large tax deduction from Rafalca, if Rafalca is sold at a loss and they actually suffer a loss. This raises the specter that taxpayers may ultimately be subsidizing Romney’s horse activity.
The Romney story caught my eye because I am constantly telling my wife that we cannot deduct expenses for Patrick, the wonderful, but not Olympic caliber, dressage horse she rides. Why can Ann Romney deduct expenses for Rafalca while we cannot deduct expenses for Patrick? That raises one more question. Is the Romney activity actually an activity for profit, or is it a hobby? Does she actually intend for Rafalca to turn a profit? Would she actually sell Rafalca? I don’t doubt that Rafalca could be sold for a huge amount of money, but could she be sold for a profit? If the activity is a hobby, the Code limits the deduction by only allowing expenses to the extent of gains. Thus, if Romney’s activity is a hobby and not an ordinary and necessary business expense or an investment activity, she could not deduct losses in excess of gain.
The moral of this story, however, is that the Tax Code is working here to properly disallow the deductions. If Ann Romney is engaged in this activity as a hobby and not as a business, her deductions should be limited to her income from the activity. Ann Romney’s love of horses is admirable and her care of Rafalca commendable. Taxpayers should not foot the bill when wealthy individuals, or not so wealthy individuals, engage in these types of activities for love, and not profit. Ann Romney clearly loves horses, and she is sharing that love with others. From my perspective, it is her money, and her love, so go for it. I and glad that at the moment the Tax Code is working and that I, and other taxpayers, are not subsidizing Ann Romney’s horse activity. I already do enough of that at home.
|The Colbert Report||Mon - Thurs 11:30pm / 10:30c|
|Mitt Romney's Blue-Collar Equestrian Pastime|
|The Colbert Report||Mon - Thurs 11:30pm / 10:30c|
|Mitt Romney's Champion Horse & Stephen's Dressage Contribution|
Following up on last week's post, ABA: Only 55.2% of the Class of 2011 Have Full-Time Long-Term Legal Jobs: Wall Street Journal, Law Grads Face Brutal Job Market:
Members of the law-school class of 2011 had little better than a 50-50 shot of landing a job as a lawyer within nine months of receiving a degree, according to a Wall Street Journal analysis of new data that provides the most detailed picture yet of the grim market for law jobs.
Under pressure from disillusioned graduates and some professors, the ABA for the first time released a tally of the previous year's graduates who have secured full-time, permanent jobs as lawyers. Until recently, the ABA required law schools to report only general data about how their graduates fared, such as how many were employed full-time or part-time in any kind of job, whether or not it required a law degree.
The numbers suggest the job market for law grads is worse than previously thought. Nationwide, only 55% of the class of 2011 had full-time, long-term jobs that required a law degree nine months after graduation. The ABA defines "long-term" jobs as those that don't have a term of less than one year.
Of course, it isn't uncommon for people to attend law school to advance their career without practicing law. Several law-school deans cautioned against placing too much emphasis on jobs requiring a law degree. ...
The new details are likely to feed a debate about the value of a law degree. More than 40,000 students enter the law-job market annually. In the past year, law-school graduates have filed more than a dozen lawsuits around the country alleging that some schools misled students with job-placement statistics.
The 2011 data reinforce the notion in the industry that students from the top 14 U.S. law schools have little trouble finding work. The top-ranked schools sent graduates into long-term legal jobs in high numbers, but 87 lower-tier schools had placement rates of 50% or less.
Wall Street Journal Interactive Graphic: The Job Market for Law Graduates:
Law students who graduated in 2011 had barely better than a 50-50 shot at landing a job nine months after receiving their degrees, according to new data that offer the most detailed picture yet of how dire the legal job market has grown in recent years. See the percentages of law graduates employed in various full-time, long-term positions, and those who were unemployed nine months after graduating. Click the column headers to sort.
- How to Use a Roth IRA Conversion to Profit from the Presidential Election
- Prospective Students Tell Law Schools: 'Show Me The Money'
- Johnston: Why 35,000 High-Income Americans Pay No Federal Income Tax
- Winners of 'Dinner With Barack' Will Face a $560 Tax Bill
- Top 5 Tax Paper Downloads
- The Constitutionality of Retroactive Estate Tax Legislation
Sunday, June 24, 2012
- Roundtrip airfare (valued at $1,200)
- One night in a hotel ($200)
- Dinner with President Obama ($200)
The rules state that "all federal, state and local taxes associated with the receipt or use of any prize are the sole responsibility of the winner." The $1,600 is includible in each winner's income under § 74 -- at the 35% rate, that results in $560 of federal income tax. (Hat Tip: Greg McNeal.)
There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with two new papers debuting on the list at #4 and #5:
3. [177 Downloads] New Life for the Death Tax, by Elizabeth Ruth Carter (LSU)
4. [176 Downloads] Making Voluntary Disclosures to the IRS, by John A. Townsend (Houston)
5. [91 Downloads] The Empire Strikes Out: The IRS & The Ambiguities of Tax Accounting, by Luke R. Hornblower (J.D. 2012, Loyola-L.A.)
This note will discuss whether it would be constitutional for Congress to retroactively apply an estate tax to those wealthy individuals who died in 2010 and, if so, whether there would be any limitations Congress must consider in applying the tax. The note will also discuss the ramifications of Congress enacting a retroactive estate tax, and whether its negative effect on taxpayers would outweigh its benefit to the United States. Part I of this note will begin by looking at the opposing views regarding the estate tax and the history of the estate tax in the United States. Part II will look at the history of retroactive legislation to see how it has been used by Congress and how it has been considered by the Supreme Court. Part III will discuss the specific arguments used by taxpayers against retroactive tax legislation, and will examine how courts have decided on each argument in the past. Part IV will examine the Supreme Court's most recent decision regarding retroactive taxes: United States v. Carlton. Part V will discuss the specific arguments used by the taxpayer against retroactive estate tax legislation in NationsBank v. United States and will examine how the Court of Appeals decided on each argument. Part VI, will look at the potential ramifications of allowing Congress to impose a retroactive estate tax for 2010. Finally, Part VII will determine whether Congress could constitutionally impose an estate tax on decedents who died in 2010 based on the history of the estate tax and the recent case law relating to retroactive implementation of estate taxes. It will then discuss whether the negative effect that such a tax would have on taxpayers outweighs the benefit it would provide to the United States.
Saturday, June 23, 2012
CBS Money Watch, How to Profit From the Presidential Election:
Sometimes two unremarkable and unrelated ideas can be merged into a single brilliant strategy. Gregg Polsky, a tax professor at the University of North Carolina School of Law, recently emailed me two such ideas. His proposal -- combining a Roth conversion with the November presidential election. This is how it would work....
Let's say you have $20,000 in an IRA and are in the 30 percent marginal tax bracket. If you converted it to a Roth IRA, you'd pay $6,000 in taxes. Rather than do one Roth conversion, Polsky suggests doing two $10,000 conversions. With Roth IRA conversion one, you buy Obama options; with the second conversion, you buy Romney options. The goal is that one of the Roth conversions would double in value and become worth $20,000, while the other would expire and become worthless. Then you recharacterize the worthless IRA account and owe nothing in taxes. You'd have to pay $3,000 in taxes for the Roth conversion you keep. This means you converted $20,000 to a Roth, while paying only $3,000 in taxes. That's a 15 percent rate and a savings of $3,000.
- Financial Planning, Betting On A Roth Conversion
- Gregg D. Polsky (North Carolina), High Volatility, Negative Correlation, Roth IRA Conversions, and the Codified Economic Substance Doctrine
It's anything but business as usual during this year's law school admissions cycle. That seemed obvious to the nearly 500 prelaw advisers and law school admissions officers who gathered in Washington in mid-June for a five-day conference of the Pre-Law Advisors National Council.
"It's quite competitive this year," said Heather Struck, assistant dean at Cornell University's College of Arts and Sciences and chairwoman of the organization. "I have seen, anecdotally, some very generous merit scholarship offers."
Law schools experienced a 25% decline in applicants nationwide during the past two years, due in part to the tight job market for new lawyers and a more widespread understanding of the high costs of attending. Many have responded by accepting a larger percentage of applicants and sweetening their scholarship packages, in hopes of locking in prospective students.
For their part, many would-be law students sense opportunity and are aggressively negotiating scholarship offers from competing schools, according to prelaw advisers and admissions deans. "I think every conversation I've had over the past six weeks has been, 'And how much money can I get?' " Wake Forest University School of Law assistant dean for admissions and financial aid Jay Shively said during one conference panel discussion.
Law schools typically dole out merit scholarships to students with sterling academic credentials, but Shively said that even applicants with LSAT scores and undergraduate grade-point averages below Wake Forest's median have been leveraging competing offers for money. "Although it's a daunting time for jobs, there has never been a better time to apply to law school," Shively said. "It's a buyers' market right now, and the numbers have never been better." ...
The trickle-down effect of competition for students may be hitting lower-tier schools the hardest. Sherolyn Hurst, assistant dean for admissions and scholarships at the unranked Texas Wesleyan University School of Law, acknowledged that her school has had a hard time competing. "It's frustrating for me," she said. "I'm seeing colleagues offering scholarships to people they wouldn't have admitted last year. We don't have millions of dollars in an endowment, but we're trying to do right by our students."
Friday, June 22, 2012
[T]he feminist beliefs on which I had built my entire career were shifting under my feet. I had always assumed that if I could get a foreign-policy job in the State Department or the White House while my party was in power, I would stay the course as long as I had the opportunity to do work I loved. But in January 2011, when my two-year public-service leave from Princeton University was up, I hurried home as fast as I could.
A rude epiphany hit me soon after I got there. When people asked why I had left government, I explained that I’d come home not only because of Princeton’s rules (after two years of leave, you lose your tenure), but also because of my desire to be with my family and my conclusion that juggling high-level government work with the needs of two teenage boys was not possible. I have not exactly left the ranks of full-time career women: I teach a full course load; write regular print and online columns on foreign policy; give 40 to 50 speeches a year; appear regularly on TV and radio; and am working on a new academic book. But I routinely got reactions from other women my age or older that ranged from disappointed (“It’s such a pity that you had to leave Washington”) to condescending (“I wouldn’t generalize from your experience. I’ve never had to compromise, and my kids turned out great”). ...
Women of my generation have clung to the feminist credo we were raised with, even as our ranks have been steadily thinned by unresolvable tensions between family and career, because we are determined not to drop the flag for the next generation. But when many members of the younger generation have stopped listening, on the grounds that glibly repeating “you can have it all” is simply airbrushing reality, it is time to talk.
I still strongly believe that women can “have it all” (and that men can too). I believe that we can “have it all at the same time.” But not today, not with the way America’s economy and society are currently structured. My experiences over the past three years have forced me to confront a number of uncomfortable facts that need to be widely acknowledged—and quickly changed.
Before my service in government, I’d spent my career in academia: as a law professor and then as the dean of Princeton’s Woodrow Wilson School of Public and International Affairs. Both were demanding jobs, but I had the ability to set my own schedule most of the time. I could be with my kids when I needed to be, and still get the work done. I had to travel frequently, but I found I could make up for that with an extended period at home or a family vacation.
I knew that I was lucky in my career choice, but I had no idea how lucky until I spent two years in Washington within a rigid bureaucracy, even with bosses as understanding as Hillary Clinton and her chief of staff, Cheryl Mills. ... [T]he minute I found myself in a job that is typical for the vast majority of working women (and men), working long hours on someone else’s schedule, I could no longer be both the parent and the professional I wanted to be—at least not with a child experiencing a rocky adolescence. I realized what should have perhaps been obvious: having it all, at least for me, depended almost entirely on what type of job I had. The flip side is the harder truth: having it all was not possible in many types of jobs, including high government office—at least not for very long. ...
After the speech I gave in New York, I went to dinner with a group of 30-somethings. I sat across from two vibrant women, one of whom worked at the UN and the other at a big New York law firm. As nearly always happens in these situations, they soon began asking me about work-life balance. When I told them I was writing this article, the lawyer said, “I look for role models and can’t find any.” She said the women in her firm who had become partners and taken on management positions had made tremendous sacrifices, “many of which they don’t even seem to realize -- They take two years off when their kids are young but then work like crazy to get back on track professionally, which means that they see their kids when they are toddlers but not teenagers, or really barely at all.” Her friend nodded, mentioning the top professional women she knew, all of whom essentially relied on round-the-clock nannies. Both were very clear that they did not want that life, but could not figure out how to combine professional success and satisfaction with a real commitment to family. ...
I am well aware that the majority of American women face problems far greater than any discussed in this article. I am writing for my demographic—highly educated, well-off women who are privileged enough to have choices in the first place. We may not have choices about whether to do paid work, as dual incomes have become indispensable. But we have choices about the type and tempo of the work we do. We are the women who could be leading, and who should be equally represented in the leadership ranks.
Millions of other working women face much more difficult life circumstances. Some are single mothers; many struggle to find any job; others support husbands who cannot find jobs. Many cope with a work life in which good day care is either unavailable or very expensive; school schedules do not match work schedules; and schools themselves are failing to educate their children. Many of these women are worrying not about having it all, but rather about holding on to what they do have. And although women as a group have made substantial gains in wages, educational attainment, and prestige over the past three decades, the economists Justin Wolfers and Betsey Stevenson have shown that women are less happy today than their predecessors were in 1972, both in absolute terms and relative to men.
- ABA Journal, Ex-Law Prof Concludes Women Can’t Have It All, Hits ‘Time Macho’ Culture at Law Firms
- American Prospect, Why Does The Atlantic Hate Women?
- The Careerist, To Have and to Have Not
- The Economist, Spending More Time With Our Families
- Feminist Law Professors, If Anne-Marie Slaughter is a Dropout, We’re Chopped Liver
- NPR, The Impossible Juggling Act: Motherhood and Work
- New York Times (article), Elite Women Put a New Spin on an Old Debate
- New York Times (Motherlode Blog), Talking About Why Women Can’t Have It All
- New York Times (op-ed by Ross Douthat), Having It All
- Slate, Fine, Women Can't Have It All. Isn't That Called Compromise?
National Law Journal: Taxpayers Lose as First Circuit Defers to IRS in Reviewing Collection Proceedings:
The U.S. Court of Appeals for the First Circuit has adopted a deferential standard for reviewing IRS Service collection due process proceedings — one based on reasonableness, not necessarily correctness.
On June 20, a unanimous panel reversed a 2008 U.S. Tax Court judgment [Dalton v. Commissioner, T.C. Memo. 2008-165 and 135 T.C. 393 (2010)] that overruled the IRS's rejection of two taxpayers' offer to settle their tax bill for "pennies on the dollar." It also reversed the Tax Court's award of attorney fees to the taxpayers [T.C. Memo. 2011-136].
Senior Judge Bruce Selya wrote the opinion in Dalton v. Commissioner [No. 11-2217] joined by Chief Judge Sandra Lynch and Judge Michael Boudin. Selya noted that no court has previously parsed the standard a court should apply when examining the IRS's conclusions following a collection due process hearing. The First Circuit found that the "Tax Court employed an improper standard of review with respect to the IRS's subsidiary determinations. Applying a more deferential standard to these determinations consistent with the nature and purpose of the CDP process, we conclude that the IRS did not abuse its discretion when it rejected the taxpayers' offer in compromise."
The Great Recession has wreaked havoc on the job market for law school graduates, but newly released data from the ABA paints a bleaker picture about entry-level employment than previously thought. Slightly more than half of the Class of 2011 — 55% — had found full-time, permanent jobs as lawyers nine months after graduation. It was the worst job market in more than 30 years, according to the National Association for Law Placement. The employment outlook wasn't looking much better for the Class of 2012, but official figures won't be released until next year.
For many 2011 graduates of Illinois law schools the job market was dismal. DePaul, IIT Chicago-Kent, John Marshall, Northern Illinois, Loyola and the University of Illinois did not meet the national average of 55% full-time employment.