Monday, December 31, 2012
Kyle P. McEntee, Patrick J. Lynch & Derek Michael Tokaz (all of Law School Transparency), The Crisis in Legal Education: Dabbling in Disaster Planning, 46 U. Mich. J.L. Reform 225 (2012):
The legal education crisis has already struck for many recent law school graduates, signaling potential disaster for law schools already struggling with their own economic challenges. Law schools have high fixed costs caused by competition between schools, the unchecked expansion of federal loan programs, a widely exploited information asymmetry about graduate employment outcomes, and a lack of financial discipline masquerading as innovation. As a result, tuition is up, jobs are down, and skepticism of the value of a J.D. has never been higher. If these trends do not reverse course, droves of students will continue to graduate with debt that greatly reduces their ability to fulfill the law school graduate’s traditional and important role in American society. The point at which the law school crisis becomes a disaster for legal education is debatable, but the importance of preparing for and forestalling this disaster is not.
This article serves two forward-looking purposes that stem from the premise that American legal education requires structural change to reduce the cost of obtaining a legal education. First, we set a framework for thinking about reforms to the method of delivering legal education. Second, we examine three blueprints for structural reform: one that has already been implemented and is ineffective, and two that set the discussion on the right track. These blueprints reject mere tinkering in favor of refocusing the attention of legal education stakeholders on the drastic structural changes needed to provide quality, affordable legal education.
While we provide only a starting point for considering how the two new models could work in principle, they serve as an intellectual blueprint that can pave the way for new and better ideas about legal education. It is clear that cost reform is necessary, and it is likely that substantial reform is coming. The shape of this reform depends on who gets involved, which we hope includes actors beyond those who have set legal education on a path toward disaster.
I’ve always admired Law School Transparency—even, I’d like to think, before it was fashionable. There is a good deal to admire. LST and its principals recognized early in the collapse of the law-job market that law schools were doing a discreditably poor job of making available the information necessary for a rational person to determine whether or where to get a law degree. They believed that potential consumers of legal education would make better choices if they were better informed. They were pointed, patient and persistent in pressing for more and better disclosure. They were an instrumental part of the process that effected that change. And they’ve offered a number of thoughtful and useful perspectives on the information they helped bring to light (I don’t particularly agree with a number of them, but I certainly respect the effort and empirically supported thought that went into them).
So I was intrigued to look into the latest contribution to the law-school reform discussion authored by LST’s co-founders and its research director ... What a disappointment. Commentators with the public stature of Law School Transparency should not “dabble.”
I do not mean to say that three twenty-somethings who have essentially never practiced or taught law have no place explaining how to assemble a curriculum or run a law school so that its graduates will be both prepared to practice and attractive to legal employers in the most difficult legal job market in American history. I do mean to say that, if you don’t know how to do it and you don’t know how to teach it, you really ought to do your homework so that your prescriptions are meticulously grounded in empirical experience and coherent argument. Sadly, you won’t find much of either here....
Q: Then why are you being so harsh with LST? You’ve really been kind of a jerk, you know.
A: Well, I am being harsh. Here’s why: LST has (in my opinion) distinguished itself since it came upon the scene by its mostly measured and thoughtful idiom, and its basic confidence in the power of information to influence rational behavior and level the playing field. The article I just criticized is an abrupt and in my opinion unwelcome departure from a style of public discourse that I genuinely admire, not only because it is predominantly engaged and positive (though it is), but because it is—again, in my opinion—effective. Tossing around the rhetoric of “disaster” and “crisis” without meaningful effort to define the threat, couched in empirically vacuous and occasionally self-contradictory pronouncements, reverts to the toxic style of discourse sadly prevalent in current affairs, and doesn’t advance anything other than perhaps LST’s public profile. There are more wholesome and productive ways to achieve that end. In my opinion, LST should hold itself to the same standards of data-driven rationality and full disclosure to which it rightly holds the institutions it criticizes.
Some friends and colleagues who read my lengthy post on Law School Transparency's recent article on law-school reform gently suggested that I should stop publicly haranguing myself on the bus before people began to worry about my stability (those who read the post will understand the reference). Kyle McEntee of LST also contributed a measured and thoughtful Comment of the kind that I had come to value and respect from him and his organization, for which I thank him.
I remain uncomfortable with both the form and the substance of LST's proposals, but I also recognize the merit of the friendly advice I've received that there are more constructive ways to contribute to this important discussion than the one I chose. So I'll work on it and try again in a few days.
Update #2: Bernie Burk refashioned his post on 7:20 p.m. on New Year's Eve (yes, I have no life) as Law School Transparency Jumps the Rails (Or, Why I’m Still Disappointed with LST’s Latest Contribution to the Discussion on Law-School Reform):
With thanks to the commenters and correspondents who responded to my original post on this subject with an absolutely fascinating range of views, I’m going to take another run at explaining why I’m still disappointed with the recent article by Law School Transparency co-founders and research director Kyle McEntee, Patrick Lynch and Derek Tokaz (to whom I will refer in this post interchangeably with LST, though I’m not sure whether they would agree with that). The paper, forthcoming in the University of Michigan Journal of Law Reform, is rather dramatically entitled “The Crisis in Legal Education: Dabbling in Disaster Planning.” Familiarity with my original post is not presupposed.
As I mentioned in my original post, I’ve always admired Law School Transparency—even, I’d like to think, before it was fashionable. There is a good deal to admire. LST and its principals recognized early in the collapse of the law-job market that law schools were doing a discreditably poor job of making available the information necessary for a rational person to determine whether or where to get a law degree. They believed that potential consumers of legal education would make better choices if they were better informed. They were pointed, patient and persistent in pressing for more and better disclosure. They were an instrumental part of the process that effected that change. And they’ve offered a number of thoughtful perspectives on the information they helped bring to light (I don’t particularly agree with a number of them, but I certainly respect the effort and empirically supported analysis that went into them).
So what’s my problem with “Dabbling in Disaster Planning” (beyond everything the title ought to tell you without asking further)? Here’s a catalogue of my most serious concerns:
- Don’t overdramatize
- Don’t allow hysterical language to mask a failure to define the issue you need to address
- Don’t ignore the implications of your justifications
- Don’t ignore inconvenient facts
- Don’t assume away the problems you perceive; recognize and try to solve them
LST deserves everyone’s gratitude for an earnest and courageous effort to advance the discussion on a miserably complicated and difficult set of problems. The execution leaves something to be desired for the reasons just discussed. But at a minimum, it highlights a number of the challenges that are going to have to be addressed before meaningful and effective reform will be possible. We can only hope that, as each of us comes forward with our own ideas, the mistakes we make are new.
(Hat Tip: Greg McNeal.)
Several people I know, all under 30, want to do good. They want to do so much good, in fact, that they donate a large fraction of their income to charity.
This is almost always a bad idea. It’s admirable, but it’s the wrong decision. If you’re under 30, don’t give away large amounts of money, and send this blog post to anyone who does. The reason is simple:
Wealth almost entirely belongs to the old. The median 60-year-old has 45 times (yes, forty-five times) the net worth of the median 30-year-old. 99% – not 80%, not even 95%, but ninety-nine percent – of American billionaires are over 40.
Old people, of course, have more time to accumulate wealth. They’ve also had more time to learn skills, make friends, earn degrees, gain experiences… everything that gives someone higher earning potential. They also have almost all the political power. There are a hundred US Senators, and not a single one is under 40. You can’t even be President until you’re 35. It’s not surprising, then, that old people utterly dominate lists of the wealthy.
What does that imply? Any money a 25-year-old can give – even if they donate half their income – is chump change. It’s a single drop in a large bucket, compared to what they can donate later in life, when they’re older and much much richer. It doesn’t matter. At all. It means nothing.
(Hat Tip: Glenn Reynolds.)
In the continuing fiscal negotiations between President Obama and House Republicans, both sides have, from the very beginning, agreed on one point: Taxes on the middle class must not rise. But maybe it’s time to reconsider this premise. An unwavering commitment to keep middle-class taxes low could be one reason the political process has become so deeply dysfunctional. ...
Republicans and Democrats agree on the nature of the problem, but they embrace very different solutions. My fear is that both sides are engaged in an excess of wishful thinking, with a dash of mendacity. If Republicans had their way, they would focus the entire solution on the spending side. ... Democrats, meanwhile, want to preserve the social safety net pretty much as is. ...
When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.
Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.
To be sure, the path ahead is not easy. No politician who wants to be re-elected is eager to entertain the possibility of higher taxes on the middle class. But fiscal negotiations might become a bit easier if everyone started by agreeing that the policies we choose must be constrained by the laws of arithmetic.
- Freakonomics: An Economist’s Guide to Year-End Charitable Giving
- Cato: Six Reasons To Keep Capital Gains Tax Rates Low
- The Deductibility of Payments to Whistleblowers Under the False Claims Act
- Law School Transparency Files Complaint Against Rutgers-Camden Over Student Recruiting
- French Court: 75% Tax Rate on Millionaires Is Unconstitutional
- Top 5 Tax Paper Downloads
Sunday, December 30, 2012
Law School Transparency has filed a complaint with the ABA Section on Legal Education and Admissions to the Bar against Rutgers-Camden Law School over a recruiting email sent to a prospective student:
Law School Transparency alleges that Rutgers School of Law – Camden violated Standard 509 and Interpretation 509-4 [in effect in 2011-12]. A law school administrator made misleading statements about the successes of the school’s graduates. The same administrator also made a false statement about graduate salary outcomes when she asserted that many top graduates accepted jobs at firms making in excess of $130,000, when in fact zero graduates reported earning more than $130,000.
Prior TaxProf Blog coverage:
- LST Calls for Resignation of Rutgers Dean and ABA Investigation of Improper Recruiting of Law Students (May 21, 2012)
- Rutgers-Camden Dean Doubles Down on Questionable Marketing Pitch to Prospective Law Students (May 23, 2012)
New York Times: French Council Strikes Down 75% Tax Rate:
France’s Constitutional Council on Saturday struck down the Socialist government’s plan to impose a 75 percent marginal income tax rate on the wealthy, a measure that figured prominently among the campaign promises of President François Hollande and that had become a divisive emblem of his approach to cutting the budget deficit.
Prime Minister Jean-Marc Ayrault quickly pledged that the government would reintroduce a revised version of the tax for next year to address the criticisms of the Constitutional Council, which ruled that the measure did not tax affected households equally.
The 75 percent rate was always a symbolic political gesture, as Mr. Hollande himself has acknowledged. It was to expire in two years and would have applied only to annual income above 1 million euros, or about $1.3 million, and so would have affected no more than a few thousand taxpayers.
Tax revenues from the measure would have reached just a few hundred million dollars, little more than a bucket of water in France’s deficit sea; the budget deficit is about $112 billion this year.
(Hat Tip: Mike Talbert.)
There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new paper debuting on the list at #5. The #1 paper is #4 in all-time downloads among 8,866 tax papers:
1. [4515 Downloads] Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law, by Gerald T. Prante & Austin John (both of Lynchburg College, School of Business and Economics)
2. [264 Downloads] Taxation in the Bible, by Geoffrey P. Miller (NYU)
3. [238 Downloads] The End of Taxation without End: A New Tax Regime for U.S. Expatriates, by Bernard Schneider (Queen Mary, University of London School of Law)
4. [169 Downloads] Romney's Tax Plan Won't Work Like Reagan's Did, by Bruce Bartlett
5. [152 Downloads] Important Developments in Federal Income Taxation, by Edward A. Morse (Creighton)
Saturday, December 29, 2012
Freakonomics: An Economist’s Guide to Year-End Charitable Giving:
The end of the year is a giving season for many (I suppose a cynical economist might think tax deductions has something to do with it). Most of us like to make sure we’re making well-researched and wise decisions when it comes to our money, be it reading the online reviews before a purchase or investing our savings. By contrast, donating to charities can seem like a “black box.” Many of us our rely on what feels right or seek out an organization in an area we have a personal connection to, but examining some bad habits about charity giving might help make sure our dollars go farther this giving season.Bad Giving Habit #1: Choosing based on low overhead and fundraising expense ratios
Bad Giving Habit #2: Restricting what the organization can do with your money
Bad Giving Habit #3: Spreading the love, dividing your donations among many charities
Bad Giving Habit #4: Fooling yourself that you give what you think you should be giving
Bad Giving Habit #5: Giving to things that advertise well, rather than to what works
So what’s a good habit? Copying
Chris Edwards (Cato Institute), Advantages of Low Capital Gains Tax Rates:
The top federal capital gains tax rate is scheduled to increase from 15% to 23.8% next year. Some policymakers think that a reduced rate for capital gains is an unjustified tax preference. However, capital gains are different than ordinary income and have been subject to special low rates since 1922. Nearly every country has reduced tax rates on individual long-term capital gains, with some countries imposing no tax at all.
This bulletin describes why policymakers should keep capital gains taxes low, and it presents data on capital gains tax rates for the 34 nations in the OECD. If the U.S. capital gains tax rate rises next year as scheduled, it will be much higher than the average OECD rate.
Policymakers should reconsider capital gains tax policy. Capital gains taxes raise less than five percent of federal revenues, yet they do substantial damage. Higher rates will harm investment, entrepreneurship, and growth, and will raise little, if any, added federal revenue.
Related op-ed: Six Reasons To Keep Capital Gains Tax Rates Low
Jonathan D. Grossman (J.D. 2012, NYU), Note, The Case Against the Tax Deductibility of FCA Relator Fees, 87 N.Y.U. L. Rev. 1452 (2012):
The False Claims Act (FCA) imposes severe penalties on those who commit fraud against the federal government. The statute currently requires violators to pay treble damages plus a statutory penalty of five to ten thousand dollars per violation. The goal of the statute is to deter fraud by setting punitive damages at a high level. However, the tax law, as currently interpreted by the IRS, blunts the force of the statute by allowing a violator to deduct a portion of an FCA damages award as a business expense. Specifically, Treasury regulations allow for the deductibility of any portion of an FCA settlement or damages award that is paid to the whistleblower, known as the “relator,” who brings suit under the FCA for the alleged fraud. This Note argues that, for reasons of efficiency and equity, the IRS should change its current position and disallow relator fee deductions.
Friday, December 28, 2012
[T]hose Republicans who acknowledge that additional tax dollars will be necessary say we can get what we need without increasing a single tax rate. All we have to do is close up some “loopholes” and “broaden the base”! We can keep in place the Bush-era tax cuts, they say, and make up any lost revenue simply by eliminating various deductions, exclusions and credits.
At first glance, the idea seems great. Who wouldn’t want to root out the tax evaders and finaglers who are shirking the shared burden? And the idea of a broader base of taxpayers paying lower rates across the board sounds so much simpler and fairer for every citizen.
But closing loopholes is neither sufficient to do the job nor as “fair” to everyone as it might seem.
There is no painless way to raise revenue, as past attempts have shown. Increased levies on corporations are ultimately passed along to shareholders, workers or customers. Raising taxes on foreign companies increases the cost of capital as businesses keep their cash overseas. Even a fix as “obvious” as doubling down on audits to catch tax cheaters ends up creating a burden for honest citizens caught in the snare.
Closing loopholes and purging deductions are no more exempt from the laws of tax physics than any of the above. ... [I]n the end, none of these fixes will be enough to raise the revenue we need to balance the budget, begin to pay off America’s debt and avoid the fiscal cliff. Nor can we cut spending enough to achieve those goals. ...
That leaves us with one choice: do all of the above. Let’s trim spending where we can, broaden the base where it makes the most sense and, yes, raise marginal tax rates as well. Returning tax rates to Clinton-era levels for married filers making over $250,000 a year and singles making $200,000 or more, as President Obama has proposed, would be a good start, and might provide the impetus for more serious discussions of tax and entitlement reform.
The only thing we shouldn’t do is pretend any of these fixes will be painless or easy for everyone. They won’t. Even in a happy, thriving democracy, someone ends up holding the bag.
(Hat Tip: Ann Murphy, Mike Talbert.)
Hilary J. Allen (Loyola-New Orleans), Let's Talk About Tax: Fixing Bank Incentives to Sabotage Stability:
Regulatory capital requirements are in place to improve bank (and systemic) stability, by forcing banks to fund themselves with more loss-absorbent equity. But banks have strong incentives to prefer debt funding to equity funding, and thus to arbitrage regulatory capital requirements. In particular, banks have (often successfully) petitioned regulators to allow them to satisfy regulatory capital requirements with hybrid debt-equity instruments that can be treated as debt for tax purposes. Unfortunately, the Financial Crisis showed that the first generation of these hybrid instruments, including trust preferred securities, did not live up to their promise of promoting bank stability. The next generation of hybrids, the contingent convertible bonds or “cocos”, have the potential to be downright harmful to stability.
We therefore need to address bank incentives to create hybrid instruments, and otherwise arbitrage regulatory capital requirements. While regulatory capital requirements are almost always discussed in isolation from tax policy, this Article recognizes that banks’ reluctance to fund themselves with larger cushions of common equity is, in large part, a tax problem. Financial regulators, rather than accepting such tax preferences as a given, should engage with their tax colleagues and revisit the wisdom of tax policies that incentivize reliance on debt funding, and the instability such reliance creates. To that end, this Article takes the first step in fusing together regulatory capital scholarship with the tax literature on reducing debt bias, and proposes that common equity held by banks as regulatory capital should be made tax deductible. The hope is that this will inspire experts in the fields of economics, tax and financial regulation (particularly within the Basel Committee on Banking Supervision) to collaborate in refining this Article’s proposal, so that the efficacy of regulatory capital requirements (and financial stability) can be maximized.
Timothy Sandefur (Pacific Legal Foundation), So It's a Tax, Now What? Some of the Problems Remaining after NFIB v. Sebelius:
Few predicted the Supreme Court’s ruling in NFIB v. Sebelius to conclude that the “Individual Mandate” provision of the Patient Protection And Affordable Care Act (PPACA) is not a regulation of interstate commerce, but is instead a tax on persons who do not choose to buy “minimum acceptable” health insurance. This legal theory was addressed in only a few pages of the government’s extensive briefing in the case and occupied practically no time during the unusual, three-day oral arguments. To this day, the Obama Administration, which claims to have won the case, has refused to accept this “Tax Power” theory. Those of us who oppose the law on legal and policy grounds must, however, live with the decision, and, what is harder, try to make sense of it. This article will address some of the questions that remain in the wake of the NFIB decision. In Part I, I review the rationale of NFIB, and one especially significant problem that remains with regard to Commerce and Tax Clause jurisprudence. In Part II, I take the decision’s Tax Power rationale at its word: how does converting the Individual Mandate into a tax change the effect and the constitutionality of the PPACA? In Parts III through V, I address three constitutional problems with the constitutionality of this tax — the Apportionment, Uniformity, and Origination Clauses, respectively. I conclude that, even if recharacterized as a tax, the requirement to buy a health insurance policy is unconstitutional.
National Law Journal: Harvard Law Offering First Free Online Course:
How does a free law class taught by Harvard faculty sound?
Harvard Law School is accepting applications for its first online course via edX—a new online education venture between six leading universities. The 12-week copyright course begins on January 28 and will be open to 500 students. Applications for a spot in the free class, taught by William Fisher III, director of Harvard University's Berkman Center for Internet & Society, must be received by January 3.
The course is not a MOOC, or massive open online course, in which hundreds or thousands of students complete an online course largely on their own. Instead, the edX copyright course is intended to mimic a traditional Harvard law class. Students will be broken into smaller sections of no more than 25, and a former or current student of Fisher's will facilitate discussions among section members in real time. Students will also take a three-hour test, just as regular Harvard law students do. ...
The group edX was founded six months ago as a nonprofit by Harvard and the Massachusetts Institute of Technology. It has since added the University of California, Berkeley; Georgetown University; Wellesley College; and the University of Texas as partners. Its goal is to develop an open-source online learning platform for online education. Thus far, all of the edX courses are free.
Because the "fiscal cliff" will not stop for death, it looks as if death's carriage may make a "kindly" stop to pick up some American millionaires this year, to paraphrase Emily Dickinson.
In 2010, after a year in which the estate tax was zeroed out altogether, Congress passed a law that set the estate tax at 35% and exempted all estates under $5 million, adjusted for inflation. That law expires in January 2013 when the exemption will fall to $1 million and the tax will rise to 55%.
Many families are faced with a stark proposition. If the life of an elderly wealthy family member extends into 2013, the tax bills will be substantially higher. An estate that could bequest $3 million this year will leave just $1.9 million after taxes next year. Shifting a death from January to December could produce $1.1 million in tax savings.
It may seem incredible to contemplate pulling the plug on grandma to save tax dollars. While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid—perhaps even evil. Will people really make life and death decisions based on taxes? ...
There is good evidence that there is some "elasticity" in the timing of important decisions about life and death. ...
An earlier paper by Gans and Leigh looked into another natural experiment. In 1979, Australia abolished its federal inheritance taxes. Official records show that approximately 50 deaths were shifted from the week before the abolition to the week after....
This isn't just something peculiar to Australia. Economists Wojciech Kopczuk of Columbia University and Joel Slemrod of the University of Michigan studied how mortality rates in the United States were changed by falling estate taxes. They note that while the evidence of "death elasticity" is "not overwhelming," every $10,000 in available tax savings increases the chance of dying in the low-tax period by 1.6%. This is true both when taxes are falling, so that people are surviving longer to achieve the tax savings, and when they are rising, so that people are dying earlier, according to Kopczuk and Slemrod.
"Death elasticity" does not necessarily mean that greedy relatives are pulling the plug on the dying or forcing the sickly to extend their lives into a lower taxed period. According to a 2008 paper from University of Pittsburgh Medical Center Doctor G. Stuart Mendenhall, while tax increases give potential heirs large economic incentives to limit care that would prolong life, distressed patients may "voluntarily trade prolongation of their life past the end [a low tax period] for large ﬁnancial implications for their kin. ...
We had something of a natural experiment in death and taxes in 2010, when the estate tax was eliminated for one year. Many predicted that this would result in many fewer deaths at the end of 2009 and a surge in deaths prior to taxes rising in 2011.
My own research hasn't uncovered any formal academic work on this period. Perhaps it is too recent. Or perhaps the setting of the exemption at $5 million made the sample size of those that could achieve significant tax savings by dying in 2010 rather than 2011 too small.
But based on past reactions to changes in taxes, it at least seems likely that some deaths that might otherwise have occurred shortly after January 1 will occur shortly before. Death may slip in ahead of the tax man for some with estates worth over $1 million.
#10: Olive v. Commissioner, 139 T.C. 2 (2012): The IRS Wages War on the Medicinal Marijuana Industry
#9: Sophy v. Commissioner, 138 T.C. 8 (2012), and Bronstein v. Commissioner, 138 T.C. 21 (2012): The Mortgage Interest Limitation Is More Complicated Than You Realize
#8: Storey v. Commissioner, T.C. Memo 2012-115 (2012): The Tax Court Strikes a Blow For the Documentary Filmmaking Industry
#7: Rolfs v. Commissioner, 135 T.C. 24 (2012), and Patel v. Commissioner, 138. T.C. 23 (2012): The IRS Would Like You to Stop Burning Your Houses Down Already
#6: Mohamed v. Commissioner, 2012-152 (2012): The Failure to Adequately Substantiate Your Charitable Contribution Deductions Can be Costly. Like $19 Million Costly
#5 Maguire v. Commissioner, T.C. Memo 2012-160: The Tax Court Allows S Corporation Shareholders to Fix Years of Sloppy Tax Planning
#4: Watson v. Commissioner, 668 F.3d 1008 (8th Cir., 2012): The Courts Offer a Guide to Determining an S Corporation Shareholder/Employee’s “Reasonable Compensation”
#3: Kawahima v. Holder, 132 S.Ct. 1166 (2012): Clarence Thomas Sends Two Japanese Citizens Packing for Filing a False Tax Return
#2: Quality Stores 110 AFTR 2d 2012-5827 (6th Cir., 2012): The Sixth Circuit Holds That Severance Pay Pursuant to an Involuntary Layoff Is Not Subject to FICA Employment Taxes
#1: National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (June 28, 2012): Obamacare Is Constitutional Because the Individual Insurance Mandate Is Both a Penalty and a Tax. Wait...What?
The controversy surrounding PPL v Commissioner has framed the issue as one of substance versus form, accepting that the tax in question is economically equivalent to a tax on income. However, the fact that the tax is levied on the basis of average profits rather than total profits causes it to differ from conventional income taxes in important ways.
All Tax Analysts content is available through the LexisNexis® services.
Jack Henneman (Integra, Plainsboro, NJ), Corporate Taxation for the Layman, and Why We Need a "Territorial" System:
There has been a great deal of discussion about adopting a "territorial" corporate tax system, much of it jaw-droppingly ignorant. It seemed to us that it would be much in order to explain corporate taxation for the layman interested in the policy debate.
First, a couple of warnings. The topic is infinitely complicated, so we will generalize in ways that will irritate tax and accounting professionals, and probably get too basic for most people who took business classes in college. We are, however, undeterred!
Thursday, December 27, 2012
Following up on yesterday's post, Subjecting Law School Officials to Professional Discipline for Deceitful Marketing to Prospective Students: Deborah Jones Merritt (Ohio State), Deans Disbarred?:
That's a specter that Ben Trachtenberg raises in an important new piece that will appear in the Nebraska Law Review. Trachtenberg reviews the misleading practices that have tarnished legal education during the last few years -- from manufactured admissions statistics to deceptive employment data -- and asks whether any of this conduct violates the legal profession's Rules of Professional Conduct.
For the fraudulent acts committed by Paul Pless at the University of Illinois and Mark Sargent at Villanova, the answer almost certainly is "yes." ... Personally, I think it's embarrassing that no one has filed disciplinary complaints against Pless or Sargent. The new deans at Illinois and Villanova should have done so as soon as the wrongdoing was substantiated. This would have been an effective way to close out these incidents -- and to signal to the public that we take integrity seriously in the legal profession.
But let's move on. What about all of those other "lesser" acts of deception that law schools have practiced? Trachtenberg catalogues many of these: the rosy representations of high employment rates, the omissions of material data (such as the number of graduates reporting salaries, the number employed by their own school, or the number working part-time), the clever use of nested statistics, the understated debt, and the failure to explain significant details about scholarship awards. Do any of these acts violate the Rules of Professional Conduct?
Trachtenberg acknowledges, somewhat reluctantly, that courts would hesitate to discipline much of this behavior. ... Unethical behavior doesn't start with the big acts, it begins with the small ones. Once you abuse another person's trust, even in a small way, you set the stage for larger lies. And the abuses here weren't so small: Law schools made specific representations about salaries, scholarships, and other facts to encourage six-figure investments. The people making the representations were professionals with advanced degrees, who had inside knowledge of the legal industry. Most of the people receiving the representations were college students with relatively little knowledge of either law schools or law practice. ...
It's time to reclaim our integrity by acknowledging just how wrong all of this was -- and by moving even more aggressively to make our representations to prospective students as informative and helpful as possible. If you were a prospective student, what information would you want before investing three years of your life and $100,000 or more in law school? How would you want that information presented? These are the questions we have to answer as responsible professionals.
If you want to hear more about Ben's paper, and you'll be at next week's AALS conference, join us for our "Hot Topics" panel discussion on Saturday, January 5, from 8:30-10:15 a.m. Ben, Jeff Stake, Scott Norberg, Jerry Organ, and I will discuss "Transparency Revisited: New Data, New Directions." As Ben's paper suggests, this issue isn't over. Plus, you can stop by to compliment Ben on originating the title of this post: He used it for early drafts of his paper, before accepting a more academic, law-review-appropriate title.
Wall Street Journal, Professor: Law School Advertising Violates Legal Ethics:
Professor Trachtenberg argues ... that there is ”little doubt that dishonest law school marketing conducted by members of the bar justifies professional discipline.” He told Law Blog the paper was less a call to arms than “a warning for people who are in this business.” Professor Trachtenberg is weighing whether to approach bar counsel -- the lawyers who police their own in each state -- for advisory opinions on whether “common stuff that seems to happen at a lot of law schools” meets ethical standards, he said. "I think if bar counsel says ‘No,’ it could be a good wake up call,” he said.
A central question for leaders confronting our fiscal crisis is fairness in the tax system — in particular, whether the wealthiest Americans are paying their fair share. While there appears — or, at least, appeared — to be some agreement between President Obama and House Speaker John Boehner that taxes on the wealthy must go up, the amount of the increase remains undecided. Many argue that the wealthy are already paying a disproportionate share of taxes, a view that new data from the IRS appear to support. Missing from the conversation, however, is an appreciation of the way these data fail to accurately describe the true income of the wealthiest Americans.
The IRS recently released its analysis of 2010 tax returns, which shows the allocation of taxes over different income groups. This information is both informative and misleading. According to these latest figures, in 2010 the top 1% of earners (those with adjusted gross incomes of at least $369,691) paid about 37% of all income taxes but reported just less than 19% of all income. Based on these data, the U.S. income tax system looks truly progressive. This lends credence to the view that the wealthy are paying even more than their fair share.
But statistics can be only as good as the information on which they are based, and here the data are fundamentally misleading. People pay income tax only on amounts that Congress counts as income. This excludes the sources of revenue most commonly enjoyed by the richest Americans: gifts, inheritances, distributions from trusts and proceeds of life insurance.
How much tax-free income do the wealthy enjoy each year? While we can all guess — and common sense tells us that the numbers are significant — we cannot know for sure. This income is not only tax-free, but there also is not even an obligation to report it. ...
It is time for Congress to shine a light on the types of income most enjoyed by the wealthy. Individuals should be required to report all sources of income, including gifts, inheritances, life insurance and distributions from trusts so that we can begin to assess the impact of these exclusions.
Everyone agrees that fairness matters when it comes to income taxes. But we cannot have an honest discussion about tax fairness when we are kept in the dark about how much income people actually receive. Only when full reporting is required can we have an accurate picture of people’s true income. Then we can begin to fashion a tax plan that is fair for all Americans.
Xiumin Martin (Washington University, Olin School of Business), Cong Wang (Chinese University of Hong Kong, Business School) & Hong Zou (City University of Hong Kong), Does Target Tax Aggressiveness Matter in Corporate Takeovers?:
In this paper we investigate whether tax avoidance has an effect on M&A terms. We find that tax aggressiveness of target firms negatively affects acquisition premiums paid by acquirers. The effect is concentrated in opaque targets or targets that are from less competitive industries, when acquirers hire a top-tier financial advisor, and in the period after the 2003 regulatory changes took effect to curb abusive tax shelters. In addition, target firms with a higher level of tax aggressiveness are more likely to receive a downward adjustment to the initial offer price. Last, we show that public acquirers are more likely to use stock as the currency for acquiring tax aggressive targets. Taken together, our evidence suggests that in the due diligence process acquirers take into account the contingent liability risk arising from target firm tax avoidance and such risk has a measurable impact on acquisition terms.
The J.D. at the College of Law will now prepare students from the U.S. and Canada to seek bar admission in both countries, expanding the job market for new attorneys and creating new opportunities for international law practice. The North American Law Degree will allow students to graduate, within three years, with a J.D. designed to allow them to immediately seek licensure in Canada without further coursework, in addition to qualifying them for bar admission in the U.S., making the College of Law’s J.D. program unique among U.S. law schools. Dean Douglas Sylvester, a dual citizen of the U.S. and Canada and a graduate of both Canadian and U.S. schools of higher education, believes the degree will be an invaluable opportunity for future attorneys. ...
National Law Journal, Arizona State Hopes U.S.-Canada Program Will Boost Grads' Prospects:
Arizona recently adopted a rule allowing certain students to sit for the state bar exam during the February of their 3L year, which would allow them to sit for the bar in Canada right after graduation, Sylvester said. "I think there's a huge demand for attorneys with the ability to practice in the U.S. and Canada," he said. "With every cross-border transaction, companies need to bring in law firms in both countries. We've been meeting with firms in Canada that are interested in attorneys who are dual-licensed."
Administrators expect the program to draw some U.S. students but mostly Canadians — despite the fact that ASU's $26,267 annual tuition exceeds that at most Canadian law schools. Sylvester noted that the law school admissions process is far more competitive in Canada. Second, it is easier for a U.S. attorney to qualify for the bar in Canada than for a Canadian in most U.S. states.
Finally, Canadians might be attracted by Arizona's warm weather; Phoenix already boasts a fairly robust population of Canadian attorneys, said Sylvester, himself a Canadian national who holds joint U.S. citizenship. The law school has been working with the Canada Arizona Business Council, which promotes cross-border trade. ...
Hurdles remain for U.S. lawyers who want to be licensed in Canada. Lawyers there must complete a 10-month articling period under the supervision of an experienced attorney, and so would ASU graduates. However, provinces including Ontario are discussing alternatives to articling, including legal clinics and practical-skills training.
ASU plans to bring in Canadian attorneys to teach the 3L Canadian law courses, Sylvester said. The school is already talking with Canadian law firms about creating summer associate positions and articling spots for its graduates.
Tax law constantly churns, somehow avoiding the molasses of the legislative process. A common critique levied against tax law is that there is too much legislative action, resulting in ever-changing rules. In reality, congressional gridlock, the theme of the symposium for which this piece is written, is ever-present in the tax context. Although Congress increasingly enacts a high volume of temporary, patchwork tax provisions, it fails to accomplish fundamental tax reform, which is a necessary part of any solution to the looming budgetary crisis. As a result, recent proposals to enact tax reform through an existing fast-track framework, the reconciliation process, or through an entirely new process aimed specifically at tax reform have gained popularity. These fast-track processes are more flexible than is often assumed and increasingly so, potentially offering relief from the filibuster in a variety of tax contexts, among other benefits. For instance, in 2010 and contrary to popular thought, Democrats had numerous procedural options available to them to enact middle-class tax cuts through reconciliation; the political will was simply not there.
Despite the growing flexibility of existing fast track processes, however, their truncated timelines and production of polarizing, unstable policies are antithetical to fundamental tax reform. A simple majority’s ability to shape such processes to its ends also threatens the precarious Senate truce over the filibuster by degrading the source of its staying power — the filibuster’s potential application to future, unknown legislative minorities. From an institutional perspective, this nontransparent, piecemeal approach to filibuster reform destabilizes Senate rules generally and contributes to partisan politics that make the achievement of tax reform even more remote. For these reasons, existing fast track processes should primarily be relegated to meeting annual deficit targets once tax reform is achieved. Learning from the undesirable features of these processes, this Essay proposes a set of framework procedures that have the potential to assist Congress in achieving fundamental tax reform over the next two years. In the near-term, a commitment to such a process may also help bridge the impasse over the fiscal cliff.
Shonda Humphrey (Tax Analysts), A Year in Review of State and Local Tax Legal Developments, 66 State Tax Notes 991 (Dec. 24, 2012):
Well, 2012 is winding down, and what a year it was. ... In the state and local tax area, there were some noteworthy legal developments.
All Tax Analysts content is available through the LexisNexis® services.
Brett M. Bloom (J.D. 2012, Liberty), Comment, The Rise of the Virtual Church: Is It Really a Church Under I.R.C. Section 170(b)(1)(A)(i)?, 6 Liberty U. L. Rev. 495 (2012):
The Service and courts have struggled with the meaning of "church" since Congress first introduced the term into the Internal Revenue Code. Receiving little guidance from Congress, the Service and courts have borne the burden of administering and enforcing the tax laws with respect to churches. Diverging in respective analysis, the Service adopted fourteen criteria, while the courts proposed an associational aspect test. Nevertheless, while technology has changed how churches interact with the world, the respective tests of the Service and courts have remained fixed. The Foundation of Human Understanding v. United States decision sparked renewed interest in the debate over the definition of church for tax purposes by revealing inconsistencies with both the Service's and courts' respective tests. Can virtual churches provide associational aspects to their adherents? Moreover, why do virtual churches receive inconsistent treatment in relation to virtual universities? Such questions deserve answers.
Virtual churches are a growing reality in today's society. As individuals move away from traditional brick and mortar buildings, towards virtual churches, the next case challenging the current tests is on the horizon. A definition to address these emerging issues and provide uniformity is inevitable. Nevertheless, providing a definition for church is no small task because of competing concerns. The first concern is Congress's intent for the definition of “church” to be stricter than “religious organization,” and the second concern is the ever-present religion clauses of the First Amendment. The Treasury regulations proposed by this Note address the aforementioned questions while being mindful of the competing concerns. Admittedly, the proposed regulations will neither end litigation that inquires into whether an organization is a church nor address the concerns of every critic. The proposed regulations simply provide a framework for the Service and courts to fairly administer the tax code with respect to churches. While the future of this area of law is unclear, one thing is certain, virtual churches are here to stay.
Brent Kirwan (J.D. 2013, Temple), Comment, A Clash of Titans: Tax Policy v .Environmental Policy, How to Harmonize Section 198 with Traditional Tax Analysis while Promoting Environmental Policy, 31 Temp. J. Sci. Tech. & Envtl. L. 119 (2012):
This comment will begin by exploring the current IRC provisions affecting environmental remediation, specifically those relating to capital expenditures and deductible trade or business costs. It will then explore the development of the capitalization requirement through relevant case law. Part III will offer an exploration of the policy goals that shaped the creation and enactment of § 198. Finally, Part IV will analyze the application of § 198, in conjunction with the above mentioned tax and environmental concerns, and identify a remedy to the clash between the environmental and tax policies at play in § 198.
Wednesday, December 26, 2012
- Business Insider, Facebook Funneled Nearly Half a Billion Pounds Into the Cayman Islands Last Year
- The Guardian, Facebook Paid £2.9m Tax on £840m Profits Made Outside US
- The Telegraph, Big Firms Play 'Double Dutch' to Skip on Tax
- The Telegraph, Facebook Defends its 'Double Irish' Tax Reduction Deal
Subjecting Law School Officials to Professional Discipline for Deceitful Marketing to Prospective Students
Law schools have misled prospective students for years about the value of legal education. In some cases, law school officials have engaged in outright deceit, knowingly spreading false information about their schools. More commonly, they have presented statistics—especially those concerning the employment outcomes of law graduates—in ways nearly guaranteed to confuse readers. These deceptions and sharp practices violate the norms of the legal profession, a profession that scrupulously regulates the advertising of legal services. The deceptions also violate ethical rules prohibiting lawyers from engaging in dishonesty, misrepresentation, and deceit.
This article exposes how pitches aimed at prospective students, including the seemingly straightforward recitation of statistics on law school websites, still paint an unduly rosy picture of the legal employment market. Focusing on Rule 8.4(c) of the Model Rules of Professional Conduct, the article explains that law school officials have exposed themselves to professional discipline, which may offer a solution to the pervasive problem of misleading law school marketing.
Courts, scholars, and lawyers think of testation—the creation of a will or a trust—as a transfer of wealth. As a result, they analogize the field of decedents’ estates to property, contract, and corporate law: other spheres that regulate the use, conveyance, and investment of assets. Conversely, this Article identifies a quality that makes testation unique: it is a singular form of self-expression. Conditional gifts, charitable bequests, and other posthumous directives often communicate a testator’s or settlor’s deeply felt views. Likewise, distributional choices can be profoundly revelatory: by rewarding some beneficiaries and snubbing others, testators and settlors offer a final assessment of their lives, their loved ones, and the world.
Recognizing testation’s expressive impact has broad implications. For one, there has long been consensus that the Constitution does not apply to limits on testamentary freedom. However, because testation is a “speech act,” some wills-and-trusts rules, such as the doctrine of undue influence, must satisfy the First Amendment. Moreover, conceptualizing testation as speech bolsters the normative case for testamentary freedom and cuts against the grain of recent developments in trust law. In the last decade, the rise of law and economics and an unprecedented intergenerational wealth transfer have inspired a series of doctrinal changes that shift power away from settlors in order to enhance the value of the corpus. This new fixation on profit maximization overlooks the virtues of testamentary self-expression—the fact that it facilitates autonomy and self-determination—and reflects an impoverished vision of trust law.
When the federal government wishes to change executive compensation practices it often attempts to do so through changes to compensation-related tax rules. These attempts to use tax policy to influence executive compensation – from Section 162(m) to the golden parachute provisions to more recent deferred compensation rules – have been routinely decried. This essay contends tax policy is generally ineffective in shaping executive compensation choices. 162(m) and 280G/4999 have either had no effect or perverse effects on compensation practices. Why have these kinds of tax interventions – the ones that try to optimize the pay-setting process between executives and boards – failed? Undoubtedly, there is a public choice explanation centered on political motivations and competence that is both popular and plausible. But the case for reforming executive pay through tax rules is even worse than that would imply. First, tax penalties pale in comparison with boards’ perception of the performance-related gains to be realized by either hiring the best (even if most expensive) executive or properly incentivizing that executive with a particular mix of compensation elements. This is partially due to the modesty of the tax penalties imposed to this point. But because even critics of executive compensation practices believe that there is substantial heterogeneity among firms regarding optimal compensation practices, tax levers are apt to remain weak in future attempts to influence pay-setting out of a fear of coercing firms to pay executives in inefficient ways.
As Democrats and Republicans haggle over federal taxes and spending, another important policy tool gets less attention: regulation.
Government has a variety of ways it can achieve its objectives, including subsidies, taxes and regulation. For example, the government might attempt to help disabled people by subsidizing handicapped-accessible buildings. Or it could levy an extra tax on buildings that are not handicapped-accessible. Or it could simply refuse to permit structures to be built, or used in various situations, without being handicapped-accessible.
All three strategies are likely to affect building activity, increase the prevalence of handicapped-accessible buildings and in so doing help people with disabilities, as intended. The first strategy is ordinarily called government spending; the second, taxation; and the third, regulation. Private-sector activities to comply with regulation do not appear in the government budget, whereas private-sector interactions with tax and spending programs do, in terms of the amount of money they pay or receive. ...
Because regulations have so far been poorly quantified, it is interesting to see a recent study of workplace regulation by complianceandsafety.com. It attempts to measure the aggregate of importance of workplace regulation by the dollar amount of fines collected by the Occupational Safety and Health Administration. Its chart, reproduced below, looks at the fines in reverse chronological order, and colors years according to the political party of the president in power.
OSHA fines have increased sharply since 2009. Perhaps more surprising is that the largest fine increases previously were under a Republican president (the first President George Bush) and the largest reductions were under President Bill Clinton.
As with taxes and spending, we cannot necessarily conclude that more regulation is “bad” or “good,” but it would be helpful for experts and voters alike to see a rigorous accounting for government regulation.
Following up on my post on the recent article by Tax Prof Theodore P. Seto (Loyola-L.A.), Where Do Partners Come From?, 62 J. Legal Educ. 242 (2012): my Pepperdine colleague Rob Anderson argues in a series of posts on his Witnesseth -- Law, Deals & Data blog that a better ranking of law schools by the number of BigLaw partners they produce would take class size into account through a per capita measure rather than a raw number measure:
- Bloated Is Better for Law School Rankings (Dec. 14, 2012)
- Where Partners Really Come From... (Dec. 18, 2012)
- A Last Word on the Seto Rankings (Dec. 23, 2012)
Bruce Bartlett, U.S. Taxes and Government Benefits in an International Context, 137 Tax Notes 1429 (Dec. 24, 2012):
Bruce Bartlett reviews new international data on taxes and healthcare spending as a share of GDP in OECD countries and suggests that Americans' antipathy to taxes may be a function of the modest benefits they receive from government in contrast to those in high-tax countries.
All Tax Analysts content is available through the LexisNexis® services.
Tax competition is with us to stay, and the drive toward territorial taxation of multinationals will continue. Ultimately, it makes sense to tax corporations on a source basis because corporate residence is not very meaningful. But if the correct reforms to CFC rules are undertaken together with enhanced transfer pricing enforcement (e.g., by combining the arm's length standard with formulary solutions, as I have suggested elsewhere), such trends are not necessarily harmful to maintaining a stable corporate tax base.
Tuesday, December 25, 2012
The Wall Street Journal has published this wonderful editorial each Christmas since 1949, In Hoc Anno Domini:
When Saul of Tarsus set out on his journey to Damascus the whole of the known world lay in bondage. There was one state, and it was Rome. There was one master for it all, and he was Tiberius Caesar.
Everywhere there was civil order, for the arm of the Roman law was long. Everywhere there was stability, in government and in society, for the centurions saw that it was so.
But everywhere there was something else, too. There was oppression -- for those who were not the friends of Tiberius Caesar. There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or to fill the hungry treasury from which divine Caesar gave largess to the people. There was the impressor to find recruits for the circuses. There were executioners to quiet those whom the Emperor proscribed. What was a man for but to serve Caesar?
There was the persecution of men who dared think differently, who heard strange voices or read strange manuscripts. There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage. And most of all, there was everywhere a contempt for human life. What, to the strong, was one man more or less in a crowded world?
Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar's and unto God the things that are God's.
And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.
Read the rest here.
U.S. Federal agents arrested Santa Claus earlier today at the North Pole. ... [The Acting IRS Commissioner] has released the following statement:
At long last, the notorious tax cheat, Santa Claus, has been apprehended. He has been living in a foreign country for the last 50 years and during that time he has not filed his US taxes even once. It has become clear, however, that he has run a lucrative business at the North Pole and has never reported any of the income. In addition to criminal tax evasion, we intend to charge Santa Claus with 190 counts of criminal failure to file Foreign Bank Account Reports (FBAR), as we found evidence in his papers that he is operating or has signing authority on bank accounts in 190 different countries. It is our contention that the fines alone could help us bring billions in revenue into the United States government.
According to United States law, all United States Citizens are required to pay taxes to the IRS and to report any foreign bank accounts. Failure to obey these filing requirements may result in civil and criminal penalties including imprisonment.
The Obama administration declared that they were very pleased with the news.. ”It is about time,” Obama said from his Hawaiian retreat, “that the United States returned those who have fled the country just because they don’t feel like paying their fair share anymore.”
(Hat Tip: Andy Morriss.)
This is the third edition of the World Giving Index, the largest study into charitable behaviour across the globe, involving 160 countries in total.... The Index is based on an average of three measures of giving behaviour - the percentage of people who donate money to charity, volunteer their time, and help a stranger, in a typical month. ...
The report includes:
- analysis of levels of giving worldwide
- an index of all countries ranked by their average on the three behaviours
- insight into fluctuations in the three giving behaviours
- commentary on changes over time, including by country, by region and across continents
- recommendations for what governments, companies, individuals, and civil society organisations can do to enhance giving
Brittany N. Brantley (J.D. 2013, Notre Dame), Note, Beyond Politics in the Pulpit: When Pastors Use Social Networks to Preach Politics, 38 J. Legis. 275 (2012):
[T]he development of the Internet and Social Networks have given churches and their pastors another medium to communicate with a broader number of people and spread their gospel. Increasingly, pastors are creating Facebook and Twitter pages to relay their religious messages. However, the problem arises when a Pastor uses those same pages to relay his personal feelings about politics. Part II of this note will provide an overview of the history of the political campaign prohibition. Part III will explain how churches have attempted to be completely exempt from the prohibition. Part IV will discuss the acts of Individuals of a section 501(c)(3) organization in their individual capacities. Part V will discuss how the development of the Internet has broadened the scope of the prohibition. It will also discuss how pastors use their websites and social media pages. Finally, Part VI will suggest some steps that the Internal Revenue Service and the Federal Election Commission can take to ensure that section 501(c)(3) organizations are aware of what constitutes a violation on social media pages.
Monday, December 24, 2012
Republicans have proposed a new debt deal that includes higher taxes on the wealthiest 2% on the condition that Obama hands over his daughters' dog.
There’s a little-known open secret in the Vatican gardens, a few paces behind St. Peter’s Basilica and tucked inside the Vatican’s old train station: a sprawling, three-story tax-free department store that rivals any airport duty free or military PX. ...
There’s a hitch, however. It’s not open to the public, only to Vatican citizens, employees and their dependents, diplomats accredited to the Holy See and (unofficially) their lucky friends who, after stocking up on holiday must-haves, proceed to the checkout with their Vatican connection and the ID card that entitles them to shop there.
- UCLA Law Prof Lets Needy Strangers Live Rent-Free in His House: Cool or Crazy?
- WSJ: Two Fiscal Cliff Tax Debacles: Reduced Tax-Home Pay, No Tax Filing Until March 31
- ABA: Law Schools Admit More Non-J.D. Students to Offset Decline in J.D. Enrollment
- NY Times: Congress Must Preserve the Low-Income Housing Tax Credit
- Our Christmas Gift
- Deconstruction Deduction: Home Disassembly and Charitable Donation Rather Than Demolition Yields Big Tax Savings
- Top 5 Tax Paper Downloads
- Excess Profits Taxes and § 901
Sunday, December 23, 2012
Yesterday morning, my son was on a bus on I-80 with 52 other Grinnell College students heading to the Des Moines airport to fly home for the Christmas holiday when the driver suffered a fatal heart attack. The bus veered off the highway to the right, into a snowbank from the 12 inches of snow that fell in Iowa last Thursday. Miraculously, none of the students were injured, and after being transported to the hospital in Newton, Iowa, Grinnell arranged for alternative transportation for the students to the airport. My son made it home safely last night. My wife and I are so very thankful, especially in light of the tragic events in Newtown, Connecticut -- Christmas will be especially poignant for us this year. Our hearts go out to the bus driver's family.
Deconstruction Deduction: Home Disassembly and Charitable Donation Rather Than Demolition Yields Big Tax Savings
Wall Street Journal: The Demolition Discount:
Scott and Pamela Weiss paid a little under $5 million for a home in Palo Alto, Calif., last year. Come tax time, they expect to get back about $66,000 for tearing it down.
That's because the Weisses, who are spending more than $4 million to build a new home on the site, took down the original home using a method known as "deconstruction." In this process, a crew carefully dismantles an older property by hand instead of using bulldozers. The process costs more than a straightforward demolition—the Weisses paid more than $20,000 for the disassembly, roughly double what they would have paid for a wrecking crew. But they were able to donate home materials such as lumber, roof tiles and even lamps to nonprofits for reuse.
The donated materials were appraised by an appraisal-and-consulting firm at $159,000, which the Weisses can apply to their tax bill to receive a deduction. Based on the Weisses' tax bracket, Ms. Weiss estimates that will ultimately work out to a savings of around $66,000, or more than three times the cost of the deconstruction. ...
Deconstruction is a growing trend, as more homeowners try to avoid the wrecking ball when they remodel or tear down and instead find a way to reuse everything from doors to windows to light switches. Spurring the movement is growing awareness of "green" building, as well as more laws restricting the dumping of building materials into landfills. It doesn't hurt that there's typically a big fat tax break attached, either.While the tax break has been around for decades, deconstruction had mostly occurred in fits and starts in pockets across the country, including a wave in the 1990s. This current surge is centered in wealthy enclaves along the West Coast, in areas such as Silicon Valley and cities including San Diego, Los Angeles, Portland, Ore., and Seattle. Many of those locales share a distinctive set of features: populations with eco-friendly mind-sets; an older housing stock ripe for tear downs; strict environmental laws and moneyed residents eager for a substantial tax credit. ...
The ReUse People of America, a nonprofit building-materials salvage and reuse organization with 13 offices nationwide, says it has done 250 deconstructions this year, up 25% from 2008. The largest slice of the deconstructions—about a fifth—took place in California, says ReUse People's president, Ted Reiff. Outside the West Coast, cities such as Chicago and Durham, N.C., also had a sprinkling of deconstructions, he says.
For the tax consequences of the alternative strategy of claiming a charitable deduction for the donation of a home to a fire department for demolition as a training exercise, see:
- 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)
- District 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)
- Tax Court Denies Charitable Deduction for Home Donated to Fire Department and Burned Down in Training Exercise (June 28, 2012)
There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new paper debuting on the list at #4. The #1 paper is #5 in all-time downloads among 8,858 tax papers:
1. [4109 Downloads] Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law, by Gerald T. Prante & Austin John (both of Lynchburg College, School of Business and Economics)
2. [239 Downloads] Taxation in the Bible, by Geoffrey P. Miller (NYU)
3. [220 Downloads] Technological Innovation, International Competition, and the Challenges of International Income Taxation, by Michael J. Graetz (Columbia) & Rachael Doud (J.D. 2012, Yale)
4. [212 Downloads] The End of Taxation without End: A New Tax Regime for U.S. Expatriates, by Bernard Schneider (Queen Mary, University of London School of Law)
5. [168 Downloads] Romney's Tax Plan Won't Work Like Reagan's Did, by Bruce Bartlett
This paper analyzes the U.K. Windfall Tax's creditability under § 901 of the Internal Revenue Code and its associated regulation. When this paper was originally written in the fall of 2011, the United States Tax Court had found the U.K. Windfall Tax creditable in two cases. Both were appealed to separate circuits, and while the Entergy case was affirmed, the PPL case was reversed. The Supreme Court has since granted certiorari and will resolve the circuit split this year.
This paper shows that the U.K. Windfall Tax is a creditable tax regardless of the regulation requiring litigants to demonstrate that the tax is an "income tax" for creditability. This paper will also be substantially revised before it is published due to new developments in the case. It uses historical evidence of the 1940s-era Excess Profits Tax to show that the U.K. Windfall Tax fits squarely into the definition of excess profits taxes contemplated by Congress when they passed the Revenue Act of 1918, from which the current § 901 came verbatim.
Saturday, December 22, 2012
When Tony Tolbert turned 50 last year, he marked the occasion by moving in with his mother.
The decision wasn't about money. He's a Harvard-educated attorney, on the staff of UCLA's law school. And it wasn't because his mother wanted or needed him home.
It was Tolbert's response to the sort of midlife milestone that prompts us to take stock. Instead of buying a sports car, he decided to turn his home — rent free — over to strangers.
He'd been inspired by a magazine article about a family that sold their house, squeezed into a tiny replacement and donated to charity the $800,000 proceeds from the sale. "It just struck me how powerful a gesture that was," Tolbert said. "It challenged me to think about what I could do, where I might have some overflow in my life."
His overflow was a modest home on a quiet tree-lined street a short walk from Crenshaw Boulevard. He'd lived there alone for 10 years.
Last January, he moved out and a young single mother with three little children moved in. A South Los Angeles domestic violence program chose the family from its shelter and brokered the deal. He agreed to let her pay one dollar a month, and imposed on her only one rule: "Whatever has to happen to keep things drama free, that's what I need you to do." ...Tolbert left the good furniture for the woman who moved in. He didn't hide his grandmother's heirloom quilt or put away the fine art."I told her straight out, this is my home. I'm leaving these things for you to enjoy. I want you to be comfortable here."
That was a learning process for Tolbert: "It was a good exercise in not grasping and hanging on to stuff.... Short of them burning the house down, I had to accept that whatever they tear up, it can also be repaired." ... "I'm just a regular dude," he said. "I'm not brave. I'm not a millionaire, with houses to burn. I just wanted to do something to help somebody."
Wall Street Journal Tax Report: Paycheck Debacles, by Laura Saunders:
Lawmakers are working to keep the country from going over the "fiscal cliff," but already they have caused two snafus that will soon hit millions of pocketbooks—and maybe even the economy.
The first involves take-home pay, which could be lower than expected for many workers. Until Congress sets next year's tax rates, the IRS can't issue 2013 withholding tables, and employers in turn can't adjust computers and paychecks. ...
The other snafu is a certainty as well: a several-week delay in the coming tax filing season. This exists because several fiscal-cliff-related tax provisions expired at the beginning of 2012. The most important is an adjustment to the alternative minimum tax; others include popular breaks such as deductions for state and local sales taxes, tuition and fees, and schoolteachers' expenses, plus the charitable individual retirement account donation for people 70½ and older.
IRS Acting Commissioner Steven Miller warned in two recent letters to House Ways and Means Committee members that if lawmakers don't fix the alternative minimum tax, there will be dire consequences. Not only will the number of AMT payers swell to 34 million from about 4 million, but the agency's computers will have to be reprogrammed. Up to 100 million taxpayers—two-thirds of the total—might not be able file 2012 taxes before the end of March or even later, he said.
Enrollment in non-J.D. programs at ABA-approved law schools has increased markedly since 2000, partly offsetting declines in J.D. enrollment during the same period, according to preliminary data released today by the ABA Section of Legal Education and Admissions to the Bar.
ABA-approved law schools reported a 39% increase in enrollment in non-J.D. programs from 2005 to 2012 and a 52% increase from 2000 to 2012, according to data provided to the section.
Preliminary data released by the ABA in November show that first-year enrollment in J.D. programs fell by 8% between 2005 and 2012. First-year enrollment in J.D. programs was 1% higher in 2012 than in 2000. Total enrollment in J.D. programs was 11% higher in 2012 than in 2000 but fell slightly between 2005 and 2012.
- ABA Journal, Enrollment in Non-J.D. Programs at U.S. Law Schools Is Up, Figures Show
- National Law Journal, Non-J.D. Candidates Easing the Strain on Law Schools
New York Times editorial: A Tax Credit Worth Preserving:
Lawmakers interested in simplifying the corporate tax code must take care to protect the low-income housing tax credit, which allows corporations to reduce their tax liabilities by investing in affordable housing. Without it, affordable-housing construction, which already falls far short of the need, would quickly grind to a halt.
Created by Congress in 1986, the credit is available to investors prepared to sink money into new or rehabilitated low-income housing. It is responsible for about 90 percent of all the affordable housing that is built in this country, and has provided more than 2.5 million rental units since its inception. It also produces as many as 100,000 jobs each year.
The system is especially useful in times of disaster. After Hurricanes Katrina and Rita, for example, the credits were used to finance about 27,000 affordable homes and apartments in the affected states. This same mechanism could be extremely useful in the wake of Hurricane Sandy.
(Hat Tip: Mike Talbert.)