January 31, 2013
Bank: Kaka, Beckham, and Taxes
Steven Bank (UCLA), Kaka, Beckham, and Taxes:
With the transfer window winding down, Kaka, a favored target of both the New York Red Bulls and the Los Angeles Galaxy in MLS, as well as AC Milan in Serie A, appears to be staying put. At the same time, David Beckham, formerly of the Galaxy, has reportedly been dubbed an “MLS Recruitment Officer” and has been trying to persuade English stars such as Frank Lampard, Steven Gerrard, and Ashley Cole to ply their trades in America. Ironically, the difficulty in moving Kaka in part ties back to Beckham. Kaka may still move, but if he doesn’t it could be because of taxes.
When Beckham was signed by Real Madrid, Spain enacted a provision now referred to as the "Beckham Law," which provided a flat 24% rate for foreign residents. The law wasn't specifically enacted for him, but he was one of the first and certainly the most prominent individuals to utilize it after it was enacted in 2005. It permitted non-residents who moved to Spain as a result of a signed labor contract to choose to be taxed under resident rules or non-resident rules for a period of five years, with the non-resident rules carrying the low flat rate instead of the high progressive rate applicable to residents and exempting income earned abroad from Spanish taxation. The goal was to induce high income CEOs to relocate their businesses to Spain. The Beckham Law became a bit of a failure, though, since it primarily attracted footballers to La Liga from the EPL (where the UK had increased its rates on high income individuals around the same time).
For players currently thinking about a move to La Liga in this transfer period, the Beckham Law is no longer available. It was amended in 2010 to limit its effect to those making no more than €600,000 and was finally repealed in 2012. Kaka, though, signed with Real Madrid before 2010 and is still grandfathered into the old tax rate under his existing contract. If he moves or amends his contract, he will no longer enjoy the low flat tax rate. For a club seeking to match his after-tax compensation, the Beckham Law is soccer’s version of a poison pill.
Raskolnikov Presents Are Graduated Tax Penalties Efficient? Today at Columbia
Alex Raskolnikov (Columbia) presents Are Graduated Tax Penalties Efficient? at Columbia today as part of its Faculty Workshop Series:
This essay searches for an efficiency-based justification of graduated tax penalties and finds none. The optimal deterrence approach successfully used in many areas of economic regulation is unhelpful in designing the real-life tax rules and sanctions because the ideal tax system is so different from the real one. More limited inquires focusing on various partial tradeoffs for assessing tax rules and penalties are incomplete, indeterminate, or implausible. Arguments suggesting that graduated tax sanctions are efficient for the reasons unrelated to the efficiency of the underlying substantive rules are mistaken or lack empirical support crucial for their validity.
McMahon Presents The Comings and Goings of Disregarded Entities Today at Northwestern
Martin J. McMahon, Jr. (Florida) presents Now You See It, Now You Don’t: The Comings and Goings of Disregarded Entities, 65 Tax Law. 259 (2012), at Northwestern today as part of its Advanced Topics in Taxation Colloquium Series hosted by Herbet Beller, Thomas Brennan, David Cameron, Philip Postlewaite, and Robert Wootton:
While state law recognizes an LLC as a distinct type of entity, an LLC is not a distinct entity for federal tax purposes. An LLC that has two or more owners is treated as either a corporation or a partnership, while an LLC with a single owner will be disregarded for federal income tax purposes unless it elects to be treated as a corporation. In addition to single-member LLCs, the Code and Regulations recognize a second type of disregarded entity — the qualified subchapter S subsidiary (commonly called a QSub). The first part of this Article examines the tax consequences of (1) the formation and dissolution of single member LLCs, (2) check-the-box elections and revocations for a single member LLC, (3) the addition of a second member to an LLC, which converts a disregarded entity into a partnership, (4) the reduction of the number of members of an LLC from two or more to one, which converts the LLC from a partnership into a disregarded entity, (5) the election by a LLC to be taxed as a corporation — including “check and sell” and “check and merge” transactions — and the revocation of an election by an LLC to be taxed as a corporation, (6) the merger of a single member LLC into another LLC or a partnership, and (7) the merger of an LLC into a corporation. The second part of the Article examines the treatment of QSub elections, revocations, and terminations, in various contexts, including merger and acquisition transactions.
NY Times: Law Schools’ Applications Fall as Costs Rise and Jobs Are Cut
New York Times: Law Schools’ Applications Fall as Costs Rise and Jobs Are Cut:
As of this month, there were 30,000 applicants to law schools for the fall, a 20 percent decrease from the same time last year and a 38 percent decline from 2010, according to the Law School Admission Council. Of some 200 law schools nationwide, only 4 have seen increases in applications this year. In 2004 there were 100,000 applicants to law schools; this year there are likely to be 54,000.
Such startling numbers have plunged law school administrations into soul-searching debate about the future of legal education and the profession over all.
“We are going through a revolution in law with a time bomb on our admissions books,” said William D. Henderson, a professor of law at Indiana University, who has written extensively on the issue. “Thirty years ago if you were looking to get on the escalator to upward mobility, you went to business or law school. Today, the law school escalator is broken.”
Responding to the new environment, schools are planning cutbacks and accepting students they would not have admitted before.
A few schools, like the Vermont Law School, have started layoffs and buyouts of professors. Others, like at the University of Illinois, have offered across-the-board tuition discounts to keep up enrollments. Brian Leiter of the University of Chicago Law School, who runs a blog on the topic, said he expected as many as 10 schools to close over the coming decade, and half to three-quarters of all schools to reduce class size, faculty and staff. ...
“Students are doing the math,” said Michelle J. Anderson, dean of the City University of New York School of Law. “Most law schools are too expensive, the debt coming out is too high and the prospect of attaining a six-figure-income job is limited.” ...
“In the ’80s and ’90s, a liberal arts graduate who didn’t know what to do went to law school,” Professor Henderson of Indiana said. “Now you get $120,000 in debt and a default plan of last resort whose value is just too speculative. Students are voting with their feet. There are going to be massive layoffs in law schools this fall. We won’t have the bodies we need to meet the payroll.”
- ABA Journal, ‘Massive Layoffs’ Predicted in Law Schools Due to Big Drop in Applicants
- Above the Law, Quote of the Day: The Law School Dream Is Dead
- The Atlantic, Law School Applications Are Collapsing (As They Should Be)
- Paul Campos (Colorado), Professor Makes Bizarre Claim That There's an 'Exploding Demand' for Lawyers
- Forbes, Does America Need 202 Law Schools?
- Law School Tuition Bubble, But the Jobs Weren't There to Begin With
- Brian Leiter (Chicago), NY Times Covers Decline in Law School Applications
WSJ: U.S. Ramps Up Offshore Tax Evasion Prosecutions, Nails 79 Year Old Widow
Wall Street Journal: U.S. Is Preparing More Tax-Evasion Cases, by Laura Saunders:
The U.S. is expanding its crackdown of offshore tax evasion, preparing numerous criminal cases against suspected offenders, defense lawyers involved in the cases say.
Four years after an agreement between the U.S. and Switzerland pierced a veil of banking secrecy by requiring Swiss bank UBS to turn over names of account holders, defense lawyers estimate that federal prosecutors are conducting at least 100 criminal investigations against suspected tax evaders.
The moves come as the U.S. is turning the screws on smaller banks that may have helped taxpayers stash money in secret overseas accounts. ...
The U.S. government already has won about 50 criminal cases and collected at least $5.5 billion in connection with undeclared offshore accounts. On Jan. 8, Mary Estelle Curran, a 79-year-old widow best known for volunteer work, pleaded guilty to criminal charges of filing false tax returns and evading about $668,000 in federal tax on $40 million her husband left her in a secret Swiss bank account at UBS. She agreed to pay almost $22 million, which is believed to be the largest penalty in a criminal case on offshore accounts since the UBS agreement.
Ms. Curran is scheduled to be sentenced in West Palm Beach, Fla., federal court March 26. She faces up to six years in prison.
U.S. officials "want to send a message that no one is too old, or too rich, or too poor, or too sympathetic to escape criminal prosecution," said Bryan Skarlatos, a lawyer with Kostelanetz & Fink in New York, whose firm has defended more than 30 taxpayers in criminal investigations involving offshore accounts.
Rosenthal: Taxing Private Equity Funds as Corporate 'Developers'
Steve Rosenthal (Tax Policy Center), Taxing Private Equity Funds as Corporate 'Developers', 138 Tax Notes 361 (Jan. 21, 2013):
Private equity funds manage vast amounts of money: $2.5 trillion in 2010, much more than the $100 billion in 1994. They earn immense profits, largely from selling the stock of acquired and improved companies. This article focuses on the character of the funds' profits. It recommends that the IRS write new regulations to treat the funds' profits as ordinary income in light of the law, Congress's original intent, and tax policy.
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University of Saskatchewan Seeks to Fill a Tax Prof Chair
The Estey Chair in Business Law, established through the generosity of the Estey Family as well as through the support of alumni and friends of the College of Law, University of Saskatchewan, was created to honor the late Supreme Court of Canada Justice Willard “Bud” Estey.
We invite applications from established scholars in the field of business law, defined broadly as including domestic and international structures, governance, transactions, finance, securities, competition, taxation, solvency and related areas.
We are looking for a talented person with an excellent academic background and strong leadership and teaching skills to put his or her imprimatur on the Estey Chair as the first holder of that office. The ideal candidate would be a person with the ability to motivate both colleagues and students alike and who would generate enthusiasm about the College’s business law program. This is a wonderful opportunity for that person to put his or her stamp on that program and to contribute to Canadian business law scholarship generally. The dynamic and evolving nature of the law school will provide the successful candidate with a stimulating and supportive environment in which to use his or her business law skills to explore new areas and to engage with experienced academics and practitioners on leading-edge topics of the day in this field.
Tenure will normally be for one year, but in any event no longer than two years. It is expected that the chair holder will teach courses in the business law area during one semester and disseminate scholarship and engage in outreach activities with the bar, judiciary and the wider community during the other semester of the academic teaching year. Salary will be commensurate with the experience and standing of the holder. Applications will begin to be considered on May 15, 2013. The date for appointment is flexible. However, the ideal candidate would be available to occupy the Chair as of July 1, 2014.
IRS's e-file and Free File Open for Business
IR-2013-14, IRS Kicks Off 2013 Tax Season:
The IRS today opened the 2013 filing season by announcing a variety of enhanced products and services to help taxpayers prepare and file their tax returns by the April 15 deadline.
New and expanded services for taxpayers this year include a redesigned IRS.gov web site that’s easier to navigate and improved service options, including more video-conferencing assistance sites and additional social media tools. In addition, the IRS has stepped up its enforcement efforts to protect taxpayers from refund fraud and identity theft.
The IRS began accepting and processing most individual tax returns today after updating forms and completing programming and testing of its processing systems to reflect the American Taxpayer Relief Act (ATRA) that Congress enacted on Jan. 2. The vast majority of taxpayers can file now, but the IRS is continuing to update its systems for some tax filers. The IRS will begin accepting tax returns from people claiming education credits in mid-February while taxpayers claiming depreciation deductions, energy credits and many business credits will be able to file in late February or early March. A full list of the affected forms is available on IRS.gov.
The Free File Alliance, a nonprofit coalition of industry-leading tax software companies partnered with the IRS, today announced the launch of the 2013 Free File program. Since its inception in 2003, Free File has offered free online commercial tax preparation software for 70% of taxpayers. This year, taxpayers with a 2012 Adjusted Gross Income of $57,000 or less – about 100 million Americans – may visit www.IRS.gov/freefile to prepare, complete and e-file their federal tax returns at no cost.
In addition to offering comprehensive tax services for 70% of taxpayers, Free File also offers basic federal e-filing services with no income limitations. This basic e-filing service, called Free File Fillable Forms, allows taxpayers who are familiar with tax law and need no preparation assistance to complete and file their federal income tax electronically. There are no income limitations to use Free File Fillable Forms.
Tax Foundation: Americans Pay 17.2% in Cell Phone Taxes
U.S. wireless consumers pay an average 17.18% in taxes and fees on their cell phone bill, including 11.36% in state and local charges, according to a newly released study that identifies and calculates wireless taxes and fees.
In Nebraska, the combined federal-state-local average rate is 24.49%, and in six other states (Washington, New York, Florida, Illinois, Rhode Island, and Missouri) it exceeds 20%. Twenty-six states have average state-local wireless taxes and fees in excess of 10%, and taking into account the infamous federal telephone excise tax (dating to the Spanish-American War and partly repealed in 2006), cell phone subscribers in seven states pay more than 20 percent in taxes. (See the table for a full list.)
Table: Taxes and Fees on Wireless Service, July 2012
Combined Federal-State-Local Rate
U.S. Simple Average
U.S. Weighted Average
District of Columbia
Sanchirico: Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains?
TaxVox Blog: Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains?, by Chris William Sanchirico (Pennsylvania):
House Ways and Means Committee Chairman Dave Camp (R-MI) has proposed requiring most derivatives investors to pay tax on their annual returns even if they don’t realize their gains by selling their securities. This proposal, which requires investors to mark-to-market the value of financial derivatives, has ramifications far beyond the heady world of high-tech finance. It implicitly challenges our most basic and firmly held beliefs about why we tax investment gains the way we do.
Camp’s plan raises two key questions: First, should mark-to-market be required for all investment assets, not just derivatives? Second, does his proposal fracture one of the main justifications for taxing long term capital gains at roughly half the rate on ordinary income? ... Camp’s proposal is more than food for thought regarding derivatives. It’s a four-course meal for fundamentally rethinking how we tax investment gains.
January 30, 2013
Sanchirico Presents Optimal Tax Policy and the Symmetries of Ignorance Today at Duke
Chris William Sanchirico (Pennsylvania) presents Optimal Tax Policy and the Symmetries of Ignorance, 66 Tax L. Rev. ___ (2012), at Duke today as part of its Tax Policy Workshop Series:
What government-observable characteristics should determine the taxes that an individual pays and/or the transfers that she receives? This article focuses on a specific aspect of this fundamental question of tax policy: the implications of policymakers’ uncertainty regarding the outcomes of tax policy choices. The article identifies and questions two implicit premises in policy-uncertainty-based arguments against including taxable attributes other than labor earnings in the base. The first is that greater uncertainty surrounds the optimal taxation of non-labor-earnings attributes than surrounds the optimal taxation of labor earnings. The second is that tax policymakers ought to follow a kind of precautionary principle under which uncertainty regarding an attribute counsels base exclusion. The article explains why both premises are flawed.
Johnston: Praise, and Criticism, for an NYT Series on Corporate Welfare
Columbia Journalism Review: Praise, and Criticism, for an NYT Series on Corporate Welfare, by David Cay Johnston:
Many of the most important stories develop for years before they get covered because no one makes an official announcement, there is no central point where events occur, and the facts are scattered, subtle, and sometimes buried. Gene Roberts, the legendary executive editor of The Philadelphia Inquirer, often said these are stories that “ooze.”
In a widely applauded three-part series last month, The New York Times took a long, deep look at an important story that has oozed for decades: state and local subsidies to businesses.
Reporter Louise Story wrote in the first installment that the Times “analyzed more than 150,000 awards and created a searchable database of incentive spending.” The paper pegged the annual cost to taxpayers of the programs it identified at more than $80 billion, though it added that “the cost of the awards is certainly far higher.”
The series drew immediate and profuse praise. ... The series, on a vital but under-covered public issue, deserves much of this acclaim. The package compellingly portrays the power imbalance between corporations and local governments in negotiations over incentives, as well as the uncertain, and often unmeasured, benefits of these subsidies to the states and communities that bestow them.
But within days of publication the series also began to draw measured criticism not from the companies it exposed for taking taxpayer money, but from several of its own sources as well as noted authorities on the subsidy issues. These critiques—which amount to worries that the Times may have simultaneously understated and overstated the scale, and misstated the nature, of subsidies to business—were joined to praise for the effort. But with the Times package drawing mention in local coverage of these issues around the country, it is worth taking a closer look back at the criticisms now, because the series will continue to influence work by other news organizations—especially as state legislatures convene for a new year and budget debates move to the top of the news agenda.
NY Times: For First Time, Workers See Total Cost of Their Health Insurance on W-2
New York Times: To Open Eyes, W-2s List Cost of Providing a Health Plan:
As workers open their W-2 forms this month, many will see a new box with information on the total cost of employer-sponsored health insurance coverage. To some, it will be a surprise, perhaps even a shock....
The disclosures, required by the 2010 health care law, are meant to make workers more cost-conscious. Health benefits are still tax-free. But labor unions and employer groups say it could be easier to tax them in the future, now that employers must report their value to the government.
The new information appears in Box 12 of the standard W-2 form, with a two-letter code, DD. The box shows the “cost of employer-sponsored health coverage.” And that amount is not taxable, the IRS says on the back of the form....
In 2012, according to an annual survey by the Kaiser Family Foundation, premiums for employer-sponsored health insurance averaged $5,615 a year for single coverage and $15,745 for family coverage. Over five years, the costs have increased 25 percent for individual coverage and 30 percent for family coverage.
“Health coverage is a big piece of people’s income and a large part of the social welfare budget,” said C. Eugene Steuerle, a tax economist at the Urban Institute. “But the benefits are not taxable, and most of the spending is hidden, so we don’t consider the trade-offs. If we want to get control of health care costs, people have to be aware of them.”
That is the goal of the disclosure requirement, which was proposed by a bipartisan group of senators: two Republicans, Charles E. Grassley of Iowa and Michael B. Enzi of Wyoming, and two Democrats, Max Baucus of Montana and Ron Wyden of Oregon. ...
The tax-free treatment of employer-provided health benefits is the largest tax break in the tax code, costing the government roughly $180 billion a year in lost revenue, or 80% more than the home mortgage interest deduction, according to the administration.
(Hat Tip: Mike Talbert.)
WSJ: States Embrace Tax Reform to Drive Economic Growth
Wall Street Journal editorial: The State Tax Reformers:
Washington may be a tax reform wasteland, but out in the states the action is hot and heavy. Nine states—including such fast-growing places as Florida, Tennessee and Texas—currently have no income tax, and the race is on to see which will be the tenth, and perhaps the 11th and 12th.
Oklahoma and Kansas have lowered their income-tax rates in the last two years with an aim toward eliminating the tax altogether. North Carolina's newly elected Republican Governor Pat McCrory has prioritized tax reform this year and wants to reduce the income tax. Ditto for another newcomer, Mike Pence of Indiana, who has called for a 10% income-tax rate cut. Susana Martinez, New Mexico's Republican Governor, has called for slashing the state corporate tax to 4.9% from 7.6%, and the first Republican-controlled legislature since Reconstruction in Arkansas is considering chopping its tax rates by as much as half.
But those are warm-up acts compared to Nebraska Governor Dave Heineman's announcement this month that he wants to eliminate the state income tax and replace it with a broader sales tax. ... Then there's Louisiana Governor Bobby Jindal, who wants to zero out his state's income tax (top rate 6%) and the 8% corporate tax and replace them by raising the state's current 4% sales tax. ...
A new analysis by economist Art Laffer for the American Legislative Exchange Council [Rich States, Poor States] finds that, from 2002 to 2012, 62% of the three million net new jobs in America were created in the nine states without an income tax, though these states account for only about 20% of the national population. ...
This state reform trend is a rare bright spot in the current high-tax era, and it will further sharpen the contrast in economic policies between GOP reform Governors and the union-dominated high-tax models of California, Illinois, New York, Massachusetts and now Minnesota, where last week Governor Mark Dayton proposed a huge tax hike. Let the policy competition begin.
NY Times: Is U.S. Ready for a Carbon Tax to Tackle Climate Change?
New York Times: In Energy Taxes, Tools to Help Tackle Climate Change:
The erratic weather across the country in the last couple of years seems to be softening Americans’ skepticism about global warming. ... In his inaugural address, President Obama wove Hurricane Sandy and last year’s drought into a stirring plea to address climate change. “The failure to do so would betray our children and future generations,” the president said.
But even as he put global warming at the top of his agenda, he avoided dwelling on how much it would cost to address. And nowhere in his speech did he allude to the most powerful tool to address the problem: a tax on the use of energy. ...
Top economists agree a tax on fuels and the carbon they spew into the atmosphere would be the cheapest way to combat climate change. Most advanced countries rely on some variant of this tax. The question is whether the prospect of more droughts and more powerful hurricanes will push Americans to embrace it, too.
Among the 34 industrialized nations of the Organization for Economic Cooperation and Development, these taxes average about $68.4 per metric ton of carbon dioxide. The United States, by contrast, has a gas tax to pay for highway improvement, and that’s about it. Total federal taxes on energy amount to $6.30 per ton.
Some states add excise taxes — California has a gas tax equivalent to about $46.50 per ton of carbon dioxide and a $2.33-per-ton tax on jet kerosene. But, according to a review by the O.E.C.D., the federal government is unique in imposing no taxes on other energy use, from residential heating to power generation.
A tax on energy could single-handedly take on climate change. For starters, it would encourage people and businesses to burn less, reducing emissions at a stroke. One study found that a carbon tax of $15 per ton would reduce greenhouse emissions by 14% as people sought to save energy by driving less, insulating their homes and switching to renewable fuels, among other things.
What’s more, it would raise lots of money. Estimates reviewed in a report by the Tax Policy Center ranged from 0.6 percent of the nation’s gross domestic product — for a tax of $20 per ton of carbon dioxide — to 1.6% of GDP for a tax of $41 per ton. Consider this: 1.6% of GDP is $240 billion a year. And $41 per ton amounts to an extra 35 cents a gallon of gas.
(Hat Tip: Mike Talbert.)
USC Tax Institute
The USC Gould School of Law Tax Institute concludes today with its Estate Planning session. I am honored to deliver the keynote address on Occupy the Tax Code: Using the Estate Tax to Reduce Inequality, 40 Pepp. L. Rev. ___ (2013) (with James R. Repetti (Boston College)):
Inequality has been increasing in the United States. We should care about this increase because inequality contributes to a variety of adverse social consequences that persist across generations. There is also substantial empirical evidence that inequality has a long-term negative impact on economic growth.
For many decades, federal tax policy has played an important role in reducing inequality, although the impact of federal taxes on inequality has waxed and waned depending on the focus of elected officials. We argue that the estate tax is a particularly apt vehicle to reduce inequality because inheritances are a major source of wealth among the rich, and studies suggest that inherited wealth has a more deleterious impact on economic growth than inequality caused by self-made wealth. Although there are loopholes in the estate tax, it is still effective in moderating the amount of wealth that is passed within a family from generation to generation.
The major criticism about the estate tax—that it discourages savings—is inaccurate. Standard tax theory cannot predict the impact of the estate tax on savings and the empirical evidence is mixed. Moreover, the estate tax has a less harmful impact on savings than the income tax for two reasons. First, the event that triggers estate tax liability—death—is ignored by taxpayers during the period of life in which they are likely to be most productive. Second, the expected value of the estate tax’s effective rate is quite low during the period of life in which most taxpayers create wealth.
Other speakers today include:
- Ronald D. Aucutt (McGuireWoods, Tysons Corner, VA)
- M. Katharine Davidson (Holland & Knight, Los Angeles)
- Jeffrey N. Pennell (Emory University School of Law)
- Scott S. Small (Wells Fargo, Philadelphia)
- Diana S.C. Zeydel (Greenberg Traurig, Miami)
Johnston: Dell's Multiple Restructurings Aid It in Tax Avoidance
David Cay Johnston, Dell's Multiple Restructurings Aid It in Tax Avoidance, 138 Tax Notes 499 (Jan. 28, 2013):
David Cay Johnston discusses a restructuring by Dell Inc. that would enable it and other U.S. multinationals to avoid being taxed on their U.S. profits.
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A Distributional Analysis of the Tax Systems in All 50 States
The Institute on Taxation & Economic Policy today released Who Pays? A Distributional Analysis of the Tax Systems in All 50 States (4th ed. Jan. 2013):
The 2013 Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States (the fourth edition of the report) assesses the fairness of state and local tax systems. The report measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia. It discusses state tax policy features and includes detailed state-by-state profiles providing essential baseline data for lawmakers seeking to understand the effect tax reform proposals will have on constituents at all income levels.
The main finding of this report is that virtually every state’s tax system is fundamentally unfair, taking a much greater share of income from middle- and low-income families than from wealthy families. The absence of a graduated personal income tax and the over reliance on consumption taxes exacerbate this problem in many states. ...
Ten states rank as having the most regressive overall tax systems. In these “Terrible Ten” states, the bottom 20 percent pay up to six times as much of their income in taxes as their wealthy counterparts.
Tax Foundation: Where Do State and Local Governments Get Their Revenue?
Tax Foundation: Where Do State and Local Governments Get Their Revenue?:
CBPP: Pease Provision in Fiscal Cliff Deal Won’t Affect Charitable Giving
Center on Budget and Policy Priorities: “Pease” Provision in Fiscal Cliff Deal Doesn’t Discourage Charitable Giving and Leaves Room for More Tax Expenditure Reform:
The recent “fiscal cliff” deal reinstated a limit on itemized deductions for high-income taxpayers known as the “Pease” provision, which policymakers created as part of the 1990 bipartisan deficit-reduction package but which the Bush tax cuts phased out between 2006 and 2010. In recent days, some pundits and leaders of some charitable organizations have suggested that because Pease limits the total amount of itemized deductions that high-income filers can claim, it will reduce the incentive for taxpayers to donate to charity. That suggestion is incorrect, however, as a close look at Pease makes clear.
As an important new paper from the Urban Institute and Tax Policy Center shows, the fiscal cliff law’s tax provisions will increase charitable giving, not reduce it. The analysis — whose authors include C. Eugene Steuerle, a leading expert on these issues — estimates that the new law will boost charitable giving by $3.3 billion a year, or 1.3%, compared to what it would have been if policymakers had extended the tax laws that were in place in 2012. The increase results mainly from the rise in the top marginal income tax rate to 39.6%, which raisesthe value of the charitable deduction.
The Urban Institute-TPC analysis also explains that “the Pease limitation has negligible effects on the tax incentive for charitable giving” (emphasis added). It shows that for people in the top income tax bracket, the tax benefit of making charitable donations will rise from 35 cents in less tax liability for each additional dollar in charitable giving to 39.6 cents per dollar — an increase in the tax incentive that Pease does not affect.
January 29, 2013
McCaffery Presents Bifurcation Blues: The Problems of Leaving Redistribution Aside Today at NYU
Edward McCaffery (USC) presents Bifurcation Blues: The Problems of Leaving Redistribution Aside at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) and William Gale (Tax Policy Center; visiting at NYU):
Update: Dan Shaviro blogs the workshop here.
In short and in sum, the strategy of bifurcation, so elegant and attractive in theory, has been a disaster for advocates of greater redistribution in practice. Now it seems as if the redistributive ship has sailed. Politicians faced with a status quo largely of their own making – illustrating the importance of agenda setting and timing in politics7 – now joined and encouraged by the media and many academics, are considering more changes that will not add much if at all to furthering the goal of economic equality, and certainly will not address wealth inequality. Fiscal policy in times of crisis tends to pit the middle class against the poor, with middle-class tax increases – such as the national-level consumption or valueadded tax (“VAT”) that seems to be slouching ever closer towards us – being needed to save entitlement and other spending programs that help all, including the poor. The changes get scored or perceived as “progressive” because the middle class has more economic resources than the poor. Meantime, the rich get left off the hook – and the really rich stay off it altogether.
If we are serious about changing this situation – and there comes a time when we might just have to admit that we are not serious about doing so – it is time to change the way we do things, fiscally, beginning with the way we think about things. We need a cure for the bifurcation blues.
Washington & Lee Is the Biggest Legal Education Story of 2013
The Legal Whiteboard: Washington & Lee is Biggest Legal Education Story of 2013 (pdf here):
Here it is in a nutshell. There is empirical evidence that Washington & Lee’s experiential 3L curriculum is delivering a significantly better education to 3L students—significantly better than prior graduating classes at W&L, and significantly better than W&L’s primary competitors. Moreover, at a time when total law school applicants are on the decline, W&L’s getting more than its historical share of applicants and getting a much higher yield. When many schools are worried about revenues to survive next year and the year after, W&L is worried about creating the bandwidth needed to educate the surplus of students who enrolled in the fall of 2012, and the backlog of applicants that the school deferred to the fall of 2013. ...
Alas, now we know: There is a market for high quality legal education. It consists of college graduates who don’t want to cast their lot with law schools who cannot guarantee students entree to meaningful practical training. Some might argue that W&L is not objectively better -- that the 3L curriculum is a marketing ploy where the reality falls well short of promotional materials and that, regardless, prospective students can't judge quality.
Well, in fact there is substantial evidence that the W&L 3L program delivers comparative value. The evidence is based on several years' worth of data from the Law School Survey of Student Engagement (LSSSE). I received permission from Professor James Moliterno, someone who took a leadership role in building W&L’s third year program, to share some of the key results (each school controls access to its LSSSE data.). ...
There are three takeaways from this blog post:
- A sizeable number of prospective students really do care about practical skills training and are voting with their feet. W&L has therefore become a big winner in the race for applicants.
- W&L's 3L experiential curriculum is substantial improvement over the curriculum W&L offered in 2004 and 2008; moreover, there is room for even more improvement.
- There is substantial evidence that W&L, with some modest focused energy on the curriculum, is now offering a better educational experience than its peer schools -- albeit, the current grade is a "B" at best for W&L and likely lower for the rest of us. We all, therefore, have a lot of work to do.
The example of the Washington & Lee 3L experiential year ought to be a watershed for legal education. We can no longer afford to ignore data. Through LSSSE, high quality comparative data are cheap and comprehensive. And that information, as we have seen, can significantly improve the value of a legal education.
Epstein: President Obama's Proposed Charitable Deduction Limits Will Hurt the Poor
The received progressive consensus mistakenly pushes hard on limiting charitable deductions and increasing the progressivity of the tax code. ...What is doubly ironic in this situation is that the champions of redistribution seek to neuter the single most effective device for redistribution that is available to modern societies—the charitable deduction. Charities do not specialize in wealth transfers from poor to rich. But, as Diana Aviv, the head of the Independent Sector, has pointed out in her testimony to Congress, private efforts to assist those in need are massive. In my view, they are far more efficient in getting aid to target groups than the United States government is.
It is tempting to think that the limitations on deductions will hurt the rich by cutting back on their deductions. But the burden will fall heavily on the recipients of charitable support, for as the price of making a charitable gift rises (anywhere from 30 to 100 percent), the level of charitable giving will decline. Hurt in the shuffle are, of course, the low-income beneficiaries of charity.
It is also important to note that voluntary charitable contributions are not subject to many of the serious worries that undermine regimes of high taxation. What the current tax deduction does, in effect, is to take income out of a rich person’s tax base if he or she is prepared to give it to others. It protects the incentive to create wealth, as people are far more likely to work hard to generate wealth whose distribution they can direct than to create wealth that the government snatches from them for its own purposes. The constant trade-off between the creation of wealth and the transfer of wealth is far less likely to occur with voluntary transactions than coerced ones.
Why then would the government take steps to cut back on charitable giving? The most obvious explanation is both insidious and dangerous. It is to shrink the size of its main competitors in the private sector in order to increase the dependence of ordinary people on the federal government. ...
The bottom line is that the charitable deduction should stay. It is the rest of the system that stands in desperate need of reform.
Monroe: Rethinking Partnership Tax
Partnerships play an increasingly vital role in the federal income tax. Yet partnership taxation is deeply flawed, with enormously complicated provisions that strain the voluntary compliance mechanism on which the federal income tax relies. This article takes some early steps toward reform, proposing a holistic approach to partnership taxation. The story of partnership taxation is a story of four values – flexibility, efficiency, equity, and simplicity. Their discord has compromised the functionality of partnership taxation, thwarting the achievement of any of its underlying values, eroding public legitimacy, and impairing its ability to achieve systemic ends at great public cost.
The history of partnership taxation suggests a solution: improving the system’s functionality through the unification and harmonization of its values. To that end, this article looks to Ronald Dworkin’s principle of integrity to develop a coherent vision of partnership taxation. It uses the principle of integrity as a compass for the reorientation and recalibration of partnership values, creating a more principled system of partnership taxation where unified and harmonious values work together in service of systemic ends.
This article offers a novel formulation of the problem of partnership taxation, which, in turn, may lead to a novel way of thinking about the solution. The goal is to take partnership taxation apart and put its pieces back together, setting the system on a path to greater functionality. This article does not offer specific statutory or regulatory reforms, but instead seeks a broader vantage point, outlining an intellectual framework by which future reforms can be formulated or evaluated.
Kahn: Tax Expenditures and Accelerated Depreciation
Douglas A. Kahn (Michigan), A Proposed Replacement of the Tax Expenditure Concept and a Different Perspective on Accelerated Depreciation, 40 Fla. St. L. Rev. ___ (2013):
The thesis of this article is that the tax expenditure concept is grounded on an erroneous vision of the structure of an income tax system. The tax expenditure concept adopts a binary view of income taxation. It posits that there is an ideal or pure income tax system whose provisions are elements of the normal structure of that system without any influence from non-tax policy considerations. Tax provisions are described either as falling within those core provisions or outside of them. There are no other categories. To the contrary, this article contends that tax provisions lie on a continuum in which some are in the core and some are at different distances from the core. The author contends that virtually all tax provisions, including those within the core, reflect policy considerations. The decision whether to adopt or retain a provision takes into account both its proximity to the core and also the economic and societal consequences (both positive and negative) that the provision will cause. There is no universal tax system for all times. Tax laws are (and should be) constructed to coordinate with the needs and values of society as they change over time. The article also contends that there is not just one proper method of depreciation, and that accelerated depreciation is as consistent with neutral tax principles as is straight line depreciation.
Gerzog: Wimmer Wins FLP Annual Exclusions
In Wimmer [T.C. Memo. 2012-157], the Tax Court held that the income stream from a taxpayer’s gifts of family limited partnership interests was eligible for the annual exclusion. By comparing the income interest in the partnership’s dividend paying marketable securities to the income interest in a trust, the court made Wimmer a winner. But does the opinion logically lead to that conclusion?
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USC Tax Institute
The USC Gould School of Law Tax Institute continues today with its Partnerships, Individual, and Ethics session. Kathryn Keneally (Assistant Attorney General, Tax Division, U.S. Department of Justice) delivers the keynote address on Tax Issues of Interest to the Department of Justice. Among the other speakers today are:
- Michael D. Fernhoff (Proskauer, New York)
- David L. Friedline (Ernst & Young, New York)
- David B. Goldman (Munger, Tolles & Olson, Los Angeles)
- James M. Lowy (Ernst & Young, San Francisco)
- Blake D. Rubin (McDermott Will & Emery, Washington, D.C.)
- Robert D. Schachat (Ernst & Young, Washington, D.C.)
- Raj Tanden (Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Los Angeles)
- Larry Varellas (Deloitte Tax, San Francisco)
- Thomas S. Wisialowski (Paul Hastings, Palo Alto)
Reynolds: Tax the Revolving Door
When President Obama ran for president in 2008, he promised to "close the revolving door" and clean up both ends of Pennsylvania Avenue, but that hasn't happened. Which isn't to say that it shouldn't happen now. But I don't think the usual ethics-rules approach is enough.
The problem with ethics rules for this sort of thing is that they tend to be ignored, or distorted. So I say, let's involve the most effective behavior-control machinery in America: The Internal Revenue Code.
In short, I propose putting a 50% surtax -- or maybe it should be 75%, I'm open to discussion -- on the post-government earnings of government officials. So if you work at a cabinet level job and make $196,700 a year, and you leave for a job that pays a million a year, you'll pay 50% of the difference -- just over $400,000 -- to the Treasury right off the top. So as not to be greedy, we'll limit it to your first five years of post-government earnings; after that, you'll just pay whatever standard income tax applies. ...
[I]t is a principle of economics that when you tax something, you get less of it. So if we're worried about revolving-door government, we should tax it, so as to get less of it. And since the revolving door generates bad effects for society, taxation would be an appropriate way of discouraging it.
Northeastern Seeks to Hire Lead Tax Faculty
The Northeastern University Masters of Science in Taxation Program is inviting applications for three Lead Faculty Positions:
- Tax Accounting for Income Taxes
- Income Taxation of Trusts and Estates
- Planning for Estate Tax Issues
As the Lead Faculty, your primary role is to coordinate and guide the section instructors, who have primary responsibility for day-to-day interaction with the students and maintaining the course through periodic updates or redesigns. In some cases you may be asked to create, with assistance from EmbanetCompass, additional materials such as voiceovers for electronic slide presentations or short video-clips. You are not expected to create Web pages or work directly with the course delivery technology.
Successful candidates must have a Terminal degree (PhD, JD, LLM or Masters Degree with the Professional designation of CPA). They must also be a Subject Matter Expert and have taught for similar taxation courses (preferably at the Graduate level). Candidates must be Academically Qualified; have at least 2 publications in either an academic or professional journal within the past 5 years, as well as 5+ years of professional work experience in taxation preferred.
Compensation for the Lead Faculty position with Northeastern University’s MST program is $10,000 for Course Management.
Interested applicants must submit their CV (indicating their Terminal Degree), at least 2 copies of your academic/professional articles/publications, Copies/synopsis of your student evaluations of teaching, and a detailed description of both your related teaching and professional working experience to: firstname.lastname@example.org.
Diamond Reviews Tamanaha's Failing Law Schools
Stephen F. Diamond (Santa Clara), The Future of the American Law School or, How the 'Crits' Led Brian Tamanaha Astray and His Failing Law Schools Fails (reviewing Brian Tamanaha (Washington U.), Failing Law Schools (University of Chicago Press, 2012)):
Debate over the impact of the economic crisis on the future of the American law school has reached an exceptional level of intensity. Brian Tamanaha’s short book, Failing Law Schools, serves as the manifesto for those who believe the law school must undergo radical restructuring and cost cutting. While there is room for disagreement with almost all aspects of the reform argument no critic of Tamanaha has attempted to place his critique in the context of his pre-existing scholarly work on the rule of law. This review essay argues that only an appreciation for the dual nature of the modern rule of law allows us to explain what is happening to the American law school and to see clearly the limitations of the critics’ arguments. The essay suggests that diversity within a tenure based academic model is a valuable characteristic of the current model that must be preserved.
Other reviews of Failing Law Schools:
- Jennifer Bard (Texas Tech)
- Ray Campbell (Peking University School of Transnational Law)
- Jim Chen (Former Dean, Louisville)
- Chronicle of Higher Education
- Ronald Den Otter (California Polytechnic State)
- Stanley Fish (Florida International)
- Scott Greenfield (here and here)
- Bill Henderson (Indiana)
- Paul Horwitz (Alabama)
- Deborah Jones Merritt (Ohio State)
- Orin Kerr (George Washington)
- Brian Leiter (Chicago)
- Andy Morriss (Alabama)
- National Law Journal
- Philip Schrag (Georgetown)
- Robert Steinbuch (Arkansas-Little Rock)
- Washington Post
January 28, 2013
Call for Contributions: Controversies in Tax Law
Call for Contributions to Controversies in Tax Law: A Matter of Perspective (Anthony C. Infanti, Editor):
The Centre for American Legal Studies at Birmingham City University School of Law in Birmingham, England, has established a “Controversies in …” series of volumes with Ashgate Publishing. The series currently has five books in the pipeline—on equal protection, innocence, the death penalty, health care, and the environment. The newest addition to this series is a volume on controversies in tax law. The proposal for this volume has been accepted by Ashgate, and the book is currently under contract to be delivered in September 2014. ...
Those interested in contributing an essay to this volume should send a proposed title and abstract of no more than 500 words (per individual contribution) to email@example.com. Preference will be given to proposals by pairs of contributors on a predetermined topic (one writing from a critical perspective and the other from a “mainstream” perspective); however, all proposals will be considered and the pairing up of individual proposals will be done wherever possible. The target length for final contributions is 7,500 to 10,000 words. The volume will contain a maximum of eight chapters (and, therefore, eight pairs of essays). The deadline for proposals is March 15, 2013.
NLJ: Applicants Are Avoiding Law School in Droves (Especially Those With 170+ LSATs)
National Law Journal: Avoiding Law School in Droves: The Numbers of Applicants May Slump by 20 Percent:
Nearly everyone in legal education expected the number of law school applicants to fall off this academic year. But they weren't prepared for this.
As of mid-January, 27,891 people had applied for seats in American Bar Association-accredited law schools. That represented a 20 percent decline since last year (and 2012 was hardly a banner year itself, as the number of applicants fell by nearly 14 percent.) If the trend holds through the final months of the admission cycle, law schools would see a 38 percent crash since their peak in 2010. ... At the present rate, between 53,000 and 54,000 applicants will vie for places in ABA-accredited schools this year, down from 68,000 in 2012. ...
Law School Applications v. Enrollment
Law schools basically have two options at this point. ... They can reach deeper into their applicant pools and take students with lower academic credentials, risking their U.S. News and World Report ranking; or accept smaller classes by continuing to insist on higher LSAT scores and undergraduate grade-point averages — both of which are weighted heavily in the magazine's law school rankings. Most schools will probably decide upon a combination of approaches, according to a survey of incoming class sizes and the academic credentials of this year's crop of students at U.S. News' top 100 schools, as reported on their websites.
Interestingly, the decline in law school applications is greatest among those with the highest LSAT scores (170-180, 24%-25% decline) and is least among those with LSAT scores below 140 (15% decline) and 165-169 (16% decline). Full data here.
- ABA Journal, Law School Applicants Could Drop Below 60,000 for the First Time in 30 Years
- Above the Law, Law School Applications Crater
Phil Mickelson and the Sports Star Tax Migration to Florida and Texas
If Lefty moves to a state with no income tax like Florida, he'll find he has plenty of elite athlete company. ...
The benefit of living in a state without an income tax can be diminished by the "jock tax" that states impose on money earned by athletes when they're playing or training in the state. (Luckily for baseball players, spring training is in no-tax Florida or low-tax Arizona.) But in sports like tennis and golf where athletes can train anywhere in the world, a preponderance happen to migrate to states without an income tax. ...
About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?
Prior TaxProf Blog posts:
- Golfer Phil Mickelson Plans 'Drastic Changes' in Response to His 63% Marginal Tax Rate (Jan. 21, 2013)
- Golfer Phil Mickelson Takes a Tax Mulligan (Jan. 23, 2013)
Bucknell Joins Rankings Hall of Shame
Inside Higher Ed: How Much Admission Misreporting?:
Bucknell University [has come] forward to admit that it had misreported SAT averages from 2006 through 2012, and ACT averages during some of those years. ... [T]he inaccurate data resulted from the college leaving some students' scores out of test averages. In a few cases, the omitted students had scores higher than those reported. But most of the excluded students had lower scores, so the result of leaving them out was to inflate Bucknell's averages. "[D]uring each of those seven years, the scores of 13 to 47 students were omitted from the SAT calculation, with the result being that our mean scores were reported to be 7 to 25 points higher than they actually were on the 1600-point scale," said a letter sent to the campus from John C. Bravman, the president. "During those seven years of misreported data, on average 32 students per year were omitted from the reports and our mean SAT scores were on average reported to be 16 points higher than they actually were." ...
In 2012, Claremont McKenna College, Emory University and George Washington University all submitted false data to U.S. News about undergraduate admissions, as did Tulane University's business school with regard to M.B.A. admissions [as well as Illinois and Villanova law schools].
Bucknell is ranked #32 in the current U.S. News National Liberal Arts Colleges Rankings.
NY Times: Italians Have a New Tool to Unearth Tax Cheats
New York Times: Italians Have a New Tool to Unearth Tax Cheats:
Despite the government’s best efforts, tax evasion remains something of a pastime in Italy, where, famously, more than a few of the Ferrari-driving set claim impoverishment when it comes to declaring their incomes.
So this month, not without controversy, the National Revenue Agency decided to try a new tack. Rather than attempting to ferret out how much suspected tax cheats earn, the agency began trying to infer it from how much they spend.
The new tool, known as the “redditometro,” or income measurer, aims to minimize the wiggle room for evasion by examining a taxpayer’s expenditures in dozens of categories, like household costs, car ownership, vacations, gym subscriptions, cellphone usage and clothing. If the taxpayer’s spending appears to be more than 20 percent greater than the income he or she has declared, the agency will ask for an explanation.
(Hat Tip: Mike Talbert.)
Goulder: The Pepperdine Papers: International Tax Advice for Obama's Second Term
Robert Goulder (Tax Analysts), The Pepperdine Papers: Advice for Obama's Second Term:
Last week, the Pepperdine Law Review hosted a unique policy forum: Tax Advice for the Second Obama Administration. The event was organized by Professor Paul Caron and cosponsored by Tax Analysts. Three of the featured papers addressed international reforms and are highlighted below. You can read a synopsis of the Pepperdine conference on Professor Caron's web site, TaxProfBlog and view the video here [list of papers here].
Professor Reuven Avi-Yonah (University of Michigan) segmented his advice chronologically [Corporate and International Tax Reform: Proposals for the Second Obama Administration]. ... Avi-Yonah claims his recommendations (even the minimum tax on foreign profits) do not necessarily conflict with the business sector's demand for a territorial system. It's possible, he says, to achieve territoriality via an inbound dividend exemption — but only after (i) some minimum level of tax has been paid on foreign profits, and (ii) transfer pricing leakage has been fixed. What's most thought-provoking about his paper is the notion that those two reforms might actually enable a shift to a territorial system.
Professor Susan Morse (UC Hastings College of Law) placed the spotlight on aggressive transfer pricing [The Transfer Pricing Regs Need a Good Edit]. She says the task of allocating income and deductions among the foreign affiliates of a large multinational will remain problematic regardless of whether Congress adopts a territorial system. She warns that pressure on current transfer pricing rules will intensify under a territorial regime. ...
Finally, Professor Allison Christians (McGill University) spoke of recent seismic shifts in international taxation [Putting the Reign Back in Sovereign: Advice for the Second Obama Administration ]. As she sees it, the onset of FATCA (the Foreign Account Tax Compliance Act) and EITI (the Extractive Industries Transparency Initiative) reflect the mercenary tendencies of the nation state to assert jurisdiction in ways formerly thought untenable. Christians embraces the notion of information exchange, in theory, but questions whether the compliance burdens are reasonable. Reciprocity remains a legitimate issue. It can be argued that dual-resident Canadian nationals are hard done by FATCA. Personally, I consider her discussion of EITI as the revelation of the conference. Few tax professionals are even aware of the regime's existence. Bravo to Professor Christians for highlighting the issue and framing the issue in such an insightful manner.
USC Tax Institute
The three-day USC Gould School of Law Tax Institute kicks off today with its Business Tax Planning session. Pamela F. Olson (Former Assistant Secretary for Tax Policy, U.S. Department of Treasury; U.S. Deputy Tax Leader and Washington National Tax Services Leader, PricewaterhouseCoppers, Washington, D.C.) delivers the keynote address on The Impact of Transparency on Corporate Taxes, Tax Administration, and Prospects for Tax Reform. Among the other speakers today are:
- William D. Alexander (Associate Chief Counsel, IRS)
- Michael Beinus (Skadden, Arps, Slate, Meagher & Flom, New York)
- Grace M.L. Chen (Latham & Watkins, San Francisco)
- James L. Dahlberg (Deloitte Tax, Washington, D.C.)
- Deborah L. Paul (Wachtell, Lipton, Rosen & Katz, New York)
- David M. Rievman (Skadden, Arps, Slate, Meagher & Flom, New York)
- Mark J. Silverman (Steptoe & Johnson, Washington, D.C.)
- Dale A. Spiegel, Jr. (Ernst & Young, Washington, D.C.)
- Lewis Steinberg (Credit Suisse, New York)
- J. Leonard Teti II (Cravath, Swaine & Moore, New York)
Anderson: Plastic Grocery Bag Bans and the $87,500 Seagull
Law professors Jonathan Klick (U Penn Law) and Joshua D. Wright (George Mason Law) have posted a paper, Grocery Bag Bans and Foodborne Illness, that has been making the rounds in the news and blogs in the last few days. The paper argues that the bans on plastic bags in San Francisco and other California cities have caused a spike in the rate of illness and death from foodborne illnesses such as E. Coli and salmonella.
Cities banned plastic bags in response to claims that the bags increase the costs of waste disposal and harm marine animals. But according to the article, the bag bans have exacted a serious human toll; after San Francisco's enactment of the first major plastic bag ban in 2007 the number of emergency room visits and deaths related to foodborne illness increased sharply. According to the article, the reason may be that consumers rarely wash the bags, mixing residues from raw meat, vegetables, and other items together over time creating a Petri dish of bacteria in which food items marinate. ...
The law profs' study has attracted some significant coverage in the last few days, but the major outlets seem to have overlooked the most astounding calculation from the paper, perhaps because one would need to read the paper to find it. The authors estimate that the additional deaths from the plastic bag ban value each saved animal at $87,500. ...
The plastic bag ban is but one of thousands of examples of regulatory zeal gone awry in California. As I have argued before, California's inability to consider the costs of regulation is turning the state's economy into a rustbelt economy.
Historic Preservation Tax Credit Rules to be Reviewed
Detroit Free Press: Historic Preservation Tax Credit Rules to be Reviewed:
U.S. Interior Secretary Ken Salazar said in Detroit Friday that he has ordered a review of rules governing the use of historic preservation tax credits with a view to making the credits easier to use in cities like Detroit. He made the remarks following a tour of several historic preservation projects accompanied by U.S. Sen. Carl Levin, D-Mich., and Quicken Loans founder and chairman Dan Gilbert.
The U.S. government allows developers of historic properties to take a 20% tax credit of their project costs. The goal is to encourage more preservation of historic architecture. Salazar said that over the years the historic tax credit has been used to renovate 39,000 historic buildings in the U.S., involving $66 billion in private investment and helping create more than 2.2 million jobs. ...
[D]evelopers have long complained that the historic tax credit is difficult to use for a variety of reasons. Salazar acknowledged as much, saying the review he ordered would be completed by March 1.
(Hat Tip: Mike Talbert.)
TaxProf Blog Weekend Roundup
- What's FATCA Got To Do With It? Tina Turner Renounces U.S. Citizenship
- Financial Times: U.S. Taxes: Certain as Death, Complicated as Hell
- 2013 Undergraduate Accounting Program Rankings by Tax Hiring Authorities
- Bloomberg Law: Should Deans be Disciplined for Deceitful Marketing to Students?
- ABA Tax Section Midyear Meeting
- Top 5 Tax Paper Downloads
- Tax Prof Amicus Brief in PPL Corp. v. Commissioner
- Tax Strategy Patents After the America Invents Act
January 27, 2013
ABA Tax Section Midyear Meeting
- Diversity: Lily Kahng (Seattle)
- Employee Benefits: Kathryn Kennedy (John Marshall)
- Foreign Activities of U.S. Taxpayers: Robert Peroni (Texas)
- Individual & Family Taxation and Pro Bono & Tax Clinics: Stephen Black (Texas Tech), Keith Fogg (Villanova), Francine Lipman (UNLV), Beth Lyon (Villanova), David Rice (California Polytechnic), Kathryn Sedo (Minnesota), Carlton Smith (Cardozo)
- Sales, Exchanges & Basis: Bradley Borden (Brooklyn), Erik Jensen (Case Western), Steve Johnson (Florida State), Chris Pietruszkiewicz (Stetson)
- Standards of Tax Practice and Tax Practice Management: Patricia Cain (Santa Clara), Linda Galler (Hofstra), Michael Lang (Chapman), David Rice (California Polytechnic)
- Teaching Taxation: Adam Chodorow (Arizona State), Elaine Hightower Gagliardi (Montana), Tracy Kaye (Seton Hall), Roberta Mann (Oregon), Henry Ordower (St. Louis), Martin McMahon (Florida), Ira Shepard (Houston)
Top 5 Tax Paper Downloads
There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with new papers debuting on the list at #2 and #5:
1. [343 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)
2. [272 Downloads] Why Tax Revenues Must Rise, by Edward D. Kleinbard (USC)
3. [252 Downloads] Important Developments in Federal Income Taxation, by Edward A. Morse (Creighton)
4. [175 Downloads] Taxing Market Discount on Distressed Debt, by Ethan Yale (Virginia)
5. [137 Downloads] The Constitutionality of Grover Norquist's Tax Pledge, by Stephen Patrick Cain Anderson (J.D. 2013, Penn State)
Tax Prof Amicus Brief in PPL Corp. v. Commissioner
Whether, in determining the creditability of a foreign tax, courts should employ a formalistic approach that looks solely at the form of the foreign tax statute and ignores how the tax actually operates, or should employ a substance-based approach that considers factors such as the practical operation and intended effect of the foreign tax.
The Third Circuit's opinion is here. For a detailed discussion of the case, see Jacob Goldin (Ph.D. Candidate (Economics), Princeton University), Reconsidering Substance Over Form in PPL, 137 Tax Notes 1229 (Dec. 17, 2012).
Tax Profs Anne Alstott (Yale), Marvin Chirelstein (Columbia), Mihir Desai (Harvard), Michael Graetz (Columbia), Daniel Halperin (Harvard), Mitchell Kane (NYU), Lawrence Lokken (Florida), Robert Peroni (Texas), and Alvin Warren (Harvard) have filed an amicus brief in support of the IRS. Here is the summary of their argument:
In 1997 the newly elected Labour government of the United Kingdom enacted a Windfall Tax applicable to a relatively small group of privatized regulated utilities that years earlier had been sold to the public at a fixed price (£2.40 a share for the regulated electric companies). For the initial four or five years following privatization, the previous Conservative government had also fixed the prices that these monopolies could charge their customers. The Windfall Tax was designed to redress both undervaluation at privatization (which for petitioners occurred in 1990) and subsequent lax regulation that permitted the utilities to charge unduly high prices during the initial period after privatization. The tax imposed is 23% of the difference between a recomputed share value (based on a fixed price-earnings multiple of earnings) and the lower value at which the shares were actually issued to the public at privatization (the “flotation value”).
Based on a specific mathematical reformulation of the tax, which more than doubles its rate and ignores or obscures important variables, petitioner claims that the UK levy is an “income or excess profits tax” eligible for dollar-for-dollar reimbursement by U.S. taxpayers under the foreign tax credit of § 901 of the Internal Revenue Code. But since the value of an income-producing asset necessarily depends on its earnings, a tax on value can be restated mathematically as if it were an income tax. The idiosyncratic algebraic reformulation on which petitioner rests its entire case is only one of several equivalent mathematical reformulations, a number of which lead to the opposite conclusion that the UK tax at issue here is not a creditable income tax. Petitioner would, in effect, have this Court extend the foreign tax credit well beyond its statutory scope of income and excess profits taxes to a whole host of taxes on value and perhaps even to consumption taxes, none of which have ever been creditable.
Precisely because petitioner’s reformulation would open the door to claims of foreign tax credits for foreign levies based on value, not income, if this Court accepts petitioner’s argument, it would provide a road map to foreign governments, encouraging them to shift the costs of privatization to U.S. taxpayers by initially undervaluing public assets and companies sold to private interests and subsequently imposing a retroactive levy to compensate for the previous undervaluation.
Under petitioner’s approach, U.S. taxpayers would reimburse a U.S. parent company dollar-fordollar for such retroactive payments made by its foreign subsidiaries. The UK tax at issue here is not an income or excess profits tax, and no foreign tax credit should be allowed for it under § 901.
Tax Strategy Patents After the America Invents Act
Nichelle Closson (J.D. 2013, Iowa), Note, Tax Strategy Patents After the America Invents Act: The Need for Judicial Action, 38 Iowa J. Corp. L. 159 (2012):
With the passage of the Leahy-Smith America Invents Act (the Act) in September of 2011, tax strategy patents became one of only three types of business methods that Congress has prohibited the Patent and Trademark Office from issuing -- “the other two are medical procedures (because doctors should be able to use any technique [to save a patient's life]) and nuclear technology (for the obvious reasons).” The passage of the Act finally ended years of debate and controversy surrounding the patentability of tax strategies. This Note examines that controversy, gives a general history of U.S. patent law, and also gives a more specific legislative timeline leading up to the Act. This Note then analyzes what will happen to the remaining tax strategy patents that the Act did not revoke, and it ultimately argues that courts should be the ones to decide this issue, and they should choose to invalidate the patents.
January 26, 2013
What's FATCA Got To Do With It? Tina Turner Renounces U.S. Citizenship
Tina Turner is renouncing her American citizenship to become Swiss, it was revealed today. The American rock diva has lived in the Zurich suburb of Kuesnacht since the mid-1990s and speaks fluent German. The local Zuerichsee-Zeitung newspaper said on its website the local council announced its decision to grant the 73-year-old Turner citizenship in an official notice published in Friday's edition. The decision still requires formal approval from state and federal authorities. ...
Earlier this month, actor Gerard Depardieu announced he was renouncing his French citizenship because of the country's high taxes, and was promptly offered Russian citizenship by President Vladimir Putin. Tina's move has sparked rumors she is following in the footsteps of Depardieu and Facebook's Eduardo Saverin, who now calls Singapore, with its 18% tax rate, home. Wealthy socialite Denise Rich ... renounced her U.S. last year. She was married to billionaire commodities trader Marc Rich, controversially pardoned by Bill Clinton his last day in office. ...
But Forbes says of the singer's move: 'There’s little to suggest taxes motivate the decision, and Swiss rates are high.' ... Her agent did not return MailOnline's request for comment about whether the move was for tax reasons.
- ABC News: Tina Turner to Become Swiss Citizen
- The Atlantic: Why Tina Turner Won't Be an American Citizen Anymore
- Forbes: Swiss Tina Turner Giving Up U.S. Passport
- The Guardian: Tina Turner Takes First Steps to Swiss Citizenship
- L.A. Times: Tina Turner May Become a Swiss Citizen, Give Back U.S. Passport
Financial Times: U.S. Taxes: Certain as Death, Complicated as Hell
Financial Times: US Taxes: Certain as Death, Complicated as Hell:
From small businesses to large companies, and from liberal to conservative politicians, a sweeping consensus has emerged that America’s unwieldy tax system is outdated and in need of repair. ... The US tax code is under scrutiny as an international outlier that is unable to raise sufficient revenue at a time of big budgetary pressures – and is stifling America’s economic potential and competitiveness at a time when the country is desperately seeking to shift towards a faster recovery.
[I]ncome inequality has risen as middle-class wages have stagnated, and America’s dominance in the global market has been challenged by the rise of China and other emerging powers. Changes to the tax code are seen as part of the solution to these problems by many US politicians, economists and policy analysts, although it is unlikely that any overhaul can turn the tide in all those areas at once. ...
But the basic recipe for reform is set. It consists – as in 1986 – of lowering income tax rates while broadening the tax base and paying for the effort by eliminating or limiting certain tax breaks. Some of the groundwork has already been laid. Tax-writing committees in Congress and White House officials have been working on tax reform plans for the past two years. Those plans are ready to be dusted off the shelves when the time is right.
(Hat Tip: Ed Kleinbard.)
2013 Undergraduate Accounting Program Rankings by Tax Hiring Authorities
- Tax LL.M. Program Rankings by Tax Hiring Authorities (Sept. 4, 2012)
Bloomberg Law: Should Deans be Disciplined for Deceitful Marketing to Students?
Following up on my prior post (Subjecting Law School Officials to Professional Discipline for Deceitful Marketing to Prospective Students) on Ben Trachtenberg (Missouri-Columbia), Law School Marketing and Legal Ethics, 92 Neb. L. Rev. ___ (2013):
January 25, 2013
Columbia Journal of Tax Law's Tax Matters: The IRS's Recent REIT Rulings
The Columbia Journal of Tax Law has published the fourth 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 Bradley Borden (Brooklyn):
In several recent private letter rulings, the IRS appears to apply an expansive interpretation of the definition of “real property” and “rents from real property” in relation to real estate investment trusts (REITs). As REITs purchase properties that include renewable assets, such as solar panels and wind turbines, the continuing development of such assets puts further pressure on the definition of real property and rents from real property. Although private letter rulings do not have precedential effect, some practitioners may look to them for guidance regarding specific issues, especially if a transaction comes squarely within, or close to, the four corners of a ruling. If a private letter ruling describes property such as electricity transmission lines, natural gas pipelines, cell towers, billboards, or renewable assets with sufficient specificity, perhaps tax advisors could become comfortable concluding that similar assets would qualify for the treatment granted in the private letter rulings.
What effects, if any, do the series of private letter rulings have on advice practitioners are giving to clients? Do the rulings provide sufficient insight into the IRS’s thinking to extrapolate a general definition of real property and rents from real property? Or should Congress or Treasury develop a general definition of real property and rents from real property? What policy reasons, if any, support an expansive definition of real property and rents from real property?
- Micah W. Bloomfield & Neal D. Richards (both of Stroock & Stroock & Lavan, New York), New Rulings Present Opportunities, but Not Carte Blanche, 4 Colum. J. Tax L. Tax Matters 1 (2013)
- John Patrick Dowdall (Global Renewable Solutions), Defining Real Property and Its Consequences, 4 Colum. J. Tax L. Tax Matters 5 (2013)
- Todd D. Keator (Thompson & Knight, Dallas), REITs and the Expanding Universe of “Rents from Real Property”, 4 Colum. J. Tax L. Tax Matters 12 (2013)
- Michael E. Shaff (Irvine Venture Law Firm, Irvine, CA), The Service’s Trend of Friendly REIT Rulings Continues, 4 Colum. J. Tax L. Tax Matters 17 (2013)
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)
- Michael Graetz (Columbia), Schedule UTP, 3 Colum. J. Tax L. Tax Matters 10-19 (2012)