Sunday, March 31, 2013
Wall Street Journal Tax Report: Last-Minute Tax Tips, by Laura Saunders:
Despite the year-end cliffhanger on Capitol Hill, lawmakers made few surprising changes to the tax code for 2012. But that doesn't mean taxpayers won't stumble into trouble, given the rise of electronic filing, expanded reporting requirements, computerized document matching—and old-fashioned human nature.
Common problems fall into two general categories. One involves flubs for which taxpayers must fork over interest and penalties—or get a smaller refund. The second category of pitfall includes major quagmires that require enormous of amounts of time, money and trouble to resolve.
Some of these tax disasters are self-inflicted, such as neglecting to open mail from the Internal Revenue Service. Others arise from ignorance of the law, such as filing a joint return with a tax cheat. One of the newest and worst tax nightmares, identity theft, can strike without warning.
Here is a breakdown of the thorniest issues, along with ways to avoid them. For more last-minute tax tips, see the articles that follow.
- Taxpayer identity theft
- Failing to declare a foreign account
- Not filing at all
- Not opening mail from the IRS
- Signing a joint return with a tax cheat
- Annoying Tax Errors to Watch Out For This Year
- There Still Is Time to Make These Smart Maneuvers
- Why You Might Need a Six-Month Extension
This week's list of the Top 5 Recent Tax Paper Downloads is the same as last week, with some reshuffling of the order within the Top 5:
1. [466 Downloads] Wealth Transfer Tax Planning for 2013 and Beyond, by John A. Miller (Idaho) & Jeffrey A. Maine (Maine)
2. [365 Downloads] Fundamentals of Gift Tax, by Mark Powell (Chapman) & Andrea Kushner Ross (Karlin & Peebles, Beverly Hills, CA)
3. [364 Downloads] Federal Tax Crimes, by John A. Townsend (Houston)
4. [254 Downloads] Do Capital Income Taxes Hinder Growth?, by Chris William Sanchirico (Pennsylvania)
5. [245 Downloads] Dirt Lawyers, Dirty REMICs, by Bradley T. Borden (Brooklyn) & David J. Reiss (Brooklyn)
The highest court in New York state on Thursday let stand the dismissal by the intermediate appellate and trial court of a proposed class action brought against New York Law School by nine alumni who claimed that the school misrepresented its placement data.
- ABA Journal, Job Stats Suit Against New York Law School Hits Final Roadblock
- JD Journal, Fraud Lawsuit Against New York Law School Dismissed by Appeals Court
- National Law Journal, Alums' Bellwether Fraud Suit Against New York Law School Fails on Appeal
- Thomson Reuters, Dismissal of NY Law School Grads Suit Over Misleading Job Data Stands
Saturday, March 30, 2013
With income inequality at levels not seen since the 1920s, and low economic mobility, some liberals hope that in the coming years our lawmakers will face intense political pressures to maintain, and even raise, taxes on inherited wealth. In this view, economic realities are building a compelling case for a more progressive tax system.
But judging from the experience of other wealthy countries, the opposite may be true. As inequality has risen in the developed world, many governments have been dismantling — not increasing — estate taxes. Countries from Austria to Canada to Sweden have abolished estate taxes outright.
There is nothing inevitable about high estate taxation in a democracy — even in an era of fiscal inequality, and even if a country is in fiscal crisis. Estate taxes have survived when their proponents have demonstrated that they are needed to ensure shared sacrifice in a collective effort. Over the past two centuries this has most often happened during the most extreme instance of national purpose: mass warfare. In an article published last year in the American Political Science Review, we presented evidence covering estate or inheritance tax rates in 19 industrialized countries over two centuries [Democracy, War, and Wealth: Lessons from Two Centuries of Inheritance Taxation:
In this article we use an original data set to provide the first empirical analysis of the political economy of inherited wealth taxation that covers a significant number of countries and a long time frame (1816–2000). Our goal is to understand why, if inheritance taxes are often very old taxes, the implementation of inheritance tax rates significant enough to affect wealth inequality is a much more recent phenomenon. We hypothesize alternatively that significant taxation of inherited wealth depended on (1) the extension of the suffrage and (2) political conditions created by mass mobilization for war. Using a difference-in-differences framework for identification, we find little evidence for the suffrage hypothesis but very strong evidence for the mass mobilization hypothesis. Our study has implications for understanding the evolution of wealth inequality and the political conditions under which countries are likely to implement policies that significantly redistribute wealth and income.]
Our research identifies the political reason that estate taxes, and taxes in general, became more progressive in countries that mobilized for war. Proponents of progressive taxation made a clear case that if the broad population was to sacrifice for the war effort, then on grounds of fairness the wealthy should make a financial sacrifice to pay for the war. ...
The question for supporters of the federal estate tax, and for proponents of progressive taxation more generally, is how the downward trend in estate taxation might be stopped. As the United States shifts to fighting wars with precision weapons and a relatively small volunteer Army, the argument that taxation of the rich is necessary in wartime to ensure equal sacrifice will no longer be convincing. How can one ask the wealthy to sacrifice for war when much of the rest of the population isn’t really sacrificing either?
We believe that the future of the federal estate tax will instead depend on its advocates’ showing that it is needed to ensure shared sacrifice of a new kind in an era of more limited wars. The same can be said for progressive taxation in general. Advocates of progressive taxation cannot assume that rising inequality will create irresistible pressure for higher taxes on inherited wealth. They will need to construct a compelling narrative of shared sacrifice, but shared sacrifice for what?
Our research shows that a narrative like this cannot be constructed out of thin air. It instead requires dramatic external events providing proponents of progressive taxation with a way to recast the debate. It is always possible that economic crisis could constitute such a new event. Absent a new narrative of this sort, we expect a continued, long-run trend toward lower taxation of the rich, and as part of this, lower taxation of estates. This also implies either that federal revenues will not rise — or if they do, then new revenues will most likely come from nonprogressive sources like a national sales tax. In short, the survival of the estate tax, and of progressive taxation as we have known it, may only be temporary.
Barry Currier was named today as the managing director of accreditation and legal education at the American Bar Association. The appointment was announced by Kent Syverud, dean of the Washington University Law School and chairperson of the Council of the ABA Section on Legal Education and Admissions to the Bar, and Jack Rives, ABA executive director.
Currier has been interim consultant on legal education since June 2012. He comes to the position of managing director with considerable experience in higher education, including having been dean of two law schools and a longtime volunteer in the accreditation process. He also has prior experience as deputy consultant to the section.
Currier’s title as managing director, rather than consultant, reflects the increasing importance and scope of the section’s regulatory role. The title change will not affect the variety of activities and programs that the section offers to support the work of law schools and their faculties and administrators.
Wall Street Journal : Big Business Spars Over Rewriting Tax Code, by John D. McKinnon:
One sign of that is the splintering of big companies into different groups promoting different strains of tax reform. High-tech, pharmaceutical and consumer-products companies, for instance, are eager to change the way overseas profits are taxed. Big domestic retailers, banks and telecommunications firms, in contrast, are more eager to see the corporate-tax rate come down.
The fundamental tension reflects an arithmetic reality: Corporate-tax reform—even if it doesn't mean a net increase in taxes on business—means doing away with someone's tax break to pay for lowering the overall tax rate, now at 35%, though many companies pay less. There are winners, but there are also losers. ...
The corporate tax is a big deal to the companies that pay it, but it represents a small slice of federal revenue, an estimated $251 billion for the current fiscal year ending Sept. 30, or 9.3% of federal revenue.
The prospects for a major corporate-tax rewrite are clouded by partisan differences—and by the divisions in the business community. Washington has a plethora of business-lobby organizations already, but some of them represent such divergent business interests that they can't go much beyond endorsing the principle of tax reform. So new, tax-focused coalitions are emerging with logos, squads of lobbyists and PR people but, for the most part, without actual offices.
At root, the different coalitions reflect the differences among big companies and across industries. Companies with huge capital investments, such as manufacturers, care a lot about the terms of writing them off; companies in labor-intensive business don't. Companies with big overseas profits focus heavily on how those earnings are taxed; primarily domestic companies don't. Companies who get little advantage from all the existing credits, deductions and loopholes are ready to sacrifice them to bring down the corporate-tax rate; those who benefit, not surprisingly, aren't.
A dozen big high-tech, pharmaceutical and other companies that do business overseas recently formed a coalition called LIFT (for Let's Invest for Tomorrow) America to press the U.S. to get rid its system of taxing companies' overseas profits while also lowering the corporate tax rate. ...
Another group called RATE (for Reforming America's Taxes Equitably) Coalition, organized more than a year ago, represents U.S.-focused companies pushing primarily for lower corporate-tax rates. ...
Yet another evolving coalition—as yet unnamed—includes tax officials from a mix of high-profile firms and has been working with the accounting firm PricewaterhouseCoopers as its technical consultant.
Friday, March 29, 2013
Law schools reported that 56.2% of graduates of the class of 2012 were employed in long-term, full-time positions where bar passage was required, compared with 54.9% for the class of 2011 — a 1.3 percentage point increase. In addition, 9.5% of graduates of the class of 2012 were employed in long-term, full-time JD Advantage positions, compared with 8.1% for the class of 2011 — a 1.4 percentage point increase. Schools reported outcomes for 97% of their 2012 graduates.
- Overall data
- School-by-school data
- ABA Journal, Barely Half of All 2012 Law Grads Have Long-term, Full-time Legal Jobs, Data Shows
- Law School Transparency, Law School Graduates Continue to Face Brutal Entry-Level Market
- National Law Journal, Law Graduates' Jobs Rate—and Unemployment Rate—Increase Only Slightly
(Hat Tip: Gary Rosin.)
Although the two income security benefits of the EITC are related, they are usefully analyzed separately. The income insurance effect of the EITC is forward-looking - it operates to reduce income risk before labor is supplied. In contrast, the EITC‟s stabilization effect is backward-looking, offsetting realized earnings losses. Furthermore, stabilization applies to all earnings shocks; whereas, insurance operates only on unexpected earnings drops. Finally, only actual recipients of the EITC enjoy stabilization effects; whereas, all taxpayers facing uncertain future income realize risk reduction from the existence of the EITC. ...
As an income security mechanism the EITC has some serious drawbacks. From an insurance perspective, the EITC does not insure against the risk of long-term unemployment. The timing of the EITC is problematic from an income stabilization standpoint. All EITC recipients receive the credit as part of their annual tax refund check in the year following the year in which they earned the income entitling them to the credit. This has two implications. First, the EITC is not responsive to short-term (intra-annual) earnings fluctuations. Second, the EITC payment is not received until the year following the year of the earnings loss. In other words, the payment is temporally dislocated from the need that precipitated it. This tempers the claim above that the EITC "offsets" a particular year‟s income loss.
Following up on my prior posts (links below): National Law Journal, Appeal Court Rejects Would-Be Law Professor's Age Bias Claim, by Karen Sloan:
An intermediate appellate court has affirmed dismissal of an age discrimination suit against the University of Baltimore School of Law, marking the latest legal loss for Michigan immigration attorney Donald Dobkin.
In February 2012, a Iowa jury reached a similar conclusion in February 2012 in Dobkin's nearly identical lawsuit against the University of Iowa College of Law.
"On the record before us, we conclude that U.B. had presented a legitimate, non-discriminatory reason for its refusal to hire appellate," the Court of Special Appeals of Maryland ruled on March 22. "Appellant further failed to adduce sufficient evidence to meet his burden of establishing that U.B.'s reasons were pretextual, and its motives were discriminatory."
Dobkin applied for a teaching position in 2009 when he was 56, according to court records. He was one of 833 applicants for three spots, including a professorship in immigration.
The hiring committee did not select Dobkin for one of the 56 first-round interviews and ultimately hired three people aged 40 or younger. ... The appeals court found that the law school's stated reasons for not interviewing Dobkin—that he had no clinical teaching experience, never served a clerkship and did not graduate from a top 10 law schools—were valid.
Prior TaxProf Blog coverage:
- Unsuccessful Law Faculty Applicant Sues Iowa for Age Discrimination (Aug. 23, 2009)
- Unsuccessful Law Faculty Applicant Sues Iowa for Age Discrimination (June 4, 2010)
- Iowa Prevails in First of Three Faculty Hiring Discrimination Lawsuits (Feb. 28, 2012)
The world lost Ed Koch on February 1st, 2013; however, Mr. Koch who left only a 2007 will* to direct the distribution of his estate ... has left much of his estate’s worth to the government in estate taxes and probate fees.
Mr. Koch desired in his will to bequeath his estimated estate of $10 to $11 million to his sister, Pat Thaler, her three sons whom he “adored,” his faithful serving secretary of almost 40 years, Mary Garrigan, and some to the LaGuardia and Wagner Educational Fund with the remainder to other family members.
Mr. Koch’s estate will have to pay a New York state tax of 16% on every dollar over $1 million and a 40% federal tax on every dollar over $5.25 million. If it is assumed that his estate is worth $10 million, this would equate to $1.44 million in NY state estate tax and $1.90 million in federal taxes....
“He was such an accomplished, well rounded bachelor and a man of great Jewish faith. But I find it so surprising, himself being an attorney, that Mr. Koch did not manage his estate plan with the same veracity. I believe he could have done a much better job of avoiding the massive amount of taxes his estate will eventually have to pay,” laments Rocco Beatrice, Managing Director of Estate Street Partners, LLC.
- Forbes, Ed Koch's Will: Taxes Take Big Bite Out Of Hizzoner's Nest Egg, by Deborah L. Jacobs
- Wall Street Journal, The Will Of Koch: Legacy, Family
- Wills, Trusts & Estates Prof Blog, Ed Koch's Will, by Gerry Beyer (Texas Tech)
- Wills, Trusts & Estates Prof Blog, Taxes Take a Large Portion of Koch's Estate, by Gerry Beyer (Texas Tech)
The Legal Whiteboard: Losing the Law Business:
We are entering a period in human history in which we are going to need fewer lawyers, at least the traditionally trained variety. The world is becoming more interconnected, regulated and complex. Although regulation and complexity have historically been very good for the lawyer business, something very fundamental is changing. Clients are increasingly struggling to pay the bills of artisan lawyers who prefer to craft individual, customized solutions for each transaction and each dispute.
In essence, law is facing a productivity imperative. To cope with globalization, the world needs better, faster, and cheaper legal output. The artisan trained lawyer just can’t keep up. To address the productivity imperative – or, more accurately, to turn a profit from this business opportunity—a new generation of legal entrepreneurs has emerged.
Lawyers continue to have a lock on advocacy work and client counseling on legal matters. But an enormous amount of work that leads up to the courthouse door, or the client counseling moment, is increasingly being “disaggregated” into a series of tasks that does not need to be performed by lawyers. Indeed, it may be best performed by computer algorithms. Further, the entire process is amenable to continuous improvement, driving up quality and driving down costs. This is a job that is likely more suitable for a systems engineer, albeit one with legal expertise, than a traditionally trained lawyer.
Although this change may sound radical, it is actually the logical next step in an evolutionary progression that began in the early 20th century as the practicing bar transitioned from generalist solo practitioners to specialized lawyers working together within law firms. Now, as clients search out ways to stretch their legal budgets, specialization is losing market share to process-driven solutions, akin to how Henry Ford’s assembly line methods supplanted craft production....
Since 2008, revenues in large U.S.-based law firms have been relatively flat. A recent article in Managing Partner magazine acknowledged that law firms are losing market share to the [legal process outsourcers (LPOs] ... as general counsel are increasingly contracting with LPOs directly. The savings are perceived to be in the 50% range with no diminution in quality. According to the article, the LPO business is estimated to be a $1 billion per year industry that will double in size over the next two to three years.
Unlike traditional lawyers, the competitive advantage enjoyed by these new entrants is that they have learned how to learn. If law is like other industries, these companies will move up the value chain and find new ways to satisfy the needs of large corporate legal departments. Law is not just for lawyers anymore. This genie is permanently out of its bottle.
This document contains four installments of The Big Picture, a column published in Tax Analysts, International Tax Notes, Volumes 66-68 (2012).
The first installment, Putting Arbitration on the MAP: Thoughts on the New U.N. Model Tax Convention, [66 Tax Notes Int'l 351 (Apr. 23, 2012),] discusses the addition of mandatory arbitration to the UN Model Tax Treaty and argues that what is contemplated is not really arbitration as such but more in the nature of expert determination, and that the provisions exact high costs, especially on developing countries (which should be wary about signing tax treaties with rich countries in any event).
The second, Do We Need to Know More About Our Public Companies?, [66 Tax Notes Int'l 843 (May 28, 2012),] discusses the problem of public opacity in the global tax dealings of multinationals, introduces readers to the corporate tax transparency provisions enacted in the Dodd-Frank Wall Street Reform Act of 2010, and argues that publicity of high-profile tax dodging and offshore cash-hoarding makes the case for greater public accountability by multinationals.
The third, Could a Same-Country Exception Help Focus FATCA and FBAR?, [67 Tax Notes Int'l 157 (July 9, 2012),] discusses the recent US crackdown on offshore tax evasion, and introduces readers to the likely inadvertent application of this regime to millions of dual-citizens who live and work overseas and thus have bank accounts overseas as well. It proposes a move toward the global standard of residence-based taxation, incrementally if necessary, to ensure the FATCA and FBAR target hits the intended mark.
The fourth and final instalment of 2012, Measuring a Fair Share, [68 Tax Notes Int'l 95 (Oct. 1, 2012),] discusses what politicians mean and what they overlook when they say that taxpayers ought to "pay a fair share"; it argues that in failing to adequately define who ought to be considered a taxpayer and what ought to be considered their available resources, governments have essentially constructed an arbitrary and ultimately unjust parameter around the discussion of what fairness means in taxation.
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Here are the results of the 2013 Albert R. Mugel National Tax Moot Court Competition at SUNY-Buffalo:
Winner: Ryanne Dent & Patrick Buschell (John Marshall)
Runner Up: Ryan Budd & Joel Reitz (Quinnipiac)
Best Oral Advocates:
1. Ryanne Dent (John Marshall)
2. Michael Alao (NKU-Chase)
3. Brad Andress (NKU-Chase)
4. Patrick Buschell (John Marshall)
5. Kevin Dwyer (SUNY-Buffalo)
Best Appellate Briefs:
1. Brad Andress & Michael Alao (NKU-Chase)
2. Kevin Dwyer & Kevin Campbell (SUNY-Buffalo)
3. Stephen Ward & Lynn Linné (William Mitchell)
The Virginia Tax Study Group met last Friday:
D.C. Panel: What Will Happen in 2013?
- Cathy Barrè '98, Director, Legislative Affairs, IRS
- Holly Porter '92, Tax Counsel, Senate Finance Committee
- Cecily Rock '79, Senior Legislation Counsel, Joint Committee on Taxation
- Jon Traub '94, Managing Principal, Tax Policy Group, Deloitte & Touche
- Hal Hicks '85, Partner & Global Head of International Tax Practice, Skadden
- David Lenter, Legislation Counsel, Joint Committee on Taxation
- Bret Wells, Professor, University of Houston Law Center
- Willard Taylor, Of Counsel, Sullivan & Cromwell
Luncheon Speaker: Jon Talisman '84, Capitol Tax Partners, Washington, D.C.
Former Assistant Secretary of the Treasury for Tax Policy; Democratic Chief Tax Counsel, Senate Finance Committee; Legislation Counsel, Joint Committee on Taxation.
Aspirational Tax Reform:
Impact of Significant Tax Legislation on Government Institutions That Are Responsible for Administration and Enforcement:
- Rod DeArment '73, Senior Counsel, Covington & Burling
- Martin McMahon, Professor, University of Florida
- Roberton Williams, Fellow, Tax Policy Center
- Ellen Aprill, Professor, Loyolaa Law School, Los Angeles
- Mark Holmes, Judge, U.S. Tax Court
- Nina Olson, National Taxpayer Advocate, Taxpayer Advocate Service
An often mentioned element in discussions of changes to federal tax policy is that corporate tax rates will be substantially reduced, with other changes made to the tax code to offset the revenue effects. This conference will explore the implications of such a policy in a variety of areas that are often not well understood.
This morning conference will provide an overview of four aspects of business taxation directly, or indirectly, affected by changes in the corporate tax rate. The goal of this program is to help those either involved or interested in the current tax reform debate better understand the complexity of the system and the potential economic effects of a change in the rate structure.
- Eric Toder (Tax Policy Center), Overview of U.S. Corporate Income Taxation: "This presentation will set the stage by summarizing major corporate tax provisions, changes in corporate revenues over time, comparison of U.S. corporate rates and revenues to other OECD countries, and data on relative shares of revenue raised by individual and corporate-level taxation of business income."
- George Plesko (Connecticut), Pass-through Entities, Non-Corporate Businesses, and Organizational Form: "Pass-through and non-corporate businesses follow the same tax rules for determining their income but pay taxes at the individual tax rate. Any business tax base-broadening that is undertaken to offset the cost of a corporate rate reduction will result in a higher income tax burden on these entities. In addition, since 1986, the corporate tax rate has been higher than the individual rate, which and has affected the choice of organization form used by businesses. Were the corporate rate to become substantially lower than the individual rate the incentive for firms to elect to be subject to the corporate tax will substantially increase, with effects on overall federal revenue.
- William Gentry (Williams College), Corporate Finance: "The corporate tax rate affects the incentives for the use of debt or equity, to pay dividends or repurchase shares, to lease or purchase assets, and the structure of transactions. This session outlines the effects of a lower corporate tax rate could have on these financing activities.
- James Hines (Michigan), International Implications of a Reduced corporate Tax Rate: "The US system of international taxation has received substantial attention and calls for reform. The US corporate tax rate, apart from other features of international tax system, creates incentives for the location and repatriation of income.This session will discuss the effects a lower corporate rate would have under the current system, and possible implications for the broader reform of international taxation."
- Douglas Shackelford (North Carolina), Financial Reporting: "Publicly traded corporations are subject to multiple reporting requirements. In addition to their tax filings, these corporations must file financial statements with the SEC. The rules for financial reporting differ in important ways from those of tax reporting, and changes in the corporate tax rate will have a variety of effects on how corporations report income to their shareholders and the public. While a lower corporate tax rate will result in higher after-tax profits, many corporations may find themselves worse off because of the ways the corporate tax rate affects the valuation of certain assets."
- Moderator - Victoria Perry (International Monetary Fund)
Thursday, March 28, 2013
Luck, income, wealth, and taxation have always been, and still are, inexorably intertwined. The connection between the latter three is obvious and driven by practical necessity—one cannot collect a tax from someone who has nothing to pay it with. Taxing previously-acquired wealth or current income solves the collectability problem. Luck enters the picture as one of a handful of important factors contributing to acquiring wealth and to earning income. Like just about everything else in life, that luck-generated economic success has federal income tax consequences for the lucky recipient. But does the current income tax treatment of that success hold up under scrutiny? If not, then how should the federal government tax “lucky” income? And, how should Congress and the IRS decide which income is “lucky” and which is not? This Article wrestles with those thorny questions using the traditional tax policy considerations of economic efficiency, equity and distributive justice concerns, and practical administrative issues related to increasing legal complexity before concluding that taxable income attributable to luck should be segregated from other types of income and subjected to a fixed tax rate that exceeds the top marginal tax rates on ordinary income earned by individuals.
We will screen four classic television episodes, spanning different decades, where major characters are faced with tax compliance choices. Some characters choose to report their tax liabilities honestly and others do not. The episodes featured are from The Honeymooners (1956), The Phil Silvers Show (1956), The Mary Tyler Moore Show (1975) and The Simpsons (1998). Professor Lawrence Zelenak from Duke Law School will join us as a special guest speaker and will lead a discussion on what popular culture can teach us about public attitudes toward tax compliance.
The Tax Court is seeking to fill the position of Counsel to the Chief Judge:
The Counsel to the Chief Judge (Counsel) provides legal advice and assistance in complex matters of Federal tax law. The Counsel primarily assists the Chief Judge in reviewing opinions that the other Judges of the Court submit to the Chief Judge to dispose of cases assigned to them. The responsibilities placed on the Counsel in this position are similar to some of those of judicial officers of the Court, subject to the supervision of the Chief Judge. Although the Counsel cannot assume final responsibility for disposing of cases, as must a Judge, he or she must possess the technical knowledge and judgment of the highest order to properly discharge the trust imposed on the position and to warrant the confidence of the Court. The work of the Counsel is subject to review only by the Chief Judge or the full Court. The Counsel works independently performing analytical review and research duties. The Counsel is directly responsible for developing and rendering advice to the Court on legal and operational matters that include ...review of proposed opinions ... and legal advice and counsel.
- Salary Range: $119,554 -$165,300.
- Applications close April 5, 2013.
- All applicants must submit a resume including all relevant employment history, as well as a cover letter describing both personal and professional attributes that exemplify superior qualifications for this position. An applicant must provide detailed information in the application package demonstrating that the Special Rating Factors are satisfied. All applicants must submit an original complete application package and six copies for review by a panel.
- Applications should be submitted to: The United States Tax Court, Office of Human Resources, Room 106 400 Second Street, N. W. Washington, D.C. 20217
Northwestern Law School Dean Daniel Rodriguez says he supports a proposal under consideration in New York that would allow students to take the bar exam after two years of law school without getting a degree.
Some fellow deans have told him privately that the idea is putting "the economic model of our law schools in jeopardy," and he says he hopes a large number of Northwestern students wouldn't take the option. But it would help some students cut tuition costs, and force schools to "justify" the third year of school, he says.
"It's about putting our money were our mouth is," he says. Schools will need to focus on practical training in the third year to keep students, so the year isn't—as is often said—where "they bore you to death" but where schools "bore in on" getting students practice-ready.
Rodriguez also talks about his school's plan to cut the size of its incoming class by 10 percent and to increase financial aid to students.
Following up on Tuesday post on ProPublica's article, How Maker of TurboTax Fought Free, Simple Tax Filing: Wall Street Journal, This Space for Rent: An Economics Lesson for the Guys at ProPublica:
It's an interesting story, and ProPub deserves a laurel for its reporting. But several darts are due for the childlike Manichaeism of its narrative. Here it is, simplified only slightly: White-hatted government heroes try to help people. Black-hatted corporate villain hires evil lobbyists to thwart the effort. (The implicit conclusion: In steps mild-mannered reporter Liz Day--her very name connotes sunshine!--to Expose the Truth, and everyone lives happily ever after.)
Let's assume for the sake of argument that return-free filing is a good idea and that Norquist's concerns either are unwarranted or can be obviated. In that case it makes sense to fault Intuit for its self-interested opposition to legislation that would be in the public interest. It is still far too simplistic, however, to regard Intuit as the villain and members of Congress as heroes or victims.
Intuit is engaging in a perfectly normal activity that economists call rent-seeking. ... Rent-seeking behavior would be futile if government did not assert the power to grant the privileges sought. The TurboTax business wouldn't even exist if Congress had not seen fit to enact a tax code too complicated for most people to navigate. Of course many of those complications were established for high-minded reasons: to ensure that the rich pay their "fair share" and the poor are rewarded for taking low-wage jobs; to encourage homeownership, investment, contributions to charity and so forth. If Congress is a hero in this tale, it is a tragic one, for Intuit's influence was made possible by Congress's own actions. ...
There's another important element of this basic journalistic narrative: the means by which the bad guys have their way with the good guys and hurt the public. In ProPub's TurboTax story, it's "lobbying." In other stories it might be "campaign contributions." In the Constitution, these are known respectively as petitioning the government for redress of grievances and freedom of speech. Both are among the rights guaranteed in the First Amendment.
Well, this is curious, isn't it? A staple of journalism--a profession that lives and breathes by the First Amendment--is attacking corporations for exercising their First Amendment rights. There is an argument--or a reflexive claim, anyway--on the ideological left that corporations have no constitutional rights. But journalists can't make that claim with a straight face. Almost all of them do their work under the aegis of a corporation, whether a nonprofit like ProPublica or a business that at least aspires to make a profit like the New York Times Co.
As we've noted many times, many media corporations, including the New York Times Co., take the position that corporations should not have First Amendment rights--but they make an exception for media corporations. No wonder journalists don't inform the public--or, quite possibly, themselves--about rent seeking. Their employers depend on it.
Susan C. Morse (UC-Hastings) presented Startup Ltd.: Tax Planning and Initial Incorporation, 13 Fla. Tax Rev. ___ (2013), at Boston College yesterday as part of its Tax Policy Workshop Series hosted by Jim Repetti and Diane Ring:
This Article, consistent with previous literature and with the support of additional informal interview results, presents the default norm of U.S. incorporation, in particular Delaware incorporation, for U.S.-based startups. The Delaware incorporation structure dominates despite the fact that it exposes firms to possible future disadvantages under U.S. tax law, including possible future tax law changes. However, there are exceptions to the general rule, for example in the insurance and marine transportation industries and in isolated cases where current investors or future acquirors appear to prefer a non-U.S. incorporation structure. Factors that drive the decision to incorporate outside the U.S. include tax advantages, non-tax legal advantages, business links to the incorporation jurisdiction and investor preferences. These factors have different levels of importance in different situations.
- We Take Care of Our Own (Graduates employed in law school/university funded positions)
- We Take Care of Our Own, Full-Time, Long-Term (Graduates employed in law school/university funded positions, full-time, long-term)
- Big Law, More or Less (Number of graduates employed in law firm / total graduates * graduates employed in law firms consisting of more than 100 lawyers, full-time, long-term)
- Federal Clerks (Number of graduates employed in judicial clerkships / total graduates * graduates employed in federal judicial clerkships, full-time, long-term)
- Elite Outcomes (Combined “Big Law, More or Less” and “Federal Clerks” categories)
- We Hang Shingles (Number of graduates employed in law firm / total graduates * graduates employed as a solo practitioner, full-time, long-term)
- Good Enough for Government (Number of graduates employed / total graduates * graduates employed in government, full-time, long-term)
- Save the World (Number of graduates employed / total graduates * graduates employed in public interest including public defender, full-time, long-term)
- But I Want to Do International Law (Number of graduates employed / total graduates * graduates employed in foreign countries)
- Far and Wide (Number of states where graduates are employed)
- The White List (Schools that reported zero law school/university funded positions 9 months after graduation)
Wendy C. Gerzog (Baltimore), When Sommers Are Winters: Do Blanks Denote Revocability?, 138 Tax Notes 1477 (Mar. 25, 2013):
In [Estate of Sommers v. Commissioner, T.C. Memo. 2013-8], ruling on both parties’ motions for partial summary judgment, the Tax Court dealt with claims of issue preclusion and collateral estoppel, equitable apportionment, the completion of gifts of limited liability company interests, and retained powers that would cause estate tax inclusion. Two aspects of Sommers held particular interest for me. The first is that the parties appear to be arguing their opponent’s conventional position. The second is that the court grappled with whether the blanks left in the gift documents were immaterial to gift completion; however, the court did not address whether the decedent’s completed gifts qualified for the annual exclusion or whether their value was unascertainable at the time of the gifts for any donee to obtain immediate use or possession of the transferred property.
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A new innovation on the IPO landscape has emerged in the last two decades, allowing owner-founders to extract billions of dollars from newly-public companies. These IPOs — labeled supercharged IPOs — have been the subject of widespread debate and controversy: lawyers, financial experts, journalists, and Members of Congress have all weighed in on the topic. Some have argued that supercharged IPOs are a “brilliant, just brilliant,” while others have argued they are “underhanded” and “bizarre.”
In this article, we explore the supercharged IPO and explain how and why this new deal structure differs from the more traditional IPO. We then outline various theories of financial innovation and note that the extant literature provides useful explanations for why supercharged IPOs emerged and spread so quickly across industries and geographic areas. The literature also provides support for both legitimate and opportunistic uses of the supercharged IPO.
With the help of a large-N quantitative study — the first of its kind — we investigate the adoption and diffusion of this new innovation. We find that the reason parties have begun to supercharge their IPO is not linked to a desire to steal from naive investors, but rather for tax planning purposes. Supercharged IPOs enable both owner-founders and public investors to save substantial amounts of money in federal and state taxes. With respect to the spread of the innovation, we find that elite lawyers, especially those located in New York City, are largely responsible for the changes that we observe on the IPO landscape. We conclude our study by demonstrating how our empirical findings can be used to 1) advance the literature on innovation, 2) assist firms going public in the future, and 3) shape legal reform down the road.
Typically publicly-traded entities must be treated as corporations for tax purposes. Blackstone Group LP is publicly traded; yet, it is not treated as a corporation for tax purposes. Why not? Blackstone Group LP utilizes complex tax structuring in order to qualify for an exception from the typical corporate tax treatment and, in the process, saves millions of dollars in tax liability annually.
Members of Congress proposed reforms that would have prevented Blackstone Group LP from obliterating its tax liability in this manner. Yet, these reforms were not enacted. This Article takes a different approach. It argues that existing law already provides the IRS with the tools needed to challenge the legitimacy of the results claimed by Blackstone Group LP.
In the process, this Article highlights an important and unintended loophole in existing partnership tax allocation rules, specifically, the failure of the rules to adequately address allocations among related partners. Finally, this Article proposes that the IRS use general tax law standards to close this unintended loophole.
Wednesday, March 27, 2013
J. Mark Ramseyer (Harvard Law School) & Eric B. Rasmusen (Indiana University, Kelley School of Business), Can the Treasury Exempt Its Own Companies from Tax? The $45 Billion GM NOL Carryforward:
To discourage firms from buying and selling tax deductions, § 382 limits the ability of one firm to use the ‘‘net operating losses’’ (NOLs) of another firm that it acquires. Under the Troubled Asset Relief Program, the U.S. Treasury lent a large amount of money to General Motors. In bankruptcy, it then transformed the debt into stock. GM did not make many cars anyone wanted to buy, but it did have $45 billion in NOLs. Unfortunately for the Treasury, if it now sold the stock it acquired in bankruptcy, it would trigger § 382. Foreseeing this, the market would pay much less for its stock in GM. Treasury solved this problem by issuing a series of notices in which it announced that the law did not apply to itself. Section 382 says that the NOL limits apply when a firm’s ownership changes. That rule would not apply to any firm bought with TARP funds, declared Treasury. Notwithstanding the straightforward and all-inclusive statutory language, GM could use its NOLs in full after Treasury sold out. The Treasury issued similar notices about Citigroup and AIG.
Treasury had no legal or economic justification for any of these notices, but the press did not notice. Precisely because they involved such arcane provisions of the corporate tax code, they largely escaped public attention. The losses to the public fisc were not minor — they cost the country billions of dollars in tax revenue. That the effect could be so large and yet so hidden illustrates the risk involved in this kind of tax manipulation. The more difficult the tax rule, the more easily the government can use it to hide the cost of its policies and subsidize favored groups. We suggest that Congress give its members standing to challenge unlegislated tax law changes in court.
WU is the largest business university in the European Union and is centrally located at the heart of Europe. The University maintains an excellent position as a center for research and teaching and attracts an international group of students and faculty. It offers a broad range of subjects in all areas of economics and business administration. WU is one of only five EQUIS accredited universities in the German-speaking world and is striving to achieve a top position among the leading European business universities. ... Teaching experience in English is required; teaching experience in German is not necessary. Non-German-speaking candidates will be expected to acquire proficiency in German over a certain period of time. ... Applications must be submitted by May 2, 2013.
Erik M. Jensen (Case Western), Legislative and Regulatory Responses to Tax Avoidance: Explicating and Evaluating the Alternatives, 56 St. Louis U. L.J. 1 (2012):
This article examines statutory and regulatory developments in American anti-avoidance law. After a look at the nature of tax shelters — with that concept defined broadly for these purposes — the article examines and evaluates several methods of dealing with them: enacting statutes or promulgating regulations aimed at particular abusive transactions; enacting “outcomes-oriented” legislation, like the passive activity loss rules, intended to deal with wider patterns of behavior; codifying the economic substance doctrine; imposing anti-abuse doctrines through regulations; requiring disclosure of potentially abusive transactions; and creating national standards that govern advice provided by tax professionals. The article unexcitingly concludes that no one method will by itself bring abusive behavior to acceptable levels. Flexibility is going to work better than rigidity in attacking shelters, and a combination of methods will work better than a single one.
Last week, we asked for your thoughts on what an improved, more relevant approach to law school rankings would look like. This request was of course prompted by U.S. News’s revisions to its rankings methodology, which now applies different weights to different employment outcomes, giving full credit only to full-time jobs where “bar passage is required or a J.D. gives them an advantage.” ... [A]bout 500 of you weighed in with your opinions on which criteria should matter and which should not when it comes to ranking law schools:
- Real Lawyers (Required bar passage, full-time, long-term)
- “Advantaged” Non-Lawyers (JD advantage, full-time, long-term)
- The Professionals (Professional, full-time, long-term)
- Career Baristas (Non-professional, full-time, long-term)
- The Temps (any employed position that’s part-time, short-term, or both)
- Giving Up (unemployed, not seeking)
- More Debt, Please (graduates pursuing a graduate degree full-time)
- Return to Sender (employment status unknown)
On Monday, Yahoo announced that it was buying the mobile news reader app Summly for about $30 million. Summly has a staff of five and no revenue. It was also reported Monday that Apple was buying the indoor-GPS company WifiSLAM for $20 million. That start-up, only two years old, has a handful of employees.
This kind of acquisition, known as acqui-hiring, may seem strange to those not involved with the deal. Why buy the company? If the founders or engineers are fantastic, why not just poach them from the start-up? Why buy the whole company instead of just stripping out its most valuable parts? It’s like buying a house because you like the furniture....
John Coyle and Gregg Polsky, law professors at the University of North Carolina, explain the acqui-hiring phenomenon as driven by Silicon Valley social norms. Engineers don’t want to appear disloyal to the start-up or its investors. And the acquisition allows the founders, employees and investors to claim a successful exit, even if the product gets shut down. ...
There is a tax angle as well. Suppose Max, a software engineer and founder of a social media start-up, has a choice between leaving his start-up to work for TechGiant and receiving a signing bonus of $1 million or selling his start-up to TechGiant and receiving $1 million, half of which will be attributed to the value of his founders' stock in the start-up. The portion of consideration attributed to the sale of his founders’ stock will generate low-taxed capital gains, not ordinary income. Max would save about $100,000 in taxes in this example, depending on his marginal tax rate.
Philip Sancilio (J.D. 2013, Columbia), Clarifying (or Is It Codifying?) The “Notably Abstruse”: Step Transactions, Economic Substance, and the Tax Code, 113 Colum. L. Rev. 138 (2013) (Second Place, 2012 Tannenwald Writing Competition):
The economic substance and step transaction doctrines are two specific examples of courts’ general willingness to sometimes look past transactions’ technical form and impose taxes based on their underlying substance. As judicial creations, the two doctrines served as complements and functional equivalents. However, they also generated a wide variety of vague, overlapping, and conflicting formulations.
In 2010, Congress incorporated the economic substance doctrine into the Internal Revenue Code by defining its content and tying it to a heightened strict liability penalty. When it did so, Congress did not address when the doctrine is available. Instead, it left that determination to the preexisting common law and articulated a functional definition of the doctrine to which its new statutory scheme applies. However, the definition of the codified economic substance doctrine creates uncertainty by encompassing some, but not all, of the various formulations of the step transaction doctrine. Terminological messiness that used to have little effect beyond confusing dicta could now control the imposition of statutory requirements and heightened liability.
After laying out the doctrinal background, this Note applies the definition of the newly codified economic substance doctrine to the various formulations of the step transaction doctrine and demonstrates problematic inconsistency in the results. It then traces that inconsistency to the uncertain relationship between the doctrines and argues for conceptual clarification. Finally, it proposes that the codified economic substance doctrine should apply first and that the step transaction doctrine should stand behind it as a backstop.
Christopher R. Wray (J.D. 2013, Notre Dame), On the Road Again: The D.C. Circuit Reinvigorates The Work-Product Doctrine in United States v. Deloitte & Touche, 87 N.D. L. Rev. 1797 (2012) (First Place, 2012 Tannenwald Writing Competition):
This Note will analyze the current status of the work-product doctrine and review positively Deloitte’s impact on the law, arguing that the opinion, unlike Textron, provides a sound legal framework rooted in statute and longstanding case law. Part I of this Note provides a foundational background of the work-product doctrine as applied to audit workpapers. Part II analyzes the Deloitte decision’s effect on what constitutes work product, and Part III discusses the decision’s effect on work-product waiver. Finally, in Part IV, this Note analyzes the policy and legal arguments for and against the discoverability of audit workpapers and positively critiques the Deloitte decision.
Tuesday, March 26, 2013
Philadelphia Inquirer: How Maker of TurboTax Fought Free, Simple Tax Filing, by Liz Day (ProPublica):
Imagine filing your income taxes in five minutes — and for free. You'd open up a pre-filled return, see what the government thinks you owe, make any needed changes and be done. The miserable annual IRS shuffle, gone.
It's already a reality in Denmark, Sweden and Spain. The government-prepared return would estimate your taxes using information your employer and bank already send it. Advocates say tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time, according to one estimate.
The idea, known as "return-free filing," would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.
"This is not some pie-in-the-sky that's never been done before," said William Gale, co-director of the Urban-Brookings Tax Policy Center. "It's doable, feasible, implementable, and at a relatively low cost."
So why hasn't it become a reality?
Well, for one thing, it doesn't help that it's been opposed for years by the company behind the most popular consumer tax software — Intuit, maker of TurboTax. Conservative tax activist Grover Norquist and an influential computer industry group also have fought return-free filing.
Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit's disclosures pointedly note that the company "opposes IRS government tax preparation." ...
Proponents of return-free filing say Intuit and other critics are exaggerating the risks of government involvement. No one would be forced to accept the IRS accounting of their taxes, they say, so there's little to fear. Other advocates point out that the IRS would be doing essentially the same work it does now. The agency would simply share its tax calculation before a taxpayer files rather than afterward when it checks a return.
"When you make an appointment for a car to get serviced, the service history is all there. Since the IRS already has all that info anyway, it's not a big challenge to put it in a format where we could see it," said Paul Caron, a tax professor at University of Cincinnati College of Law. "For a big slice of the population, that's 100 percent of what's on their tax return."
Taxpayers would have three options when they receive a pre-filled return: accept it as is; make adjustments, say to filing status or income; or reject it and file a return by other means. "I've been shocked as a tax person and citizen that this hasn't happened by now," Caron said.
Some conservative activists have sided with Intuit. In 2005, Norquist testified before the President's Advisory Panel on Federal Tax Reform arguing against return-free filing. The next year, Norquist and others wrote in a letter to President Bush that getting an official-looking "bill" from the IRS could be "extremely intimidating, particularly for seniors, low-income and non-English speaking citizens." ...
In separate reports, the CCIA and a think tank that Intuit helps sponsor argue that potential costs outweigh return-free filing's benefits. Among other things, the reports say that not many taxpayers are likely to use return-free, that new data reporting requirements could raise costs for employers, and that taxpayers could face new privacy and security risks. ...
James Maule, a professor at Villanova University School of Law, said the average taxpayer probably wouldn't scrutinize a pre-filled return for accuracy or potential credits. "Some people might get this thing that says this is your tax bill and just pay it, like with property tax bills," said Maule.
So far, the only true test case for return-free filing in the U.S. has been in Intuit's home state.
In 2005, California launched a pilot program called ReadyReturn. As it fought against the program over the next five years, Intuit spent more than $3 million on overall lobbying and political campaigns in the state, according to Dennis J. Ventry Jr., a professor at UC Davis School of Law who specializes in tax policy and legal ethics. ...
Joseph Bankman, a Stanford Law School professor who helped design ReadyReturn, says he spent close to $30,000 of his own money to hire a lobbyist to defend the program in the legislature. Intuit made political contributions to scores of legislative candidates, Bankman said, and gave $1 million in 2006 to a group backing a ReadyReturn opponent for state controller.
ReadyReturn survived, but with essentially no marketing budget it is not widely known. Fewer than 90,000 California taxpayers used it last year – although those who do use it seem to be happy. Ninety-eight percent of users who filled out a survey said they would use it again. The state's tax agency has also praised ReadyReturns, saying they are cheaper to process than paper returns.
Bankman thinks national return-free filing could make many others happy, too. "We'd have tens of millions of taxpayers," he said, "no longer find April 15 a day of frustration and anxiety."
Leslie A. Robinson (Dartmouth College, Tuck Business School) presents Internal Ownership Structures of Multinational Firms 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):
This paper is the first comprehensive analysis of the foreign ownership structures of U.S. multinational firms. Though the vast majority of foreign subsidiaries are ultimately wholly-owned by their U.S. parents, we show that the way these subsidiaries are arranged within ownership structures varies considerably from simple to highly complex, and that much of this variation cannot be explained by basic firm characteristics, such as size, age, industry, or diversification. Though the structures received much public attention in recent years, especially because of their role in tax planning by U.S. multinationals, no academic study to date investigates the different trade-offs involved in designing them jointly. This paper begins to fill this gap. After establishing a basic taxonomy and set of key facts about the structures, we look inside the black box of complex firms to investigate what forces drive internal ownership choices. We find strong evidence of several distinct tax motives, but also uncover a number of non-tax factors, including internal financing costs, expropriation risks, and legal liability.
The IRS today released (IR-2013-33) its 2013 “dirty dozen” list of tax scams:
- Identity Theft
- Return Preparer Fraud
- Hiding Income Offshore
- “Free Money” from the IRS & Tax Scams Involving Social Security
- Impersonation of Charitable Organizations
- False/Inflated Income and Expenses
- False Form 1099 Refund Claims
- Frivolous Arguments
- Falsely Claiming Zero Wages
- Disguised Corporate Ownership
- Misuse of Trusts
New York Times DealBook: Puerto Rico Creates Tax Shelters in Appeal to the Rich, by Lynnley Browning:
Known for its white-sand beaches and killer rums, Puerto Rico hopes to stake a new claim: tax haven for the wealthy.
Since the beginning of the year, the island has gone on a campaign to promote tax incentives that took effect last year, marketing its beautiful beaches, private schools and bargain costs in an effort to lure well-heeled hedge fund managers and business executives to its shores.
So far, Puerto Rico’s pitch has attracted a handful of under-the-radar millionaires. Several American executives of mostly smaller financial firms say they have already relocated to the island, and Puerto Rican officials say another 40 persons, mostly from the United States, have applied. ...
Puerto Rico is a commonwealth of the United States, but for tax purposes, it is treated differently. Most residents of Puerto Rico, with the exception of federal employees, already pay no federal income tax. A person needs to live 183 days a year on the island to become a legal resident. ...
The new tax breaks are a twist on the island’s tradition of using tax perks to bolster the economy. Puerto Rico’s per-capita income is around $15,200, half that of Mississippi, the poorest state in the nation. In 2006, a previous incentive exempting United States companies from paying taxes on profits from Puerto Rican manufacturing ended after Congress said that the incentive had bilked taxpayers.
The new tax breaks are a radical shift in that they focus on financial, legal and other services, not manufacturing. Puerto Rico slashed taxes on interest and dividends to zero from 33 percent, and it lowered taxes on capital gains, a major source of income for hedge fund managers, to zero to 10 percent.
The incentives work with existing United States breaks. While residents still have to file a federal tax return, they do not have to pay capital gains taxes of 15 percent on assets held before moving and sold after 10 years of island residency.
The new tax incentives “likely will be considered more broadly by some taxpayers as a new opportunity for income shifting and tax deferral,” said Michael Pfeifer, an international tax lawyer at the law firm Caplin Drysdale in Washington.
(Hat Tip: Mike Talbert, Bill Turnier.)
2013 FILING SEASON STATISTICS
Cumulative statistics comparing 3/16/12 and 3/15/13
|Individual Income Tax Returns:||
|Visits to IRS.gov||
|Direct Deposit Refunds:||
Registration is now open for the 23d Annual Conference for Law School Computing to be held Thursday, June 13 through Saturday June 15 in Chicago at Chicago-Kent College of Law. The theme of this year's conference is "Driving Innovation":
Times are tough for legal education. We are in a crisis, but a politician (who now happens to be the Mayor of the city where this year's conference is being held) says that "every crisis is an opportunity." Can our crisis drive all kinds of innovation? New course structures, new tools and new content delivery models are driving innovation from pedagogy to practice, so come to Chicago in June to find out how you can drive innovation at your law school. At this conference, you will hear speakers from dozens of law schools talk about innovative projects, ideas and experience. There will be ample time between sessions for conversation and community-building.
CALI has issued a Call for Speakers to law faculty, librarians, and IT staff (April 5 deadline). Conference registration is free for all speakers. (Disclosure: I am Vice President of the CALI Board of Directors.)
David Kamin (NYU), Poverty, Not Inequality: Federal Taxes and Redistribution, 66 Tax L. Rev. ___ (2013):
The federal tax system, and the income tax in particular, is often held out as a key — perhaps the key tool — for combatting income inequality. Especially given the rapid rise in inequality seen over the last 30 years, it is natural to look to the tax code and ask what can be done in response. However, this article’s answer to that question is “not much,” because of the practical constraints on policymaking. Put simply, the effect of the federal tax system on income inequality is — and is likely to continue to be — decidedly limited. When it comes to the distribution of the tax burden, this suggests that other concerns, beyond overall inequality, should take precedence. This article offers an alternative — that of poverty. For even as the tax system can do relatively little to change the overall income distribution within the practical bounds of policymaking, it can do more, sometimes much more, when it comes to the welfare of those toward the bottom of the income spectrum. To sum up, this is a practical argument with the following practical conclusion: when it comes to the distribution of the tax burden, what matters most are metrics like poverty, not inequality and, when it comes to reducing inequality, we should be looking for tools beyond the tax system.
David Cay Johnston writes that according to the Congressional Budget Office, the U.S. economy is growing at less than 95 percent of its potential, and he argues that the country is losing much more tax revenue as a result.
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The U.S. Supreme Court yesterday granted certiorari in United States v. Woods, No. 12-562:
Issue: (1) Whether Section 6662 of the Internal Revenue Code, which prescribes a penalty for an underpayment of federal income tax that is “attributable to” an overstatement of basis in property, applies to an underpayment resulting from a determination that a transaction lacks economic substance because the sole purpose of the transaction was to generate a tax loss by artificially inflating the taxpayer’s basis in property. (2) Whether the district court had jurisdiction in this case under 26 U.S.C. § 6226 to consider the substantial valuation misstatement penalty.
For more, see:
- Miller & Chevalier Tax Appellate Blog, Supreme Court Poised to Consider Penalty Issue in Woods
- Miller & Chevalier Tax Appellate Blog, Supreme Court Agrees to Hear Penalty Issue in Woods
- Jack Townsend (Houston), Supreme Court Will Decide Whether Bullshit Tax Shelters with Basis Overstatements Draw the 40% Penalty
The IRS yesterday released the 2012 IRS Data Book, which contains a wealth of statistical information for the IRS's Oct. 1, 2011 - Sept. 30, 2012 fiscal year. Here are the statistical tables:
Returns Filed, Taxes Collected, and Refunds Issued
- Table 1: Collections and Refunds, by Type of Tax
- Table 2: Number of Returns Filed, by Type of Return
- Table 3: Number of Returns Filed, by Type of Return and State
- Table 4: Number of Returns Filed Electronically, by Type of Return and State
- Table 5: Gross Collections, by Type of Tax and State
- Table 6: Gross Collections, by Type of Tax
- Table 7: Number of Refunds Issued, by State and Fiscal Year
- Table 8: Amount of Refunds Issued, Including Interest, by Type of Refund and State
Enforcement: Information Reporting and Verification
- Table 9a: Examination Coverage: Recommended and Average Recommended Additional Tax After Examination, by Type and Size of Return
- Table 9b: Examination Coverage: Individual Income Tax Returns Examined, by Size of Adjusted Gross Income
- Table 10: Examination Coverage: Returns Examined with Unagreed Recommended Additional Tax After Examination, by Type and Size of Return
- Table 11: Examination Coverage: Returns Examined Involving Protection of Revenue Base, by Type and Size of Return
- Table 12: Examination Coverage: Returns Examined Resulting in Refunds, by Type and Size of Returns
- Table 13: Returns of Tax-Exempt Organizations, Employee Retirement Plans, Government Entities, and Tax-Exempt Bonds Examined, by Type of Return
Enforcement: Collections, Penalties, and Criminal Investigation
- Table 14: Information Reporting Program
- Table 15: Math Errors on Individual Income Tax Returns, by Type of Error
- Table 16: Delinquent Collection Activities
- Table 17: Civil Penalties Assessed and Abated, by Type of Tax and Type of Penalty
- Table 18: Criminal Investigation Program, by Status or Disposition
Tax Exempt Activities
- Table 19: Selected Taxpayer Assistance and Education Programs, by Type of Assistance or Program
- Table 20: Taxpayer Advocate Service: Postfiling Taxpayer Assistance Program, by Type of Issue and Relief
- Table 21: Appeals Workload, by Type of Case
- Table 22: Tax-Exempt Guidance and Other Regulatory Activities
- Table 23: Determination Letters Issued on Employee Retirement Plans, by Type and Disposition of Plan
- Table 24: Closures of Applications for Tax-Exempt Status, by Organization Type and Internal Revenue Code Section
- Table 25: Tax-Exempt Organizations and Nonexempt Charitable Trusts
IRS Budget & Workforce
- Table 26: Chief Counsel Workload: All Cases, by Office and Type of Case or Activity
- Table 27: Chief Counsel Workload: Tax Litigation Cases, by Type of Case
- Table 28: Costs Incurred by Budget Activity
- Table 29: Collections, Costs, Personnel, and U.S. Population
- Table 30: Personnel Summary, by Employment Status, Budget Activity, and Selected Type of Personnel
- Table 31: Internal Revenue Service Labor Force, Compared to National Totals for Civilian and Federal Labor Forces, by Gender, Race/Ethnicity, and Disability
First-Time Homebuyer Credit
Press and blogosphere coverage:
Monday, March 25, 2013
After an extended visit at the University of Florida, Levin College of Law, Karen Burke and Grayson McCouch will be moving from the University of San Diego School of Law to accept tenured positions at Florida, effective in August 2013. Karen will continue to teach at San Diego during the fall semester for a period of up to three years, while teaching at Florida during the spring semester. Grayson will begin teaching full-time at Florida beginning in the fall of 2013. They stated, “As visitors, we have come to appreciate the qualities that make Florida such a special place. We feel extremely fortunate to join such a distinguished and collegial faculty, and we welcome the exciting opportunities for teaching and scholarship."
Congress might repeal the residual U.S. tax imposed when non-U.S. subsidiaries repatriate earnings to U.S. parent corporations. Repeal would raise the transition issue of how to tax the $1 trillion to $2 trillion of offshore earnings held by such non-U.S. subsidiaries. This article proposes a 5%-10% corporate offshore profits transition tax on non-U.S. subsidiaries' untaxed earnings and profits, without downward adjustment for a foreign tax credit. It suggests using the financial accounting measure of unremitted earnings to help determine pre-1987 earnings and police aggressive efforts to reduce the earnings and profits base. The article’s policy analysis is based on the metrics of efficiency, administrability and equity.
Like a student cutting the electrical cord on his television to help him study, governments across the globe rely on commitment devices to generate fiscal discipline. From the collapse of the Congressional Supercommittee in the United States to the near-cataclysmic failure of a mechanism designed to prevent the European Union debt crisis, the evidence suggests that faith in such commitment devices is misplaced. This article explains why by conducting a long-overdue autopsy on one such device that stubbornly refuses to stay dead: the tax expenditure budget. For almost half a century Congress has published a shadow budget to publicize the costs of tax subsidies to prevent abuse. Cataloguing the reasons for its demise has the further benefit of putting to rest the popular misconception that a failed commitment device like the tax expenditure budget can be resurrected as a reliable source of information.