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Monday, June 24, 2013

'Superstar' Talent, Not Tax Policy, Explains the 1%'s Greater Income and Wealth Gains

Following up on last week's post, Greg Mankiw: Defending the One PercentSteven N. Kaplan (University of Chicago, Booth School of Business) & Joshua Rauh (Stanford University, Graduate School of Business), It’s the Market: The Broad-Based Rise in the Return to Top Talent:

Back in 1981, when the rise in inequality over recent decades was barely underway, Sherwin Rosen (1981) wrote a prescient article on The Economics of Superstars. Rosen argued that technological change, particularly in information and communications, can increase the relative productivity of highly talented individuals, or “superstars.” Essentially, such superstars become able to manage or to perform on a larger scale, applying their talent to greater pools of resources and reaching larger numbers of people. Those who are able to do so receive higher compensation.

Of course, other explanations of the rise in inequality have been offered, including arguments that managerial power has increased in a way that allows those at the top to receive higher pay (Bebchuk and Fried, 2004), that social norms against higher pay levels have broken down (Piketty and Saez, 2006), and that tax policy affects the distribution of surpluses between employers and employees (Saez, 2013). This paper offers some evidence bearing on these disputes. We first look at differences in occupations in the U.S. across those with the highest income levels. The increase in pay at the highest income levels is broad-based; for example, it is not primarily or solely a phenomenon of publicly traded companies. We also discuss some evidence on the income share of the top 1 percent over time.

We then turn to evidence on inequality of wealth at the top. In looking at the wealthiest Americans, those in the Forbes 400 are less likely to have inherited their wealth or to have grown up wealthy. The Forbes 400 of today also are those who were able to access education while young and apply their skills to the most scalable industries: technology, finance, and mass retail.

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We conclude by analyzing which of the different theories are more consistent with the patterns in the data. We believe that the U.S. evidence on income and wealth shares for the top 1 percent is most consistent with a “superstar”-style explanation rooted in the importance of scale and skill-biased technological change. In particular, we interpret the fact that the top 1 percent is spread broadly across a variety of occupations as most consistent with an important role for skill-biased technological change and increased scale. These facts are less consistent with an argument that the gains to the top 1 percent are rooted in greater managerial power or changes in social norms about what managers should earn.

(Hat Tip: Greg Mankiw.)

June 24, 2013 in Tax | Permalink | Comments (4) | TrackBack (0)

Rethinking the 'Gladiator' Ethos of Law Reviews

GladiatorMegan S. Knize (Editor-in-Chief, UC Davis Law Review, 2007-08), The Pen Is Mightier: Rethinking the "Gladiator" Ethos of Student-Edited Law Reviews, 44 McGeorge L. Rev. 309 (2013):

Law review membership paves the way for prestigious law firm jobs, judicial clerkships, and teaching positions. However, the law review “credential” is not accessible to everyone. This article offers a feminist critique of law review culture by applying Columbia University Law Professor Susan Sturm’s “gladiator model,” which she uses to characterize the culture of law schools, to the culture of law reviews. [From Gladiators to Problem Solvers: Connecting Conversations About Women, the Academy, and the Legal Profession, 4 Duke J. Gender L. & Pol'y 119 (1997).] The model and its accompanying ethos explain how the law review’s focus on individualism works to the detriment of women members and the publishing success of the journal.

After exploring the background of law reviews, presenting the gladiator model, and analyzing the feminist legal theory that challenges the model, I argue that law review culture glorifies the gladiator ethos. Law reviews teach members to behave like gladiators by emphasizing competition over collaboration, prioritizing rules over relationships, and encouraging particularly “masculine” leadership characteristics. Fortunately, there are solutions to temper the pervasiveness of the gladiator ethos. This article recommends that law review editors (1) implement changes to the process of joining law review and the working style of law review, and (2) institute changes to the leadership development opportunities for editors. These measures should benefit all law review members by creating a team-oriented approach to editing and publishing a superior journal.

June 24, 2013 in Legal Education, Scholarship | Permalink | Comments (0) | TrackBack (0)

CRS: A Brief Overview of Business Types and Their Tax Treatment

CRS LogoCongressional Research Service,  A Brief Overview of Business Types and Their Tax Treatment (R43104) (June 12, 2013):

In the United States, how a business is taxed at the federal level is partly dependent on how it is organized. The income of subchapter C corporations, also known as “regular” corporations, is taxed once at the corporate level according to the corporate tax system, and then a second time at the individual-shareholder level according to the individual tax rates when corporate dividend payments are made or capital gains are recognized. This leads to the so-called “double taxation” of corporate income. Businesses that choose any other form of organization are, in general, not subject to the corporate income tax. Instead, the income of these businesses passes through to their owners and is taxed according to individual income tax rates. Examples of these alternative “pass-through” forms of organization include sole proprietorships, partnerships, subchapter S corporations, and limited liability companies.

This report summarizes the general tax treatment of corporate and pass-through businesses. The intent is to introduce those who are unfamiliar with the current U.S. business tax environment to the basics of corporate and pass-through taxation. Understanding how various businesses are taxed provides a starting point from which one can evaluate current and future proposals to change the taxation of corporations and pass-throughs. Additionally, since pass-through income is typically taxed only at individual income tax rates, this report is also a useful starting point for understanding the effects on pass-through businesses from a change to individual income tax rates. A list of related CRS products on business taxation may be found at the end of the report.

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June 24, 2013 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Johnston: IRS Employees and Contractors: Separate and Unequal Standards of Performance and Integrity

Tax Analysts David Cay Johnston (Syracuse), Separate and Unequal Standards of Performance and Integrity, 139 Tax Notes 1571 (June 24, 2013):

The IRS relies heavily on contractors, but it does not hold them to anything close to the standards of performance and integrity required of its own employees.

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June 24, 2013 in Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

More on the NALP Employment Data for the Law School Class of 2012

Following up on Friday's post, NALP: Employment Rate of Law Grads Falls for Fifth Consecutive Year

  • Deborah Jones Merritt (Ohio State), NALP Numbers (Law School Cafe):

Here are my top ten take-aways from the NALP data.

  1. Law school leads to unemployment
  2. Nine months is a long time
  3. If you want to practice law, the outlook is even worse
  4. Many of the jobs are stopgap employment
  5. NALP won’t tell you want you want to know
  6. Law students are subsidizing government and nonprofits
  7. Don’t pay much attention to NALP’s salary figures
  8. After accounting for inflation, today’s reported salaries are lower than ones from the last century
  9. The lights of BigLaw continue to dim
  10. It goes almost without saying that these 2012 graduates paid much more for their law school education than students did in 1991, 2000, or almost any other year

Here's a summary of recent job trends from The National Law Journal:

The five go-to cities (biggest winners for increasing the percentage of lawyers). The legal market is still limping along, but these cities are defying the odds:

  1. Denver +7.5%
  2. Houston + 4.3%
  3. Dallas +3.1%
  4. Miami +3.0%
  5. Pittsburgh +3.0%

[Number six is San Diego (+2.9%]

The five you-might-think-twice-before-you-go cities (biggest losers in lawyer count):

  1. Kansas City -4.0%
  2. Chicago -2.0%
  3. Los Angeles - 1.5%
  4. Seattle - 1.5%
  5. Indianapolis - 1.4%

Number six on that loser list is New York, with an 0.8 percent decline in law jobs.

  • Deborah Jones Merritt (Ohio State), Old Tricks (Law School Cafe):

During the 1970s, NALP manipulated data about law school career outcomes in a way that makes more contemporary methods look tame. ... I’m startled by the sheer audacity of this data manipulation. Equally important, I think it’s essential for law schools to recognize our long history of distorting data about employment outcomes. During the early years of these reports, NALP didn’t even have a technical staff: these reports were written and vetted by placement directors from law schools. It’s a sorry history.

In other NALP news, the organization unveiled a new logo and tagline at the 2013 NALP Annual Education Conference:

NALP New Logo
Because of NALP, lawyers, law schools and law students are able to connect on an even playing field—which means that lawyers find great jobs in some of the nation’s leading firms. NALP also helps law firms and others recruit, develop, and support some of the best legal minds in the country. When faced with the challenge of how best to position themselves with their key audiences, NALP turned to Mission Minded who led the research and strategy that established a new brand. We then helped them bring their brand to life through key messages, visual identity and tagline. The new brand gives focus and clarity to NALP’s communications, helping the association better connect with its members.

June 24, 2013 in Legal Education | Permalink | Comments (0) | TrackBack (0)

The Journal of Legal Tax Research Publishes New Issue

CoverThe American Tax Association Journal of Legal Tax Research has published Vol. 11, No. 1 (June 2013):

  • Christopher R. Jones & Yuyun Sejati, Improving Use-Tax Compliance by Decreasing Effort and Increasing Knowledge, 11 J. Legal Tax Research 1 (2013):  "We explore two remedies that could help states improve use-tax compliance. The first remedy is designed to reduce the amount of effort an individual must exert to pay the use tax by having the vendor give the individual an option to pay the use tax online. The second remedy focuses on increasing knowledge about the use tax by providing the individual with information about the use tax during the purchasing process. The results from two states, Florida and Illinois, indicate that providing an individual with the option to pay the use tax increases the likelihood that the person will comply with the use-tax law. Providing information about the use tax, however, increases the likelihood of compliance only in Florida. Finally, there is a marginally significant interaction effect between the two remedies in Illinois. This study makes three important contributions. First, this study offers policy makers two concrete and feasible solutions to the use-tax compliance problems for online transactions. Second, this study contributes to the academic literature by expanding the tax compliance literature into a relatively unexplored area. Finally, this study shows how use-tax compliance decisions and the effectiveness of potential remedies may vary from one state to another."
  • Claire Y. Nash & James O. Parker, The LLC Controversy: Classifying LLC Members as Limited Partners under Proposed Treas. Reg. §1.1402(a)-2, 11 J. Legal Tax Research 19 (2013): "The LLC entity form continues to be popular, and LLCs continue to seek definitive guidance regarding the classification of LLC members for purposes of §1402. Although a series of recent judicial decisions and Proposed Treas. Reg. §1.469-5(e), issued in November 2011, address when an individual will be treated as a limited partner for purposes of IRC §469, they exacerbate the uncertainty surrounding how LLC members should be classified for other purposes of the Internal Revenue Code. They do not address how LLC members should be classified for purposes of IRC §1402, or whether deference should be afforded Proposed Treas. Reg. §1.1402(a)-2. Through an analysis of the relevant statutes and related regulations, recent judicial decisions, and other recent developments, we show that Proposed Treas. Reg. §1.1402(a)-2 provides limited authority to support classifying LLC members as limited partners."
  • Glenn Walberg, The Impact of Accounting Methods, the Doctrine of Election, and Income Distortion on a Start-Up Election, 11 J. Legal Tax Research 33 (2013):  "A taxpayer with an existing business generally can establish return-signing positions to characterize the growth of its business as occurring either through an expansion of the existing business or the start of a new business. The selected character then determines the manner by which the taxpayer recovers costs associated with the growth. This article explores how the taxpayer's initial choice to characterize business growth as an expansion or start-up could become binding on the taxpayer and IRS under accounting method rules and/or the doctrine of election, which would permit a recharacterization only to avoid income distortion. The article concludes that those tax accounting concepts could unjustifiably make the initial characterization binding, irrespective of its accuracy, due to the difficulty of showing that a particular characterization causes income distortion."

June 24, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

The IRS Scandal, Day 46

TaxProf Blog Weekend Roundup

Sunday, June 23, 2013

Top 5 Tax Paper Downloads

The IRS Scandal, Day 45

Federal Aid as a Percentage of State General Revenue

Stephen Colbert's Tribute to His Mother

Saturday, June 22, 2013

WSJ: Will Your Home Sale Be Tax-Free?

Wall Street Journal Tax Report:  Will Your Home Sale Be Tax-Free?, by Laura Saunders:

After years in the doldrums, housing markets are heating up in many parts of the country. That makes it a good time review the taxes—and the tax breaks—on home sales. ... Here is what sellers and sellers-to-be need to know.

  • The principal-residence tax break
  • Rental unit in the home
  • Repairs versus improvements
  • The new 3.8% tax
  • Sales at a loss and forgiveness of debt
  • Home-offic recapture
  • Home-buyer tax-credit recapture

June 22, 2013 in Tax | Permalink | Comments (1) | TrackBack (0)

American Taxation Association Annual Meeting

ATAThe annual meeting for the American Accounting Association will be held August 3-7 in Anaheim, CA. At the meeting, the American Taxation Association will offer an exciting program of tax research. This year’s ATA program consists of fourteen sessions covering a variety of topics including Financial Reporting of Taxes, Uncertain Tax Positions, Tax Avoidance, Tax Incentives and Investment, and State and Local Tax Research. In addition, Joseph J. Thorndike, director of the Tax History Project at Tax Analysts, will serve as the speaker for the ATA luncheon on Monday, August 5. His remarks will touch on the 100th Anniversary of the U.S. Federal Income Tax.

June 22, 2013 in Conferences, Tax | Permalink | Comments (0) | TrackBack (0)

The IRS Scandal, Day 44

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June 22, 2013 in IRS News, Tax | Permalink | Comments (2) | TrackBack (0)

The Impact of Section 197 on the Valuation of NBA Franchises

NBA LogoLance Taubin (J.D. 2013, Cardozo), Note, Welcome to the Real 2011 NBA Lockout: Where Owner-Friendly Tax Provisions and Non-Monetized Benefits Color the Lockout Landscape, 11 Cardozo Pub. L. Pol'y & Ethics J. 139 (2012):

During the 2011 NBA lockout, the owners, who collectively make up the NBA, cried poverty claiming they were losing millions of dollars each season. The owners cite their balance sheets, which do in fact show consistent losses. However, these allegations ignore other various benefits owners enjoy that cannot necessarily be seen on their balance sheets. The owners receive extremely favorable tax benefits from their ability to depreciate/amortize 100% of the purchase price of the team under §§ 168 and 197 of the nternal Revenue Code and many other non-monetized benefits, which subsequently become monetized when they sell their team. The players, members of a unionized labor group, represented by the NBPA and recognized by the NLRB, rightfully questioned the NBA's claimed losses. This Note will examine the favorable tax benefits from § 197, which are increasingly advantageous to owners due to § 886 of the American Jobs Creation Act of 2004 and the non-monetized benefits inherent in owning an NBA franchise. The tax benefits and ancillary non-monetized benefits, which are innately intertwined, are tremendous assets that do not show up on team balance sheets, but are necessary in evaluating the true economic position of the owners and the NBA as a whole. These non-monetized benefits, coupled with the AJCA's changes to how the IRC governs intangible assets of sports teams through § 197 reveal that owning an NBA franchise is a very valuable investment.

This Note was initially influenced by the disparate statements made by David Stern, Commissioner of the NBA, and Billy Hunter, Executive Director of the NBPA, regarding the magnitude of losses claimed to have been suffered by a majority of NBA owners and the NBA as a whole over the past couple of years. The NBA claimed it lost more than $1 billion since the prior Collective Bargaining Agreement went into effect in 2005-2006, including $380 million in 2009-2010 and more than $300 million in 2010-2011. Billy Hunter and the NBPA stated these numbers were not accurate and the losses were closer to $90 million for the 2010-2011 season. This Note will attempt to explain how the NBA and NBPA reported widely dissimilar losses and why these differences matter. Part I of this Note will provide a brief overview of the 2011 lockout, the history and significance of the CBA, as well as a summary of the main provisions and issues that were at the core of the negotiations. Part II will outline how the IRC regulates the depreciation/amortization of player contracts and highlight the recent notable changes to § 197. Part III will evaluate the positive impact of the § 197 changes to NBA owners and the extremely valuable, non-monetized benefits inherent in owning an NBA franchise. Specifically, the ability for owners to depreciate/amortize 100% of the purchase price over a fifteen-year period (“100/15 Rule”), the majority of which under § 197, has incredible advantages to the owners' other businesses, and thus one cannot evaluate an NBA team as a stand-alone asset. These benefits, which are referred to as “non-monetized benefits” throughout this Note, involve the related business opportunities that owners enjoy as a result of owning an NBA team and the ability to use the amortization deduction in § 197 as a tax shelter for their earnings from other business ventures. Finally, Part IV will sum up with insight in to why the amortization deduction and the non-monetized benefits help to explain the difference between the losses cited by the NBA compared to the position taken by the NBPA, and why these benefits, despite not appearing on teams' balance sheets, should be taken into consideration when evaluating the financial health of an NBA team. This Note concludes by arguing that the new 100/15 Rule may not be the most effective way to accomplish what Congress initially sought out to achieve through the AJCA.

June 22, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, June 21, 2013

The Tax Lawyer Publishes New Issue

Tax Lawyer The Tax Lawyer has published Vol. 66, No. 1 (Fall  2012):

June 21, 2013 in ABA Tax Section, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Barton: A Glass Half Full Look at the Changes in the American Legal Market

Benjamin H. Barton (Tennessee), A Glass Half Full Look at the Changes in the American Legal Market:

The American legal profession finds itself in the midst of dizzying changes. What was once viewed as a brief downturn now looks like a much more substantial restructuring and downsizing. The main commentators on these trends have been those most likely to be affected: law professors and corporate lawyers, and they have largely presented these trends as disastrous. This Essay argues that while these changes will be painful in the near term, they will prove beneficial overall.

The obvious reason for optimism is that America will be significantly better off if we spend less on legal services. Whatever else the future holds it seems likely that legal services will be more widely available to more people at lower prices. This trend starts at the top with corporate law firms and bubbles up from the bottom with LegalZoom and other online forms providers and will eventually reach the entire market. Expenditures on law are typically just transaction costs and everyone is better off when transaction costs shrink. If you have enjoyed the digital revolution in music or photography, you will likewise enjoy the legal market of the future. Legal services will be cheaper, more accessible AND better. These changes are bad for lawyers in the same way digital photography was bad for Kodak. Nevertheless, it is outstanding news for the country as a whole.

Less obviously, the trends identified in Larry Ribstein’s “Death of Big Law” and the ripple effect through law schools will, ironically, lead us to a leaner, happier profession. For years the hope of securing a job in Big Law, the easy availability of student loans, and the misperception of what lawyers do and what law school is like have drawn many ill-suited individuals into law. This has had a number of deleterious effects on those individuals and on the practice as a whole. Current market forces and news coverage, however, will eventually result in a profession staffed by individuals who chose law despite a substantial headwind, rather than because they did not know what else to do and they thought it would guarantee a high salary for life. This will make the profession as a whole healthier than it has been in years.

June 21, 2013 in Legal Education | Permalink | Comments (0) | TrackBack (0)

Walker: A Tax Response to the Executive Pay Problem

David I. Walker (Boston University), A Tax Response to the Executive Pay Problem, 93 B.U. L. Rev. 325 (2013):

Many observers believe that that the public company executive labor market is deficient and results in systematically excessive compensation. This Article accepts that premise and considers potential regulatory responses. Specifically, this Article proposes and analyzes a two-pronged tax response to the problem of excessive executive pay – the imposition of a surtax on executive pay in excess of a threshold combined with investor tax relief. These two prongs respond to the chief concerns raised by excessive executive pay. The imposition of a surtax would reduce the after-tax income of executives, which would directly address the unfairness of excessive pay and the effect of excessive pay on inequality of resources. Investor tax relief would tend to reverse the inefficient distortion in capital allocation that results from excessive pay and would ensure that these distortions were not exacerbated by companies increasing executive pay to offset the surtax.

June 21, 2013 in Scholarship, Tax | Permalink | Comments (4) | TrackBack (0)

Beyer & Moshman: The Present and Future of Federal Income and Wealth Transfer Taxation

Gerry W. Beyer (Texas Tech) & Robert L. Moshman, Federal Income and Wealth Transfer Taxation: What Happened and What Might Happen Next:

As 2012 came to an end and 2013 began, a furious rush of legislation from Congress impacted how income and wealth transfer are taxed. Although at first it was thought these changes were “permanent”, or as permanent as anything Congress does can be, there are already serious rumblings that significant changes are on the horizon. This article begins by explaining what happened, details the current rules, and concludes with a discussion of what the future may hold.  

June 21, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Accidental Inheritance: Retirement Accounts and the Hidden Law of Succession

Stewart E. Sterk (Cardozo) & Melanie B. Leslie (Cardozo), Accidental Inheritance: Retirement Accounts and the Hidden Law of Succession, 89 NYU L. Rev. ___ (2014):

Americans currently hold more than $9 trillion in retirement savings accounts. Those accounts, together with the family home, are the principal source of wealth for most working and retired Americans. But when a retirement account holder dies prior to exhausting retirement savings, what governs the distribution of the account? Most often, not the account holder’s will or trust, but a one-page fill-in-the-blanks beneficiary designation form that the accountholder filled out, typically without advice of counsel, when she or he opened the account.

When account holders fill out beneficiary designation forms, they are focused on starting a new job or beginning to save for retirement, not on estate planning. Yet the account holder’s beneficiary designations often trump express provisions in a will, trust instrument, prenuptial agreement or divorce decree -- documents prepared with inheritance in mind. Moreover, the account holder may neglect to change the beneficiary designation to take account of changed life circumstances, causing his or her retirement assets to pass to a beneficiary he or she never would have chosen later in life. To make matters worse, although wills doctrine has developed a set of constructional rules to deal with changes of circumstance, those rules do not generally apply to beneficiary designation forms. The current legal framework often frustrates the intent of the account holder.

This problem, which has already spawned a significant volume of litigation, will become exponentially worse over the coming decade, as more holders of substantial accounts reach the end of their life expectancy. Reform is critical. The financial intermediaries who currently draft beneficiary designation forms have little incentive to improve them because account holders and employers are unlikely to choose providers based on the quality of their forms. Federal and state legislation is necessary to ensure that these assets are distributed consistently with account holders’ intentions.

June 21, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Shakow: Valuation Misstatement Penalties Require Valuation Misstatements

Tax AnalystsDavid J. Shakow (Pennsylvania), Valuation Misstatement Penalties Require Valuation Misstatements, 139 Tax Notes 1283 (June 10, 2013):

In this report, I argue that the valuation misstatement penalty has been misinterpreted by the IRS to apply to tax shelter transactions that have nothing to do with valuation. The penalty applies to taxpayers who claim deductions from inflated basis only when the basis was inflated as a result of an overvaluation. Properly understood, the penalty provision rarely raises the issue for which the government successfully sought certiorari in United States v. Woods.

All Tax Analysts content is available through the LexisNexis® services.

June 21, 2013 in Scholarship, Tax | Permalink | Comments (2) | TrackBack (0)

Hickman: Unpacking the Force of Law in Tax Cases

Kristin Hickman (Minnesota), Unpacking the Force of Law, 66 Vand. L. Rev. 465 (2013):

In 2011, in Mayo Foundation for Medical Education and Research v. United States, the Supreme Court held that general authority Treasury regulations adopted using notice-and-comment rulemaking carry the force of law and thus are eligible for Chevron deference. In the wake of Mayo, courts and scholars are now struggling with its implications for whether temporary Treasury regulations and IRB guidance documents (revenue rulings, revenue procedures, and notices) that lack notice and comment but are enforceable through civil penalties are likewise eligible for Chevron deference and, relatedly, whether these formats are in fact subject to APA notice-and-comment rulemaking requirements. Currently prevailing judicial tests for evaluating these questions do not offer clear or easy answers for the tax context. Ultimately, both questions turn on whether the agency actions in question carry “the force of law.” The purpose of this Article is to take a step back from existing doctrinal standards and to sort through the basic administrative law principles and Supreme Court precedents that drive those standards in an effort to develop a coherent approach to Treasury and IRS rulemaking and judicial review thereof.  

June 21, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

The IRS Scandal, Day 43

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June 21, 2013 in IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

Senate Releases Tax Reform Option Paper on Non-Income Tax Issues

Senate LogoThe Senate Finance Committee  yesterday released its Tenth (and Final) Tax Reform Option Paper on Non-Income Tax Issues and Related Reforms:

This document is the last in a series of ten papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. ... The paper outlines the following potential goals for reform in this area:

  • Simplify the law in order to reduce the cost to businesses and individuals of complying with the tax code.
  • Ensure that the overall federal tax system is fair, while minimizing the negative effect of taxes on economic growth.
  • Carefully consider whether and how non-income tax measures should account for any positive or negative externalities.

 
The paper lists the following broad reform options with more details included for each policy proposal:  

I.  EMPLOYMENT TAXES

  1. Increase FICA and SECA taxes.
  2. Eliminate or reduce the FICA and SECA taxes.
  3. Make the Social Security tax less regressive.
  4. Eliminate employment tax exclusions for certain categories of workers.
  5. Simplify, clarify, and make fairer the FICA and SECA tax rules.
  6. Reform the income tax treatment of Social Security and Medicare benefits.

II.  WEALTH TRANSFER TAXES

  1. Repeal the estate and generation-skipping transfer taxes.
  2. Replace the wealth transfer system with an alternative wealth transfer tax system.
  3. Modify the tax rates and exemptions.
  4. Reform and simplify the current wealth transfer tax system.
  5. Miscellaneous simplification reforms.

III.  EXCISE TAXES

  1. Introduce a securities transactions excise tax.
  2. Prohibit the Treasury Department from assisting foreign governments in enforcing taxes on securities transactions occurring on a U.S. exchange.
  3. Impose a levy on large financial institutions.
  4. Enact or increase sin taxes.
  5. Repeal all sin taxes.
  6. Enact a tax on the value of land.
  7. Modify the rum excise tax transfer (“cover-over”) to the United States Virgin Islands and Puerto Rico, and limit the total amount of direct or indirect government assistance to rum producers.

IV.  CONSUMPTION TAXES

  1. Enact a consumption tax, while preserving the income tax and employment taxes.
  2. Replace the income tax with a consumption tax.
  3. Replace employment taxes with a consumption tax.

June 21, 2013 in Congressional News, Tax | Permalink | Comments (0) | TrackBack (0)

Tax Shelters or Efficient Tax Planning? A Theory of the Firm Perspective on the Economic Substance Doctrine

T. Christopher Borek (Analysis Group, Inc.) & Angelo Frattarelli (U.S. Department of Justice) & Oliver Hart (Harvard University, Department of Economics), Tax Shelters or Efficient Tax Planning? A Theory of the Firm Perspective on the Economic Substance Doctrine:

Courts have articulated a number of legal tests to distinguish corporate transactions that have a legitimate business or economic purpose from those carried out largely, if not solely, for favorable tax treatment. We outline an approach to analyzing the economic substance of corporate transactions based on the property rights theory of the firm, and describe its application in two recent tax cases.

June 21, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, June 20, 2013

NALP: Employment Rate of Law Grads Falls for Fifth Consecutive Year

NALP, Law School Class of 2012 Finds More Jobs, Starting Salaries Rise— But Large Class Size Hurts Overall Employment Rate:

The overall employment rate for new law school graduates fell to 84.7%. Even though the overall number of jobs obtained by this class was higher than the number of jobs obtained by the previous class, the Class of 2012 was also bigger. When coupled with fewer law-school funded positions, this resulted in the overall employment rate for the Class of 2012 falling almost a full percentage point from the 85.6% measured for the prior year. The overall rate has now fallen for five years in a row since 2008. With the Class of 2012 there are a number of markers that signify continuing weaknesses in the entry-level legal job market, but nonetheless some signs of improvement are also evident. The employment profile for this class also reflects a “new normal” in which large firm hiring has recovered some but remains far below pre-recession highs. ...

Despite signs of modest improvement, as evidenced by more law firm jobs as described below, there are still signs of structural weakness in the entry-level job market. For instance, of those graduates for whom employment status was known, only 64.4% obtained a job for which bar passage is required. This figure has fallen over 10 percentage points just since 2008 -- when it was 74.7% -- and is the lowest percentage NALP has ever measured. An additional 13.3% obtained jobs for which a JD provides an advantage in obtaining the job, or may even be required, but for which bar passage is not required (these are often described as law-related jobs). This compares with 12.5% for the Class of 2011 and is the highest since NALP began comparable tracking in 2001. The percentage of graduates employed in other capacities was 6.7%. The unemployment rate was also up for this class, measured at 12.8%, up 0.7% percentage points from the 12.1% measured for the Class of 2011. ...

Chart 1

Of the 64.4% of graduates for whom employment status was known who obtained a job for which bar passage was required, just over 6% of these jobs were reported as part-time, and therefore the percentage employed in a full-time job requiring bar passage is only 60.7%. Because some of these jobs will last less than one year, the percentage employed full time in jobs requiring bar passage that will last at least a year is only 58.3%. Nonetheless, both these figures are improvements over the 2011 figures, which were 60% and 56.7%, respectively.

Salary information was reported for almost 65% of the jobs reported as full-time and lasting at least a year. The national median salary for the Class of 2012 based on these reported salaries was $61,245, compared with $60,000 for the Class of 2011, and is the first year-over-year increase in the overall median since 2008, when the median increased to $72,000. The national mean for the Class of 2012 was $80,798, compared with $78,653 for the Class of 2011. The increase can be attributed largely to the bounce back in law firm jobs, particularly at large firms. Nonetheless the overall salary median and the median for law firm jobs specifically remain below those of 2008-2010. ...

[J]obs in the largest firms, those with more than 500 lawyers, have rebounded substantially from their low point in 2011, and accounted for 19.1% of jobs taken in law firms, compared with only 16.2% in 2011. The number of jobs taken in these firms -- over 3,600 -- is up by 27% over 2011 levels, representing a recovery almost to 2010 levels but to nowhere near the 2009 figure of more than 5,100 jobs. ...

The national median salary at law firms based on reported salaries was $90,000, compared with $85,000 the prior year. With salary medians by firm size remaining essentially unchanged, the modest increase in the overall median is largely attributable to the increase in the number of large firm jobs, with salaries of $160,000 now accounting for over 29% of reported law firm salaries. At the same time, although salaries of $160,000 still prevail at the largest firms, their share has dropped since 2010. And though still a tiny minority—less than 4%—salaries of $50,000-99,000 for bar passage required jobs at large firms are more common than just two years ago, as more graduates are taking staff attorney or similar positions at lower salaries. (See Table 1 below.)

Table 1

James Leipold (Executive Director, NALP), Job Market Begins to Recover with Class of 2012, But Employment Rates, Salaries, Remain Far Off of Pre-Recession Highs:

As expected,with the Class of 2012we see some employment markers continuing to slide while others are showing signs of recovery. The overall employment rate is down again, but despite this, it is important to understand that the jobs picture is actually improving, if only slightly. This class found more jobs, and more jobs in private practice, than the previous class, but because the national graduating class was so much bigger, the overall employment rate continued to fall.Median starting salaries for this class have also rebounded slightly, reflecting the availability of more jobs with the largest law firms — those that pay the highest salaries — than existed for the previous class. On the other hand, the percentage of graduates who found full-time, long-term employment in jobs requiring bar passage remained below60%.

I continue to believe that the Class of 2011 represented the absolute bottom of the curve on the jobs front, and the results for the Class of 2012 bear that out, showing as they do, a number of improving markers, but at present, the employment picture remains decidedly mixed. ...

I am often asked if there are signs that the entry-level job market is recovering. Based on the results for the Class of 2012, for the first time in more than five years I am able to say yes. Looking ahead, I would expect to see the employment picture for the Class of 2013 continue to improve, although that is another very large graduating class, and its size will take a toll on the overall employment rate. As class sizes comedown over time and the legal employment market stabilizes somewhat, I would expect to continue to see modest improvements in the job market in the near and medium term future. Absent another significant national or international economic setback, I would expect to see aspects of the employment profile for the next several classes continue to inch up, though there is nothing to indicate a rapid recovery or a likely return to pre-recession employment levels any time in the near future.

June 20, 2013 in Legal Education | Permalink | Comments (7) | TrackBack (0)

Cowan: Tax Consequences of Faculty Teaching Courses for Free

Mark J. Cowan (Boise State University, Department of Economics), Assignment of Income at the Ivory Tower: Relaxing the Tax Treatment of Services Donated to Charities by their Employees, 39 J.C.& U.L.___ (2013):

When a faculty member donates time to a college or university by, for example, teaching a summer course for no compensation, the federal income tax treatment of the donation can take one of two forms. One possibility is that the donation will have no tax consequences. The faculty member realizes no income from the donation and gets no charitable deduction. A second possibility is that the faculty member will be required to recognize taxable income equal to the value of the services provided and then may (subject to certain limits) be allowed a charitable contribution deduction. In many cases, the income and deduction do not fully offset, resulting in negative tax consequences for the faculty member. This second possibility occurs when the faculty member directs where the funds saved by the donation are used within the institution. Since faculty members normally would prefer to control the specific use of the saved funds, many donations would result in negative tax consequences sufficient to stifle the donation in the first place. This Article argues that the tax law should be clarified and relaxed to allow faculty members (and other employees of charitable organizations) to donate time to their employer institutions on a tax-free basis in more situations than is currently the case. Alternatively, the Article suggests ways for charities to encourage donations of time by employees, even in the absence of a favorable law change.  

June 20, 2013 in Legal Education, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Azam: The Political Feasibility of a Global E-Commerce Tax

Rifat Azam (Radzyner School of Law, Israel), The Political Feasibility of a Global E-Commerce Tax, 43 U. Mem. L. Rev. 711 (2013):

In its strongest statement yet on progressive tax reform, the UN has recently called on countries to introduce a global carbon tax and financial transaction tax (FTT). In my recent article entitled Global Taxation of Cross Border E-commerce Income, 31 Va. Tax Rev. 639 (2012)), I proposed to impose a global e-commerce tax on cross border e-commerce income by a new supranational institution, The Global Tax Fund, to be established by countries through international treaty. According to my proposal, the global e-commerce tax revenues shall be spent to fund global public goods. I argued normatively that the proposed regime achieves legitimate, certain, efficient and fair taxation on cross border e-commerce income. In addition, it finances very important and growing need of supplying global public goods. I concluded that Global E-commerce Tax would be a desirable and plausible resolution of linked problems on both the income tax and the expenditure side of government functions.

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June 20, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Avi-Yonah: Territoriality: For and Against

Reuven S. Avi-Yonah (Michigan), Territoriality: For and Against:

This article will survey the main arguments for and against territoriality and conclude that it is the wrong way to go in the short run, but can perhaps be adopted in the medium to long run in conjunction with more fundamental international tax reform. The main reason that territoriality should not be adopted now is that the OECD may be about to recommend worldwide consolidation for all its members as part of the Base Erosion and Profit Shifting (BEPS) project, and if the OECD does that, all of the standard arguments in favor of territoriality and against abolishing deferral disappear.  

June 20, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Dean Defends Decision to Open New Law School in Fort Wayne in August 2013

IndyTech LogoFort Wayne Journal Gazette:  Will Jobs be There for Law School Grads? Dean Defends Indiana Tech’s Plans to Open:

Peter Alexander is tired of explaining it.

But the question keeps coming up: Why does Indiana need another law school?

Alexander is the dean of the newly created law school at Indiana Tech. And after a new set of statistics came out this month, showing again that there are, perhaps, more lawyers than needed, Alexander was again asked about it.

He is adamant: It’s not about the number of job openings versus the number of law school graduates. It’s about the quality of the law school graduate. And Indiana Tech’s new law school will turn out high-quality graduates, making them necessities in any market, he said. "If we do our jobs, then our students will be the ones law firms want to hire,” Alexander said. ...

The Hoosier State has four law schools already – two public and two private. Indiana Tech’s is slated to open this summer.

What kind of job possibilities exist for Indiana Tech’s graduates when they finish up is a matter of heated debate. ...

Alexander said Indiana Tech’s new law school will stand out in how it prepares students to be lawyers. Similar to a medical school approach to education, Indiana Tech students will do classroom work but spend time on practicums and externships. Seventy-five Allen County judges and lawyers have already signed up to be mentors for the program, Alexander said. “I think even the bench and the bar recognize we’re doing something different or they wouldn’t put their support behind it,” he said. ...

It is difficult, though, to determine how Tech’s approach differs from the offerings at other law schools within the state. ...

Indiana Tech is still taking applications for the law school, and a few students have been admitted already. The school is scheduled to open in August. “We’re comfortable with where we are, but I guess the students will tell us at the end of the day,” he said.

(Hat Tip: Above the Law.)  Prior TaxProf Blog coverage:

June 20, 2013 in Legal Education | Permalink | Comments (2) | TrackBack (0)

Tribune Faces $500 Million Tax Bill From Sale of Cubs, Newsday

How Zell is sinking Tribune a second time around

CubsFollowing up on my prior posts (links below):  Fortune:  Zell's Legacy Lives On: IRS Goes After Tribune, by Allan Sloan:

Sam Zell is gone from the Tribune Co., but his toxic financial legacy lives on. Not only did his debt-fueled purchase of one of the nation's biggest media companies help precipitate its bankruptcy, costing creditors billions and wiping out thousands of jobs, but he has left a nasty tax mess behind for Tribune, which exited Chapter 11 proceedings on Dec. 31.

As I predicted several years ago, the IRS has challenged the tacky tax-avoiding way that Zell had Tribune unload Newsday, a Long Island, N.Y. newspaper, and it seems virtually certain to challenge the way that Tribune unloaded the Chicago Cubs.

By the time the final papers are shuffled, the IRS and local tax authorities are likely to be seeking considerably more than half a billion dollars in taxes, penalties, and interest from Tribune in regard to what I call the "non-sale sales" of the Cubs and Newsday.

Before we proceed, a bow to tax expert Bob Willens of Robert Willens LLC, who told his clients that he expected both the Cubs and the Newsday deal to be challenged.

Willens's newsletter reported Monday that the IRS had rejected the tax treatment Tribune had sought for the Newsday deal. This led me to a Tribune financial report that was issued Monday.

Guess what? Buried in the tax footnotes, Tribune (which declined comment) said that the IRS is seeking $190 million of taxes and a $38 million "accuracy-related penalty" for not treating the 2008 Newsday transaction as a sale. In addition, Tribune said, it could be liable for $17 million of interest to the IRS, and $28 million of taxes and interest to other taxing authorities. Total exposure: $273 million.

Tribune also said that its return for 2009, the year it unloaded the Cubs, is being audited, and a challenge to the Cubs deal could cost $225 million plus interest and penalties. Apply the same penalties as the IRS is seeking in the Newsday deal, and the total exposure is about $300 million.

In its tax footnote, Tribune says that it "disagrees with the IRS position (about Newsday) and will request that the IRS administrative appeals office review the issue." That would explain why Tribune says it had no reserves set aside for Cubs or Newsday-related tax liability. ...

I'm sure that after litigation or the threat of it, Tribune will ultimately settle considerably less than the $600 million likely total of the claims, penalties and interest. However, my bet is that Tribune will ultimately fork over more than $100 million to pay for the tax games Zell played with Newsday (one of my former employers) and the Cubs.

That's just what the company, struggling to survive in a hostile landscape for media companies, needed in its new life -- a big, fat tax bill from the past. Thanks a lot, Sam.

Prior TaxProf Blog coverage:

June 20, 2013 in Tax | Permalink | Comments (3) | TrackBack (0)

Fleischer: How the IRS Encourages Oil and Gas Spinoffs

NY Times DealBook

New York Times DealBook:  How the IRS Encourages Oil and Gas Spinoffs, by Victor Fleischer (Colorado; moving to San Diego):

The grand bargain of the landmark tax legislation of 1986 was a deal for higher corporate taxes and higher capital gains taxes in exchange for lower rates on ordinary income. For the bargain to work, the boundaries of the corporate tax base had to be reinforced.

Among other things, Congress was concerned about the proliferation of master limited partnerships, also known as MLP’s. These entities were publicly traded, like corporations, but were organized as partnerships under state law and avoided paying corporate taxes.

To protect the integrity of the corporate tax base, Congress passed section 7704, which provides the general rule that publicly traded entities should be taxed as corporations regardless of how they are organized under state law.

There is an exception to this general rule, however, for energy MLP’s, defined as companies that derive at least 90% of their income “from the exploration, development, mining or production, processing, refining, transportation … or the marketing of any mineral or natural resource.” In other words, for the energy sector, paying the corporate tax is optional.

These days, more and more energy companies organize as partnerships and are therefore taxed on a pass-through basis, with MLP unitholders paying tax on income at individual rates rather than the businesses paying it on a corporate rate. ...

As with real estate investment trusts, the IRS has made matters worse by carving the original loophole, brick by brick, into an opening big enough to drive an oil tanker through.

In a series of private rulings over the last few years, the IRS has been exceedingly accommodating toward what counts as an energy MLP. The end result is that more oil and natural gas companies, and companies loosely affiliated with the industry, can legally skirt the general requirement that publicly traded entities must pay the corporate tax.

June 20, 2013 in Tax | Permalink | Comments (0) | TrackBack (0)

ObamaCare Boosts Tax and Accounting Firms

Fiscal Times:  Obamacare Boosts the Tax and Accounting Industry:

President Obama signed the [health care] law in March 2010, but it won’t fully take effect until January. With a new slew of complicated laws and regulations on the books, someone has to interpret them for average Americans and the business community.

Leading law firms like Littler Mendelson, Proskauer and others continue to eye the possibilities. H&R Block and other tax preparation firms are expected to hire additional accountants to help individuals file their tax returns, which will provide vital information to comply with Obamacare.  And certified public accounts and data management firms are poised to assist businesses with record keeping and other assistance.

Without question, tax professionals and tax form preparers are among the most important cogs in the Obamacare machine. That is because the IRS, rockd by political scandal in recent months, is central to implementing the health care reform system.

The Supreme Court held last year that Congress could regulate health care under its ability to tax. That gave the IRS a leading role in implementing the new law, along with the Department of Health and Human Services. There are 47 tax provisions -- including the small business health care credit and the medical devices tax -- that will take effect. The agency will have to administer those provisions and collect taxes where due.

  • The IRS determines whether people qualify for a health insurance premium tax credit as part of the minimum coverage requirement.
  • Americans will report their insurance status when they file their tax forms.
  • The IRS will collect a $95 penalty on those without insurance.
  • Businesses with 50 or more full-time workers must provide health care insurance to their employees or face a $2,000 per-head penalty.
  • The agency will collect the penalties when businesses do not comply.

Tax preparers play such an important role in Obamacare that HHS Secretary Kathleen Sebelius reportedly solicited a $500,000 donation from H&R Block to fund a marketing campaign to sell Americans on health reform. Gene King, a company spokesman, said yesterday that while Sebelius contacted H&R Block, the firm had yet to commit to any donation.

June 20, 2013 in Tax | Permalink | Comments (0) | TrackBack (0)

IRS-TPC Research Conference: Tax Administration at the Centennial

TPC-IRSThe IRS and Tax Policy Center are hosting a research conference today on Tax Administration at the Centennial with these presentations and papers (webcast):

Keynote Speaker:  Michael Durst (Senior Counsel, Steptow & Johnson, Washington, D.C.)

Welcome and Introductions:

  • Eric Toder (Co-Director, Tax Policy Center)
  • Rosemary Marcuss (Director, IRS Office of Research, Analysis, and Statistics) 

Session #1  Individual Income Tax Dynamics

  • Moderator: Elaine Maag (Tax Policy Center)
  • Len Burman & Liu Tian (Syracuse University), Norma Coe (University of Washington) & Kevin Pierce (IRS:RAS), Older Taxpayers’ Responses to Taxation of Social Security Benefits
  • Pat Langetieg, Mark Payne & Melissa Vigil (IRS: RAS), Preparer Industry Dynamics and the Return Preparer Initiative
  • Maggie R. Jones (Census Bureau), Changes in EITC Eligibility and Participation, 2005-2009
  • Discussant: Dayanand Manoli (University of Texas)

Session #2:  Business Compliance Behavior

  • Moderator: Eric Toder (Tax Policy Center)
  • Tom Beers, Eric LoPresti & Eric San Juan (IRS:Taxpayer Advocate Service), Factors Influencing Voluntary Compliance by Small Businesses: Preliminary Survey Results
  • Kenneth Klassen (University of Waterloo, Canada), Petro Lisowsky (University of Illinois) & Devan Mescall (University of Saskatchawan, Canada), Transfer Pricing: Strategies, Practices, and Tax Minimization
  • Peter Bickers, Michael Slyuzberg, Tracey Lloyd & Bhaskaran Nair (Inland Revenue, New Zealand), Demand for Aggressive Tax Planning
  • Discussant: Amy Dunbar (University of Connecticut)

Session #3:  Corporation Income Tax Enforcement

  • Moderator: Javier Framiñan (IRS)
  • Dave Macias & Kimmy Wang (IRS: LB&I), Analysis of Ten-Year Trends in Large Business Examination Results (2001- 2011)
  • Jason DeBacker (Middle Tennessee State University), Bradley Heim & Anh Tran (Indiana University) & Alexander Yuskavage (U.S. Treasury: Office of Tax Analysis), The Impact of Legal Enforcement: An Analysis of Corporate Tax Aggressiveness After an Audit
  • Margot Howard (University of North Carolina), IRS Enforcement and State Corporation Income Tax Revenues
  • Discussants: Jonathan Feinstein (Yale University) & Brian Erard (B. Erard & Associates)

Session #4:  Lessons From Other Tax Administrations

  • Moderator: Rahul Tikekar (IRS)
  • Cary Christian (Georgia Southern University), Why Evasion Under a National Sales Tax Would Explode the Tax Gap: Lessons Learned from the States
  • David Merriman (University of Illinois) & Natalie Davila & Hector M. Vielma (Illinois Department of Revenue), The Influence of Tax Form Design on Use Tax Compliance
  • Alice Cleland (Inland Revenue, New Zealand), Filling in the Black Hole: Research and Evaluation into the Hidden Economy
  • Discussant: Alan Plumley (IRS:RAS)
Wrap-up:  Janice Hedemann (Conference Chair, IRS:RAS)

June 20, 2013 in Conferences, IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

The IRS Scandal, Day 42

IRS Logo 2

Prior TaxProf Blog Posts:

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June 20, 2013 in IRS News, Tax | Permalink | Comments (2) | TrackBack (0)

Wednesday, June 19, 2013

Merritt: W&L's Dismal Placement Results Question Experiential Learning Push for 'Practice-Ready' Lawyers

W&L LogoDeborah Jones Merritt (Ohio State), An Employment Puzzle:

Employers say they are eager to hire these better-trained, more rounded, more “practice ready” lawyers -- and they should be. That’s why the employment results for Washington & Lee’s School of Law are so troubling. Washington & Lee pioneered an experiential third-year program that has won accolades from many observers. Bill Henderson called Washington & Lee’s program the biggest legal education story of 2013 [more here].  The National Jurist named the school’s faculty as among the twenty-five most influential people in legal education. Surely graduates of this widely praised program are reaping success in the job market?

Sadly, the statistics say otherwise. Washington & Lee’s recent employment outcomes are worse than those of similarly ranked schools. The results are troubling for advocates of experiential learning. They should also force employers to reflect on their own behavior: Does the rhetoric of “practice ready” graduates align with the reality of legal hiring? ...

Washington & Lee’s employment outcomes for 2011 were noticeably mediocre. By nine months after graduation, only 55.0% of the school’s graduates had obtained full-time, long-term jobs that required bar admission. That percentage placed Washington & Lee 76th among ABA-accredited schools for job outcomes. Using the second, broader metric, 64.3% of Washington & Lee’s class secured full-time, long-term positions. But that only nudged the school up a few spots compared to other schools -- to 73rd place.

In 2012, the numbers were even worse. Only 49.2% of Washington & Lee’s 2012 graduates obtained full-time, long-term jobs that required a law license, ranking the school 119th compared to other accredited schools. Including JD Advantage jobs raised the percentage to 57.7%, but lowered Washington & Lee’s comparative rank to 127th.

These numbers are depressing by any measure; they are startling when we remember that Washington & Lee currently is tied for twenty-sixth place in the US News ranking. Other schools of similar rank fare much better on employment outcomes.

The University of Iowa, for example, holds the same US News rank as Washington & Lee and suffers from a similarly rural location. Yet Iowa placed 70.8% of its 2012 graduates in full-time, long-term jobs requiring bar admission–more than twenty percentage points better than Washington & Lee. The College of William & Mary ranks a bit below Washington & Lee in US News (at 33rd) and operates in the same state. William & Mary placed only 55.9% of its 2012 graduates in full-time, long-term jobs requiring bar admission -- but that was still significantly better than Washington & Lee’s results. ...

Just last week, California’s Task Force on Admissions Regulation Reform suggested: “If, in the future, new lawyers come into the profession more practice-ready than they are today, more jobs will be available and new lawyers will be better equipped to compete for those jobs.” (p. 14) If that’s true, why isn’t the formula working for Washington & Lee?

I think we need to explore at least four possibilities. First and most important, the connection between practical training and jobs is much smaller than practitioners and bar associations assert. ... Second, even when allocating existing jobs, employers may care less about practical training than they claim. ... Third, employers may care about experience, but want to see that experience in the area for which they’re hiring. ... A fourth possible explanation for Washington & Lee’s disappointing employment outcomes is that the students themselves may have developed higher or more specialized career ambitions than their peers at other schools. ...

What lessons should we take from Washington & Lee’s 2011 and 2012 employment outcomes? First, the school still deserves substantial credit for its willingness to innovate–as well as for the particular program it chose. ... Second, legal employers should take a hard look at the factors they actually value in hiring. ... Third, law schools and employers should work together to design the best type of experiential education -- one that prepares graduates for immediate employment as well as long-term success. ...

Washington & Lee’s employment outcomes are a puzzle that we all need to confront. Graduates from most law schools, even high-ranking ones, are struggling to find good jobs. Experiential education can work pedagogic magic and prepare better lawyers, but it’s not a silver bullet for employment woes or heavy debt. On those two issues, we need to push much harder for remedies.

June 19, 2013 in Legal Education | Permalink | Comments (28) | TrackBack (0)

Columbia Journal of Tax Law Publishes New Issue

Columbia The Columbia Journal of Tax Law has published its eighth issue (Vol. 4, No. 2):

  • Andrew J. Haile (Elon), Sales Tax Exceptionalism, 4 Colum. J. Tax. L. 136 (2013): "There is something different about the state sales tax, or so it seems based on judicial decisions creating unique jurisdictional and apportionment standards for the tax. This article explores the concept of 'sales tax exceptionalism,' and assesses whether the special treatment afforded to the sales tax is justified by the theoretical foundations of the tax. In particular, the article examines whether theoretical justifications exist for the jurisdictional standard applied to the sales tax (a 'physical presence' standard), as compared to the 'economic presence' standard applied to the corporate income tax. Ultimately, the article concludes that only weak theoretical justifications support the different jurisdictional standards, and that recent changes to many states’ corporate income taxes further undercut the notion of 'sales tax exceptionalism.'"
  • Jonathan Olsen (J.D. 2013, Columbia), Note, The Unique Case of Treasury Regulations Issued to Prevent Abuse, 4 Colum. J. Tax. L. 174 (2013):  "The Administrative Procedures Act prescribes procedural requirements that govern the rulemaking activities of administrative agencies, including the IRS. It imposes, inter alia, notice and comment requirements which an agency may only bypass for good cause. While the Treasury Department’s assertion of the good cause exception when promulgating regulations to prevent tax abuse is a plausible application of the exception, it is distinguishable from typical assertions of good cause in one critical respect. Unlike many other agencies claiming good cause to bypass the notice and comment procedure, the IRS’s organic statute provides a viable alternative by allowing for the retroactive application of regulations issued to prevent abuse. As a result, two functionally equivalent approaches to combat tax abuse emerge, differentiated only by the presence or absence of public participation in rulemaking processes. By comparing the public policy ramifications of these different rulemaking approaches, I contribute to key policy debates centering on administrative rulemaking procedures. I find that issuing regulations under the good cause exception provides efficiency gains, but does so at the expense of increased litigation risk and a failure to mitigate the principal-agent problem animating the rulemaking requirements in the APA. On the other hand, regulations issued retroactively reduce agency costs, provide modest efficiency gains and partially outsource the burden of compliance to interested constituents who participate in rulemaking processes. On these grounds, I conclude that Treasury’s assertion of good cause to promulgate regulations to prevent abuse is unconvincing given the viable alternative of retroactive application of finalized regulations. These conclusions are specific to the trade-offs inherent when Treasury promulgates regulations to prevent tax abuse, but also speak to IRS compliance with the APA more generally."

June 19, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Mann: Smart Tax Incentives for the Smart Energy Grid

Roberta F. Mann (Oregon), Smart Incentives for the Smart Grid, 43 N.M. L. Rev. 127 (2013):

Clean, renewable energy from the sun and wind — the green revolution is supposed to change the world. Since 2005, the United States has increased government investment in renewable energy generation, both from direct subsidies and indirectly through tax subsidies. But before renewable energy can change the world, it has to get to the customers who use it. Thomas Edison did change the world when he developed the first working electric power system. Unfortunately, the system for transmitting electrical power throughout the United States (the “grid”) has not changed much since then. The grid was designed and built around fossil energy generation. Wind and solar energy pose several problems for the grid. First, wind and solar energy are intermittent. The sun doesn’t shine all the time; the wind doesn’t blow all the time. Second, the best sun and wind resources aren’t always near large numbers of electricity users. Third, when the wind blows, sometimes it blows a lot, generating spikes of power. Electricity requires a steady flow of power. Intermittent renewable sources such as wind and solar pose logistical challenges to maintaining a consistent flow of electricity to users. This problem can be solved the hard way, or the soft way. The hard way is building more and longer transmission lines. The soft way is conserving energy and smoothing demand by smart grid technology. Smart grid technology can overcome logistical challenges at a much lower cost than building more transmission lines. This paper will examine the incentives provided through the tax system for development and implementation of smart grid technology, assessing the progress of the United States and considering strategies for the future. Tax policies that could facilitate the development of the smart grid include incentives for plug-in electric vehicles used to store and manage energy, the credit for qualified advanced manufacturing and enhanced cost recovery to facilitate additional investment in grid technology.

June 19, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

How Librarians Can Enhance the Visibility of Faculty Scholarship

Simon Canick (William Mitchell), Library Services for the Self-Interested Law School: Enhancing the Visibility of Faculty Scholarship, 105 Law Libr. J. 175 (2013):

This article suggests a new set of filters through which to evaluate law library services, in particular those that support faculty scholarship. These filters include recent profound changes in legal education and the motivators of today’s law professors. By understanding the needs of self-interested deans and professors, libraries can fill new roles that are consistent with our core values. Libraries can also focus on dissemination and promotion of faculty work, especially through innovative open access projects.

June 19, 2013 in Legal Education, Scholarship | Permalink | Comments (0) | TrackBack (0)

The IRS Works to Regain the Public's Trust

Here. (Hat Tip: Andy Morriss.)

June 19, 2013 in IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

Taxation, Tyranny, and Theocracy: A Biblical Response to Susan Hamill

MythGary North, Taxation, Tyranny, and Theocracy: A Biblical Response to Susan Hamill, 14 J. Accounting, Ethics & Pub. Pol'y 331 (2013):

I respond to Prof. Hamill’s assertion that she is not recommending the exercise of theocratic power, as defined by Rev. Gregory Boyd. [Susan Pace Hamill (Alabama), Tax Policy Inside the Two Kingdoms, 14 J. Accounting, Ethics & Pub. Pol'y 1 (2013)]. She is in fact a theocrat in terms of Rev. Boyd’s definition. In two previous peer-reviewed articles [An Evaluation of Federal Tax Policy Based on Judeo-Christian Ethics, 25 Va. Tax Rev. 671 (2006); The Vast Injustice Perpetuated by State and Local Tax Policy, 37 Hofstra L. Rev. 117 (2008)], she has called on Christians to organize politically in order to re-stricture specific tax codes. She has said that Christians have the votes to do this: around 80% of the electorate. She has identified what the top federal tax bracket rate should be: 50%. This is in addition to state and local taxes. She has made this call to political action on the basis of a specific ethical system: Christianity. Her social outlook is consistent with a Protestant tradition known as the social gospel. She says that the Bible has provided Christians with the basis of tax reform. I agree entirely with her regarding the legitimacy of such a call to political action by Christians. But I do disagree with the biblical texts she uses to argue her case. I use the Bible’s tax texts, plus the Mosaic text that affirms the rule of law (Exodus 12:49) and also the text mandating the equal application of justice, irrespective of wealth (Leviticus 19:15).  

June 19, 2013 in Scholarship, Tax | Permalink | Comments (3) | TrackBack (0)

Listokin & Eigen: Do Lawyers Really Believe Their Own Hype?

Yair Listokin (Yale) & Zev J. Eigen (Northwestern), Do Lawyers Really Believe Their Own Hype, and Should They? A Natural Experiment, 41 J. Legal Stud. 239 (2012):

Existing research suggests that practicing litigators are too confident in the merits of their clients’ cases. But practicing attorneys often self select (1) the area of law in which they practice, (2) the side on which to practice within that area, (3) law firms with whom they practice, and (4) the clients they represent. We explore whether, after stripping away these selection-biases, legal advocates are still overconfident in their clients’ claims by exploiting a natural experiment involving participants in moot court competitions at three U.S. law schools. Students are randomly assigned to advocate for either petitioner or respondent, so none of the selection-bias problems above are present. We find that following participation in moot court contests, students overwhelmingly perceive that the legal merits favor the side that they were randomly assigned to represent. We also find that overconfidence is associated with poorer performance in advocacy as measured by legal writing instructors. Theoretical and practical implications are discussed.

June 19, 2013 in Legal Education, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Institutional Corruption in the Tax-Exempt Bond Market

Zachary Fox (Harvard University, Edmond J. Safra Center for Ethics), Tax-Exempt Corruption: Exploring Elements of Institutional Corruption in Bond Finance:

This paper will apply the theory of institutional corruption to the world of private-activity bonds, which offer private entities access to tax-exempt borrowing, which generally provides lower interest rates. The bonds are issued by a public authority that requires the funds be used for a purpose that serves the public benefit. There is a long history of corruption in the bond market, the latest development being a 2011 Department of Justice investigation that exposed rampant bid-rigging by Bank of America, J.P. Morgan Chase and others. This paper will focus on bonds used for affordable housing, and explore whether the theory of institutional corruption might apply to either housing bonds or tax-exempt bonds writ large. Readers with real estate backgrounds should take care to note this paper, and institutional corruption theory, allege no impropriety whatsoever.

June 19, 2013 in Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

The IRS Scandal, Day 41

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Prior TaxProf Blog Posts:

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June 19, 2013 in IRS News, Tax | Permalink | Comments (0) | TrackBack (0)

Dubay's New Tax Papers

HeritageCurtis S. Dubay (Heritage Foundation):

  • PEP and Pease Hurt Larger Families Most and Slow Growth:  "In the fiscal cliff deal, President Barack Obama and Congress surprisingly reinstated two long dormant tax policies: the personal exemption phaseout (PEP) and “Pease,” a cap on itemized deductions. The 2001 Bush tax cuts rightfully abolished them because they are bad policies. Now they are back, raising taxes on larger families and reducing the incentives to work and save. These reduced incentives will slow economic growth and, like the tax increase, hit larger families hardest. Pease is similar to the cap on deductions and exemptions that President Obama has proposed in his budgets. Fundamental tax reform is the best way for Congress to fix its mistake of reviving these policies."
  • CBO Report on “Tax Expenditures” Has It Wrong:  "The Congressional Budget Office (CBO) released a report on the distribution of tax expenditures” that some are wrongly using to push for additional tax increases. This was inevitable because the report takes the wrong approach to the issue."
  • E-sales Tax No Bargain:  "Gov. Bob McDonnell’s transportation plan includes a unique provision. If Congress passes the Marketplace Fairness Act, Virginia would use the new revenue from Internet sales taxes for transportation projects, sparing Virginians an increase of the gas tax. A respite from higher gas taxes sounds good. But Virginia’s businesses will pay a hefty compliance toll if the bill becomes law. And Virginians who shop online will pay the tab that drivers would’ve paid had the bill not become law."
  • Senate Immigration Bill Does Not Require Payment of All Back Taxes:  "There are many serious flaws in the controversial Senate immigration bill, the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744). One such flaw is that it fails a standard of basic fairness to which immigration has long been held: It does not meaningfully require illegal immigrants to pay back taxes, interest, and penalties on all the income they earned while here in the U.S. illegally before being granted legal status."

June 19, 2013 in Tax, Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 18, 2013

NYU Provides Sweetheart Loans to Faculty, Administrators to Buy Vacation Homes

NYUniversity LogoNew York Times:  NYU Gives Its Stars Loans for Summer Homes:

NYU has already attracted attention for the multimillion-dollar loans it extends to some top executives and professors buying homes in New York City, a practice it has defended as necessary to attract talent to one of the most expensive cities on earth. Mortgage loans to Jacob Lew, a former N.Y.U. executive vice president, part of which was eventually forgiven, became an issue during Mr. Lew’s confirmation hearings as treasury secretary this year.

Universities in similar circumstances, like Columbia and Stanford, also have helped professors and executives with home loans. Aid for vacation properties, however, is all but unheard-of in higher education, several experts in university pay packages say.

“That’s getting to be a little too sexy even for me, and I have a good sense of humor about these things,” said Stephen Joel Trachtenberg, a former president of George Washington University who has publicly defended high salaries for professors and university executives. “That is entertaining, actually. I don’t think that’s prudent. I don’t mind paying someone a robust salary, but I think you have to be able to pass a red-face test.” ...

Since the late 1990s, at least five medical or law school faculty members at N.Y.U. have received loans on properties in the Hamptons or Fire Island, in addition to Dr. Sexton. ... Dr. Sexton declined to comment for this article, but in a March interview he said: “Faculty housing loans on which interest is paid and appreciation is enjoyed by the university actually produce additional revenue. They’re probably the best-performing parts of our portfolio, so as to reduce the amount of tuition that we require.” ...

[T]he compensation committee of NYU’s board of trustees approves such loans, with the exception of law school loans, which in the past were approved by the law dean and the board of the law school’s foundation. The law school’s current policy “is to participate fully in the university’s process for evaluation and approval of loans and loan programs.” ....

Senator Charles E. Grassley, Republican of Iowa, raised the issue of Mr. Lew’s loans during hearings over his confirmation, which was approved; since then, the senator, who is a member of the Finance Committee, has asked NYU for more records of compensation and loans to executives and employees. He noted NYU’s nonprofit status, which generally exempts it from income and property taxes.

“Universities are tax-exempt to educate students, not help their executives purchase vacation homes,” he said in a statement on Monday. “It’s hard to see how the student with a lifetime of debt benefits from his university leaders’ weekend homes in the Hamptons.”

June 18, 2013 in Legal Education | Permalink | Comments (4) | TrackBack (0)

Posner, Becker Debate Tax Reform

Richard Posner, Tax Reform:

There is a good deal of dissatisfaction with the federal tax system (the state and local systems as well, but I’ll confine my attention to the federal). Most proposals for reform, however good in theory, are totally impractical from a political standpoint. But since politics is volatile, there is value to evaluating such proposals in order to lay a foundation for future reform. ...

Given political resistance, the practical feasibility of substantial tax reform is very limited. But at least a modest increase in federal income tax rates seems a politically feasible as well as economically defensible response to the need to increase federal revenue to cope with the fiscal deficit.

Gary Becker, Reform of the Tax Code:

The federal tax code is a mess from any economic perspective. It is not efficient, fair, or clear. A complete set of suggestions to improve the tax system would take hundreds of pages, as did the excellent 2005 Report of the President’s Advisory Panel on Federal Tax Reform. My discussion will concentrate on a few of the needed changes that would help stimulate a more efficient and faster growing American economy. ...

I discussed the most needed reforms, although other reforms are also desirable-many are considered in the report mentioned above on federal tax reform. Unfortunately, major reforms do not have much chance of enactment in the present political climate, but they are longer run goals that should appeal to both Democrats and Republicans.

June 18, 2013 in Tax | Permalink | Comments (0) | TrackBack (0)

Billionaire Claims IRS Political Bias in $186 Million Tax Refund Suit

Forbes:  Billionaire Seeks $186 Million Tax Refund, Claims IRS Biased By 'Politically Charged Atmosphere', by Janet Novack:

Billionaire investor Peter R. Kellogg and IAT Reinsurance Co. Ltd.,  the Bermuda-based insurance company his family owns, are suing the Internal Revenue Service for refunds of $186 million in taxes and interest they paid after the IRS revoked IAT’s tax-exemption retroactively. In court documents, Kellogg and IAT claim IRS officials were “unduly prejudiced” against them by a “politically charged atmosphere” created by journalists and that the IRS arbitrarily timed the revocation to maximize the taxes owed and “punish” them.

The IRS also disallowed IAT’s deduction of $1.3 million in business and personal travel expenses for Kellogg in 2000 and 2001. IAT argues its board properly authorized payment for Kellogg’s personal travel since it “recognized the need for Mr. Kellogg to travel privately because of his status including being listed by Forbes magazine.” Forbes estimates that Kellogg, 70, is worth $2.7 billion. He ran Wall Street’s top market maker, Spear, Leeds & Kellogg, until engineering its sale to the Goldman Sachs Group in 2000 for $6.5 billion.

Kellogg’s use of  a 501(c)(15) tax exempt insurance company to shield hundreds of millions in capital gains from tax was first exposed in a March 2001 Forbes cover story on the proliferation of edgy and over the edge tax shelters, Are You A Chump? Back then, the law limited the tax exemption to companies writing no more than $350,000 a year in premiums, but did not cap the investment income or assets exempt insurers could have. So in 1999, Forbes reported, IAT wrote $3,330 in premiums, earned $179 million on its investments and ended the year with $330 million in assets.  (Full disclosure: I was the author of that Forbes article.)

The loophole got even more attention in April 2003 when The New York Times published a long story on 501(c)(15), also featuring Kellogg. David Cay Johnston, the author of that article, also singled out Kellogg in his December 2003 book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich – and Cheat Everybody .

Kellogg’s assertions about the IRS’ bias and political sensitivity are contained in three previously unreported refund lawsuits he and IAT filed in the Court of Federal Claims at the end of April—before the public disclosure that the tax exempt division had improperly singled out 501(c)(4) exempt applications from groups with  “Tea Party” in their name for extra scrutiny.

June 18, 2013 in Tax | Permalink | Comments (0) | TrackBack (0)

CBPP: State Income Tax Revenues Surge 17.6%

Center on Budget and Policy Priorities:  States Should React Cautiously to Recent Income Tax Growth April Surge Provides Opportunity to Invest in Infrastructure, Boost Reserves:

Recent tax collections are considerably higher than last year in most states and, in many cases, exceed states’ projections when they adopted their current budgets in the spring of 2012.  In 32 states for which data are available, state tax collections in the first ten months of fiscal year 2013 were 5.7 percent higher than in the same period last year, on average. 

Figure 1

  A closer look into the tax collection reports reveals that: 

  • Much of the recent growth is in the income tax.  With two months left in the fiscal year, the typical state has collected 8.9 percent more personal income taxes than it did in the same period last year.  Sales taxes have grown more slowly.  This is, in part, the latest demonstration of the fact than income taxes rise more rapidly than sales taxes during periods of economic growth. 
  • The revenue growth and particularly income tax growth is nationwide.  Some 26 of the 30 states for which data are available experienced double-digit growth in income taxes between April 2012 and April 2013. 
  • While a portion of the income tax growth reflects the economic recovery, an additional portion reflects wealthy taxpayers shifting income into 2012 that they would have received in 2013 in anticipation of federal tax rate increases in 2013.
  • Even with this recent growth, state tax revenues have not recovered from the Great Recession. Revenues likely still remain more than 3 percent below pre-recession levels, after adjusting for inflation.  And because of the one-time nature of much of the recent revenue growth, revenue growth is likely to slow again.

June 18, 2013 in Tax, Think Tank Reports | Permalink | Comments (0) | TrackBack (0)