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Saturday, July 26, 2014

Former Vanguard Tax Lawyer Files Whistleblower Suit Alleging Mutual Fund Giant Became Low-Cost Leader by Evading $1 Billion in Taxes

Wall Street Journal, Former Employee Sues Vanguard, Alleges False Tax Filing:

VanguardA former employee of Vanguard Group Inc. has sued the mutual-fund company in New York, saying it has avoided paying federal and state taxes and sheltered hundreds of millions of dollars annually.

The civil suit, unsealed in the Supreme Court of New York on Friday, accuses the Malvern, Pa.-based firm of operating an illegal tax shelter for nearly 40 years, thus avoiding $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years, according to a copy of the complaint. The suit was filed by David Danon, whose LinkedIn profile describes him as an associate counsel at the company from August 2008 to June 2013. Mr. Danon is requesting all costs of filing the lawsuit as well as 15% to 30% of any money recovered by the state and local governments, including all proceeds of any related action.

A spokesman for Vanguard said in a statement that the company operates under a unique mutual structure and has a long history of serving the best interests of shareholders. "We believe that this case is without merit, and we intend to defend the matter vigorously," the spokesman said.

Philadelphia Inquirer, Suit Alleges Vanguard Wrongly Avoids Paying Taxes:

Vanguard "has operated as an illegal tax shelter for nearly 40 years, providing services to [its] funds at prices designed to avoid federal and state income tax, sheltering hundreds of millions of dollars of income annually, avoiding approximately $1 billion of U.S. federal income tax and at least $20 million of New York tax over the last 10 years," alleges the lawsuit, which was filed by David Danon of Wayne before he was terminated by Vanguard in 2013. ...

Danon's attorney explained why the case was filed in New York. "New York is the only jurisdiction that allows False Claims Act complaints to be filed for unpaid federal taxes," said Brian Mahany of Milwaukee. "We believe he was terminated because, even though this was under seal, they figured out he was a whistle-blower."

In an interview with The Inquirer, Danon, a 1998 magna cum laude graduate of Fordham Law School who worked at Sullivan & Cromwell L.L.P., Cleary Gottlieb Steen & Hamilton L.L.P., and other New York corporate law firms before joining Vanguard in 2008, said he had voiced his concerns to Vanguard officials and finally went outside the company when they refused to take steps to comply with the law as he viewed it. Danon said other Vanguard principals who disagreed with the company's tax position had also left Vanguard.

Danon has also talked with IRS and SEC investigators about his allegations, The Inquirer has learned. The SEC and IRS typically do not comment on possible investigations.

In the lawsuit, Danon details his allegation that Vanguard has been illegally avoiding taxes.

Continue reading

July 26, 2014 in Tax | Permalink | Comments (0)

The Happiest (Charlottesville) and Unhappiest (Scranton) Places in America

Vox:  The Happiest Places in America, by Danielle Kurtzleben:

If New York is so unhappy, why do so many people keep living there? That's one of the many questions at stake in a new working paper from the National Bureau of Economic Research. [Edward L. Glaeser (Harvard), Joshua D. Gottlieb (British Columbia) & Oren Ziv (Harvard), Unhappy Cities]

Researchers from Harvard and the University of British Columbia used people's self-reported life satisfaction data from the CDC to try to determine a geography of American happiness. What they found is that among the biggest metropolitan areas, the Big Apple is the unhappiest. Scranton, Pennsylvania, takes the honor of the least happy metro area of any size. Meanwhile, Richmond is the happiest large metro area, and Charlottesville, Virginia, is the happiest of any size.

Here's a look at what that geography of happiness looks like, after researchers controlled for demographic characteristics like sex, race, and age. Blue represents the highest happiness measure, and red is the lowest.

Happy

July 26, 2014 in Legal Education, Tax | Permalink | Comments (0)

The IRS Scandal, Day 443

Details Begin to Emerge in Murder of Dan Markel

Markel[Updated and Corrected Since Monday]  More details are beginning to emerge in the weekend death of Dan Markel, D’Alemberte Professor of Law at Florida State and the founder of PrawfsBlawg, as the result of a shooting in his home:  Tallahassee police say that Dan was shot in the head and that the shooting was not "a random act" or connected with any burglary or robbery but instead was a "murder" as the result of a targeted attack.

I have collected links to the many tributes to Dan here.

Dan Markel Memorial Fund To Benefit His Sons, Benjamin Amichai Markel and Lincoln Jonah Markel:

Markel Fund

July 26, 2014 in Legal Education | Permalink | Comments (4)

Death of Dan Markel (1972-2014)

Markel[Updated and Corrected Since Saturday] Dan Markel, D’Alemberte Professor of Law at Florida State and the founder of PrawfsBlawg, was shot in his home in Tallahassee on Friday and died this morning:

The Florida State University community is mourning the loss of a law professor who was shot and killed.

According to an email sent out by the school to students, Dan Markel was taken to the hospital after being shot Friday. He died from his injuries Saturday morning. ...

Tallahassee Democrat, FSU Law Professor Dies in Shooting:

Tallahassee police responded to a shooting in Betton Drive neighborhood after a neighbor called police about 11 a.m. upon hearing a "loud bang" in the 2100 block of Trescott Drive, about a half mile north of Betton Drive. Police showed up shortly after and found the person with a gunshot wound.

Update #1:  Brian Leiter has updated his post:  "From what colleagues at FSU tell me, Prof. Markel was murdered after opening the door of his home, though whether as part of a robbery or something else is unclear."

Update #2:  WCTV, Tallahassee Police Dep't Investigating FSU Law Professor's Death as a Homicide

Update #3

Update #4Details Begin to Emerge in Murder of Dan Markel

July 26, 2014 in Legal Education | Permalink | Comments (2)

Friday, July 25, 2014

Who Killed Dan Markel?

Weekly Tax Roundup

July 25, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly Legal Education Roundup

Weekly SSRN Tax Roundup

July 25, 2014 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Weekly Student Tax Note Roundup

Farewell, San Diego!

USD 2After seven wonderful weeks in San Diego, I am back in Malibu. This was my eleventh summer teaching at the University of San Diego School of Law, and I am grateful to Dean Stephen Ferruolo and the kind folks at USD for having me back again. My 65 Tax I students were a joy, as they worked diligently in teams to answer 300 clicker questions over the 21 class sessions. It is a treat to spend seven weeks each year in "America's Finest City" and see our many friends there. It is a time of transition for the USD tax faculty, as Karen Burke, Mark Hoose, and Grayson McCouch have departed and Howard Abrams, Miranda Perry Fleischer, and Vic Fleischer have joined Jordan Barry and Bert Lazerow on the tax faculty.

July 25, 2014 in Legal Education, Miscellaneous, Tax | Permalink | Comments (0)

Pittsburgh Tax Review Publishes New Issue

Pittsburgh Tax Review The Pittsburgh Tax Review has published Vol. 11, No. 1 (Fall 2013):

July 25, 2014 in Scholarship, Tax | Permalink | Comments (0)

Schrag: MOOCs: The Final Nail in Legal Education's Coffin?

MOOCPhilip G. Schrag (Georgetown), MOOCs and Legal Education: Valuable Innovation or Looming Disaster?, 59 Vill. L. Rev. 83 (2014):

Massive open online courses (MOOCs) have spread across the landscape of higher education like an invasive plant species. Although few people had heard of MOOCs before 2012, these internet-based courses, taught by university professors, are now routinely offered simultaneously to tens of thousands or in some cases, hundreds of thousands of people. Most MOOCs are still provided free of charge, but the two companies and one non-profit entity that promote MOOCs and provide the software have recently created partnerships with institutions of higher education in order to realize substantial revenues by offering MOOCs for academic credit to tuition-paying students at colleges and universities. Despite resistance from professors at some institutions, MOOCs for credit are proliferating rapidly. This development has great significance for the future of legal education, because most law schools are experiencing an economic crisis and are searching for ways to cut costs and lower tuition so that they can fill their classes and remain viable. Already, some law schools are offering academic credit for distance learning, within limits permitted by the Section of Legal Education of the American Bar Association—limits that may soon be relaxed. Within ten years, MOOCs could replace traditional law school classes altogether, except at a few elite law schools that produce lawyers to serve large corporations and wealthy individuals. However, most law schools might survive by embracing rather than resisting internet-based learning. They could cut costs by reducing faculty and staff positions, using MOOCs for the delivery of most of the legal information that students need, hiring part-time lawyers to help students with exercises to supplement the MOOCs, and concentrating the remaining full-time faculty on first-semester offerings, writing seminars, and clinics. Sadly, the result will be a watered-down form of legal education compared to the three years of interactive experiences that law schools have offered students for the last century. But it may be the only way in which most law schools can survive.

July 25, 2014 in Legal Education, Scholarship | Permalink | Comments (0)

The IRS Scandal, Day 442

Thursday, July 24, 2014

Washington & Lee Hosts Tax Roundtable

W&LWashington & Lee Law School hosted a roundtable discussion of works-in-progress by tax professors from mid-Atlantic law schools on July 22-23:

  • Eric Chason (William & Mary), Taxing Losers
  • Michael Doran (Virginia), Tax Legislation in the Contemporary U.S. Congress
  • Michelle Drumbl (Washington & Lee), Enhancing Taxpayer Compliance with the EITC
  • Brant Hellwig (Washington & Lee), The Constitutional Nature of the United States Tax Court
  • Ruth Mason (Virginia), Taxing Citizenship
  • Gregg Polsky (North Carolina), Taxing Partnership Allocations Among Related Parties
  • Ethan Yale (Virginia), Antibasis  

July 24, 2014 in Colloquia, Conferences, Scholarship, Tax | Permalink | Comments (0)

Kysar: The 'Shell Bill' Game: Avoidance and the Origination Clause

Rebecca M. Kysar (Brooklyn), The 'Shell Bill' Game: Avoidance and the Origination Clause, 91 Wash. U. L. Rev. 659 (2014):

With increasing frequency, many important revenue laws, such as the Affordable Care Act and the American Taxpayer Relief Act of 2012, begin as “shell bills". The Origination Clause of the Constitution aims to place decisions over tax policy closer to the people by requiring that bills raising revenue begin in the House of Representatives, but the Clause also allows the Senate to amend such bills. The Senate has interpreted its amendment power broadly, striking the language of a bill passed by the House (the shell bill) and replacing it entirely with its own unrelated revenue proposal. According to a new challenge against the Affordable Care Act, this shell bill game is an unconstitutional sleight of hand because it obfuscates the bill’s true origins in the Senate.

The constitutional fate of the Affordable Care Act and myriad other revenue laws, as well as the intra-congressional balance of power over revenue policy, turns on the interpretation of the Senate’s power to amend revenue legislation, an analysis heretofore unexplored in the academic literature.

Continue reading

July 24, 2014 in Scholarship, Tax | Permalink | Comments (1)

Shaviro: Multiple Myopias, Multiple Selves, and the Under-Saving Problem

Daniel Shaviro (NYU), Multiple Myopias, Multiple Selves, and the Under-Saving Problem:

In both public policy debate and the academic literature, there is widespread, though not universal, agreement that millions of Americans are saving too little for their own retirements. If this is true, we could potentially increase such individuals’ welfare through the adoption of policies that resulted in their saving more. A key dilemma, however, is that, unless one understands why people are under-saving, it is hard to evaluate the likely responses to or merits of a given policy.

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July 24, 2014 in Scholarship, Tax | Permalink | Comments (0)

Enduring Hierarchies in Legal Education

HierarchyOlufunmilayo Arewa (UC-Irvine), Andrew P. Morriss (Dean, Texas A&M) & William D. Henderson (Indiana), Enduring Hierarchies in American Legal Education, 89 Ind. L.J. 941 (2014):

Although much attention has been paid to U.S. News & World Report’s rankings of U.S. law schools, the hierarchy it describes is a long-standing one rather than a recent innovation. In this Article, we show the presence of a consistent hierarchy of U.S. law schools from the 1930s to the present, provide a categorization of law schools for use in research on trends in legal education, and examine the impact of U.S. News’s introduction of a national, ordinal ranking on this established hierarchy. The Article examines the impact of such hierarchies for a range of decision-making in law school contexts, including the role of hierarchies in promotion, tenure, publication, and admissions, for employers in hiring, and for prospective law students in choosing a law school. This Article concludes with suggestions for ways the legal academy can move beyond existing hierarchies and at the same time address issues of pressing concern in the legal education sector. Finally, the Article provides a categorization of law schools across time that can serve as a basis for future empirical work on trends in legal education and scholarship.

July 24, 2014 in Legal Education, Scholarship | Permalink | Comments (1)

District Court Guts Work Product Protection for Tax Opinions

Tax Analysys Logo (2013)Robin L. Greenhouse, Michael Kelleher & Randy Herndon (all of McDermott Will & Emery, Washington, D.C.),  District Court Opinion Guts Work Product Protection for Tax Opinions, 144 Tax Notes 329 (July 21, 2014):

With implications that should alarm tax controversy practitioners and their clients, in Schaeffler v. United States the U.S. District Court for the Southern District of New York denied a taxpayer’s petition to quash an IRS summons for a tax opinion issued by an accounting firm. The court’s finding that the tax opinion was not entitled to work product protection significantly undermines the application of that doctrine. Although the court denied the petition to quash, it later granted the taxpayer’s motion to stay enforcement of the summons pending appeal to the Second Circuit.

July 24, 2014 in Scholarship, Tax | Permalink | Comments (1)

NPR: Burritos, Sandwiches and Taxes

Planet MoneyNPR Planet Money, How the Burrito Became a Sandwich:

We all know what a sandwich is. It's something delicious, slapped between two slices of bread.

But when it comes to taxes, nothing is simple.

Today on the show, what regulating sandwiches and all other takeout food tells us about taxation. And how something as simple as the sandwich sales tax ends up spawning a complicated list of definitions, interlocking exemptions and rules which somehow transform the burrito into a sandwich in the eyes of the law.

(Hat Tip:  Alice Abreu.)

July 24, 2014 in Tax | Permalink | Comments (1)

National Law Journal: Law Profs Remember Dan Markel

MarkelNational Law Journal, Professor Made Reputation Online, and Is Remembered There:

The prevailing wisdom holds that law professors are wise to wait until they earn tenure before they start sharing their opinions in the rough-and-tumble legal blogosphere. Dan Markel wasn't interested in waiting around. He launched his pioneering PrawfsBlawg as soon as he landed an assistant professorship at the Florida State University College of Law in 2005 — even before teaching his first class.

So it seems fitting that the reaction to Markel's July 20 shooting death was immediate, intense and to a large degree expressed online. Scores of law professors have shared their shock and grief on the Internet, and readers rushed to the PrawfsBlawg comments section to offer their thoughts, memories and condolences.

July 24, 2014 in Legal Education | Permalink | Comments (0)

The IRS Scandal, Day 441

Continue reading

July 24, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, July 23, 2014

Athletes Paid $216.8 Million in California Income Taxes in 2012

Sports Illustrated:  Athletes Paid $216.8 Million in California Income Taxes in '12, by Michael McCann (New Hampshire) & Robert Raiola (O'Connor Davies, New York):

According to data obtained by SI.com from the California Franchise Tax Board, California collected a staggering $216.8 million in income taxes from professional athletes in 2012, the most recent year available. This included state income taxes paid by athletes who work, and in some cases reside, in California. They also included so-called “jock taxes” imposed on out-of-state professional athletes whose teams visit to play games in California.

Here is the breakdown by sport:

Cal

The $216.8 million collected by California from athletes in 2012 was up from the $171.4 million in 2011. The increase was mainly attributable to a rise in California’s highest marginal rate from 10.3 percent  in 2011 to 13.3 percent in 2012, a change which gave California the highest income tax rate in the United States. It also reflected sustained efforts by California officials to track athletes who generate income in the state and make sure they pay their taxes.

Continue reading

July 23, 2014 in Tax | Permalink | Comments (3)

University of California Increases Non-resident Enrollment for Budget Reasons

Los Angeles Times, UC Enrolling More New Students From Other States and Nations:

University of California logoThe number of new UC students from other states and nations will continue to increase this fall, extending a trend that university officials say is financially necessary but critics say is changing the nature of a beloved state institution.

The percentage of all new UC freshman who come from outside California is expected to be 20.2%, up from 18.3% last year and 15.5% the year before, according to preliminary data based on students’ statements that they will enroll.

Among the nine UC undergraduate campuses, the percentages are the highest at UCLA with 30.1%, UC Berkeley with 29.8% and UC San Diego with 28.4%. The lowest shares were at UC Merced with 1.2% and UC Riverside with 6.9%. ...

Administrators say that the nearly $23,000 that nonresidents pay annually on top of the regular $12,192 tuition helps support classes and financial aid for Californians.

Continue reading

July 23, 2014 in Legal Education | Permalink | Comments (0)

Tahk: Crossing the Tax Code's For-Profit/Nonprofit Border

Susannah Camic Tahk (Wisconsin), Crossing the Tax Code's For-Profit/Nonprofit Border, 118 Penn St. L. Rev. 489 (2014):

The federal tax code erects and enforces a firm border between for-profit and nonprofit organizations. Multiple provisions of the code monitor the boundaries of the tax-exempt, or nonprofit, sector to ensure that no nonprofit organization slips over the border to become a for-profit organization. Other code provisions restrict entry into the tax-exempt sector by for-profit organizations. Despite serious legal impediments, however, organizations on both sides of the boundary have increasingly found means by which they can cross the border. Arrangements such as corporate social responsibility, for-profit philanthropy, and social enterprise illustrate this recent trend. Through these arrangements, for-profit organizations are beginning to embrace social goals, while nonprofit organizations have started to use methods more traditionally associated with efficient business organizations. Research in organizational sociology provides tools by which to understand these new cross-border developments. This body of research has shown that organizational sectors, or fields, evolve according to well-understood patterns, whose significance tax scholars have overlooked. Then, federal tax law has failed to recognize and to make productive use of these organizational trends. This Article proposes that tax law should acknowledge the cross-sector movements of for-profit and nonprofit organizations, as well as the major advantages that these movements can produce. Tax law could then harness border-crossing activity to create social benefits. To achieve this result, federal tax law needs significantly to loosen the for-profit/nonprofit boundary. This change would enable the tax code to encourage cross-sector “collaborations” between for-profit and nonprofit organizations. This change to the tax law is one that Congress and the IRS could now accomplish through several basic measures. These measures would make it possible for federal tax law to realize the large potential for social good that lies at the changing for-profit/nonprofit border.

July 23, 2014 in Scholarship, Tax | Permalink | Comments (0)

The Law Schools With the Most Applications (Fall 2013)

Law Schools With Most Applications

Rank

School

Applications

Admit

Yield

Median LSAT

Median GPA

US News

1

Georgetown

7257

31%

23%

168

3.74

13

2

Virginia

6048

18%

31%

169

3.87

8

3

G. Washington

6005

42%

18%

165

3.71

20

4

UC-Berkeley

5885

18%

27%

167

3.78

9

5

William & Mary

5849

30%

13%

164

3.73

24

6

Columbia

5797

21%

28%

171

3.70

4

7

NYU

5730

31

24

170

3.72

6

8

UCLA

5562

28%

19%

167

3.79

16

9

Harvard

5485

16%

66%

173

3.88

2

10

Penn

5283

17%

28%

169

3.89

7

Unranked Law Schools With Most Applications

Rank

School

Applications

Admit

Yield

Median LSAT

Median GPA

1

Charlotte

3342

73%

21%

144

2.91

2

Florida Coastal

3085

75%

19%

144

2.97

3

San Francisco

2762

49%

12%

153

3.28

4

John Marshall

2518

71%

23%

149

3.12

5

Suffolk

2367

78%

24%

149

3.27

6

Southwestern

2260

57%

28%

152

3.17

7

Barry

2082

63%

21%

147

2.90

8

Thomas Cooley

2027

79%

36%

145

2.96

9

New England

2013

87%

14%

149

3.04

10

Nova

1645

48%

39%

149

3.07

July 23, 2014 in Law School Rankings, Legal Education | Permalink | Comments (4)

Mirror of Justice Joins Law Professor Blogs Network

LPBN LogoI am delighted to announce that Mirror of Justice, a blog dedicated to the development of Catholic legal theory edited by Rick Garnett (Notre Dame) and 19 other prominent law professors of faith, has joined the Law Professor Blogs Network.  

With the support of our sponsor, Wolters Kluwer Law & Business/Aspen Publishers, the Network is seeking to expand in two ways.

First, I am actively recruiting law professors to launch blogs in other areas of the law school curriculum not currently covered by the Network, including Administrative Law, Bankruptcy, Intellectual Property, National Security, Native American Law, Race and the Law, and Trial Advocacy.

Second, I am actively recruiting law professors to affiliate their existing blogs with the Network, like Brian Leiter's Law School Reports, Brian Leiter's Law School Rankings, Mirror of Justice, REFinBlog, The Right Coast, and Sentencing Law and Policy

The Network offers law professors the premier blogging platform and the opportunity to share in growing sponsorship and advertising revenues. For more information about these opportunities, see here.

July 23, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Camp: Preliminary Thoughts on Habig and King

TaxProf Blog op-ed:  Preliminary Thoughts on Habig and King, by Bryan Camp (Texas Tech):

CampYesterday two different U.S. Courts of Appeal disagreed on the validity of a tax regulation.  It is not a rare event for two federal courts of appeals to disagree on the same issue of law.  What made yesterday’s rulings a rare event was that the disagreement arose within a matter of hours and involved a key provision of the Affordable Care Act (ACA).  At issue was the validity of a Treasury regulation on how certain ACA tax credits are to be calculated.  At trial, both the district court for the District of Columbia and the district court for the Eastern District of Virginia had upheld the regulation.  On appeal, the D.C. Circuit struck down the regulation in Halbig v. Burwell but, hours later, the 4th Circuit upheld the same regulation in King v. Burwell.

The two panels of three judges produced five written opinions.  The D.C. Circuit panel found the Treasury regulation an invalid interpretation of the statute by a 2-1 vote.  Each judge wrote an opinion.  The majority opinion was penned by Judge Griffith, with Senior Judge Randolph joining and writing a short concurrence to emphasize his view that the government’s arguments really sucked wind.  Senior Judge Edwards wrote an impassioned dissent.  The 4th Cir. vote was 3-0, with two opinions.  Judge Gregory, joined by Judge Thacker and Senior Judge Davis, penned the opinion for the Court.  Senior Judge Davis added a short concurrence to emphasize his view that the plaintiff’s arguments really sucked wind. 

This post will summarize the arguments and the opinions, then make three brief observations about (1) a non-barking dog, (2) plain language pizza, and (3) what these cases might teach  about who---as between courts, Congress, or agencies---ought to be cleaning up statutory messes created by poor drafting. 

Continue reading

July 23, 2014 in Scholarship, Tax | Permalink | Comments (5)

7th Circuit: ABA Retirement Fund Denied Tax-Exempt Because It Did Not Work to Improve Conditions of Legal Profession

ABA Retirement Funds v. United States, No. 13‐2332 (7th Cir. July 21, 2014):

ABA Logo 2ABA Retirement, appeals the district court’s denial of its request for tax‐exempt status for the years 2000 through 2002. Agreeing with the Internal Revenue Service, the district court found that ABA Retirement was not a tax-exempt “business league” under 26 U.S.C. § 501(c)(6) during the relevant period. We agree with that assessment and affirm. ...

This is not a close case; save for the fact that it is a nonprofit corporation, ABA Retirement fails every necessary condition for business league status. Because the district court’s opinion is thorough, here we focus on just two of the reasons why ABA Retirement is not a business league: (1) its activities are not directed to the improvement of business conditions for the legal field generally; and (2) it engages in a business ordinarily conducted for profit.

July 23, 2014 in ABA Tax Section, Tax | Permalink | Comments (2)

The IRS Scandal, Day 440

IRS Logo 2House Ways & Means Committee Press Release, Lerner Hard Drive Was "Scratched"; IRS Ignored Advice to Use Outside Experts to Recover Data:

Despite early refusals to make available IT professionals who worked on Lois Lerner’s computer, Ways and Means Committee investigators have now learned from interviews that the hard drive of former IRS Exempt Organizations Director Lois Lerner was “scratched,” but data was recoverable.   In fact, in-house professionals at the IRS recommended the Agency seek outside assistance in recovering the data.  That information conflicts with a July 18, 2014 court filing by the Agency, which stated the data on the hard drive was unrecoverable – including multiple years’ worth of missing emails.

“It is unbelievable that we cannot get a simple, straight answer from the IRS about this hard drive,” said Ways and Means Committee Chairman Dave Camp (R-MI).  “The Committee was told no data was recoverable and the physical drive was recycled and potentially shredded.  To now learn that the hard drive was only scratched, yet the IRS refused to utilize outside experts to recover the data, raises more questions about potential criminal wrong doing at the IRS.”

It is also unknown whether the scratch was accidental or deliberate, but former federal law enforcement and Department of Defense forensic experts consulted by the Committee say that most of the data on a scratched drive, such as Lerner’s, should have been recoverable.  However, in a declaration filed last Friday by the IRS, the agency said it tried but failed to recover the data, but is not sure what happened to the hard drive afterwards other than saying they believe it was recycled, which, according to the court filing means “shredded.”

Further complicating the situation, the Committee’s investigation has revealed evidence that this declaration may not be accurate.  A review of internal IRS IT tracking system documents revealed that Lerner’s computer was actually once described as “recovered.”  In a transcribed interview on July 18, IRS IT employees were unable to confirm the accuracy of the documents or the meaning of the entry “recovered.”

“It is these constant delays and late revelations that have forced this investigation to go on so long,” Camp added.  “If the IRS would just come clean and tell Congress and the American people what really happened, we could put an end to this.  Our investigators will not stop until we find the full truth.”

Continue reading

July 23, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Tuesday, July 22, 2014

NY Times Debate: How Can the U.S. Stop Corporate Tax Flight?

NY Times Room for DebateNew York Times Room for Debate:  How Can the U.S. Stop Corporate Tax Flight?:

In recent months, several big U.S. companies have reached so-called inversion deals that will allow them to reincorporate in countries like Ireland and the Netherlands, where corporate taxes are lower.

Are these deals a sign that corporate taxes should be lowered so American companies can compete on a level playing field with foreign companies, or are they an example of self-serving greed that should be outlawed so companies built with American support pay their fair share?

July 22, 2014 in Tax | Permalink | Comments (3)

Life's Secret: Love People, Not Pleasure

New York Times op-ed:  Love People, Not Pleasure, by Arthur C. Brooks (President, American Enterprise Institute):

For decades, psychologists have been compiling a vast literature on the relationships between different aspirations and well-being. Whether they examine young adults or people of all ages, the bulk of the studies point toward the same important conclusion: People who rate materialistic goals like wealth as top personal priorities are significantly likelier to be more anxious, more depressed and more frequent drug users, and even to have more physical ailments than those who set their sights on more intrinsic values.

No one sums up the moral snares of materialism more famously than St. Paul in his First Letter to Timothy: “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.” Or as the Dalai Lama pithily suggests, it is better to want what you have than to have what you want. ...

[W]e are unambiguously driven to accumulate material goods, to seek fame, to look for pleasure. How can it be that these very things can give us unhappiness instead of happiness? There are two explanations, one biological and the other philosophical.

From an evolutionary perspective, it makes sense that we are wired to seek fame, wealth and sexual variety. These things make us more likely to pass on our DNA. Had your cave-man ancestors not acquired some version of these things (a fine reputation for being a great rock sharpener; multiple animal skins), they might not have found enough mating partners to create your lineage.

But here’s where the evolutionary cables have crossed: We assume that things we are attracted to will relieve our suffering and raise our happiness. My brain says, “Get famous.” It also says, “Unhappiness is lousy.” I conflate the two, getting, “Get famous and you’ll be less unhappy.”

But that is Mother Nature’s cruel hoax. She doesn’t really care either way whether you are unhappy — she just wants you to want to pass on your genetic material. If you conflate intergenerational survival with well-being, that’s your problem, not nature’s. And matters are hardly helped by nature’s useful idiots in society, who propagate a popular piece of life-ruining advice: “If it feels good, do it.” Unless you share the same existential goals as protozoa, this is often flat-out wrong.

More philosophically, the problem stems from dissatisfaction — the sense that nothing has full flavor, and we want more. We can’t quite pin down what it is that we seek. Without a great deal of reflection and spiritual hard work, the likely candidates seem to be material things, physical pleasures or favor among friends and strangers.

We look for these things to fill an inner emptiness. They may bring a brief satisfaction, but it never lasts, and it is never enough. And so we crave more. ... This search for fame, the lust for material things and the objectification of others — that is, the cycle of grasping and craving — follows a formula that is elegant, simple and deadly:

Love things, use people.

... It is the worldly snake oil peddled by the culture makers from Hollywood to Madison Avenue. But you know in your heart that it is morally disordered and a likely road to misery. You want to be free of the sticky cravings of unhappiness and find a formula for happiness instead. How? Simply invert the deadly formula and render it virtuous:

Love people, use things.

Easier said than done, I realize. It requires the courage to repudiate pride and the strength to love others — family, friends, colleagues, acquaintances, God and even strangers and enemies. Only deny love to things that actually are objects. The practice that achieves this is charity. Few things are as liberating as giving away to others that which we hold dear.

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July 22, 2014 in Legal Education, Tax | Permalink | Comments (4)

The New Republic: Don't Send Your Kid to the Ivy League

The New Republic:  Don't Send Your Kid to the Ivy League: The Nation's Top Colleges Are Turning Our Kids Into Zombies, by William Deresiewicz (author, Excellent Sheep: The Miseducation of the American Elite and the Way to a Meaningful Life (2014)):

Ivy League (2014)These enviable youngsters appear to be the winners in the race we have made of childhood. But the reality is very different, as I have witnessed in many of my own students and heard from the hundreds of young people whom I have spoken with on campuses or who have written to me over the last few years. Our system of elite education manufactures young people who are smart and talented and driven, yes, but also anxious, timid, and lost, with little intellectual curiosity and a stunted sense of purpose: trapped in a bubble of privilege, heading meekly in the same direction, great at what they’re doing but with no idea why they’re doing it. ...

I should say that this subject is very personal for me. Like so many kids today, I went off to college like a sleepwalker. You chose the most prestigious place that let you in; up ahead were vaguely understood objectives: status, wealth—“success.” What it meant to actually get an education and why you might want one—all this was off the table. It was only after 24 years in the Ivy League—college and a Ph.D. at Columbia, ten years on the faculty at Yale—that I started to think about what this system does to kids and how they can escape from it, what it does to our society and how we can dismantle it. ...

SheepI taught many wonderful young people during my years in the Ivy League—bright, thoughtful, creative kids whom it was a pleasure to talk with and learn from. But most of them seemed content to color within the lines that their education had marked out for them. Very few were passionate about ideas. Very few saw college as part of a larger project of intellectual discovery and development. Everyone dressed as if they were ready to be interviewed at a moment’s notice.

Look beneath the façade of seamless well-adjustment, and what you often find are toxic levels of fear, anxiety, and depression, of emptiness and aimlessness and isolation. A large-scale survey of college freshmen recently found that self-reports of emotional well-being have fallen to their lowest level in the study’s 25-year history.

So extreme are the admission standards now that kids who manage to get into elite colleges have, by definition, never experienced anything but success. The prospect of not being successful terrifies them, disorients them. The cost of falling short, even temporarily, becomes not merely practical, but existential. The result is a violent aversion to risk. You have no margin for error, so you avoid the possibility that you will ever make an error. Once, a student at Pomona told me that she’d love to have a chance to think about the things she’s studying, only she doesn’t have the time. I asked her if she had ever considered not trying to get an A in every class. She looked at me as if I had made an indecent suggestion.

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July 22, 2014 in Legal Education | Permalink | Comments (2)

Crawford: Occupy Wall Street, Income Inequality and Tax Scholarship

Patrick B. Crawford (People's College of Law), Occupy Wall Street, Income Inequality and Tax Scholarship: An Ideology Critique of the Consumption Tax Debate, 12 U.N.H. L. Rev. 137 (2014):

This is the first article to address the question: “What does Occupy Wall Street (“OWS”) have to say about American legal scholarship on income inequality (distributive justice) and tax policy?” The article shows, in the example of the leading tax scholarship on distributive justice and the consumption tax, how legal scholarship on economic regulation more generally systematically obscures rather that illuminates the important most important social welfare issue of our time. That is, the form and framing of analysis in the consumption tax literature preempts from serious analysis OWS major beef with our economic regulations: the fact that over the past 30-odd years big-business and big capital has dramatically increased its rent seeking and capture of the regulatory system.

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July 22, 2014 in Scholarship, Tax | Permalink | Comments (0)

Kleinbard: Tax Inversions Must Be Stopped Now

Wall Street Journal op-ed:  Tax Inversions Must Be Stopped Now, by Edward Kleinbard (USC):

On Friday the U.S. drug maker AbbVie announced a plan to buy the U.K.-based Shire in a $54 billion deal, from which AbbVie will emerge as a subsidiary of the U.K. firm. It is but the latest example in a flurry of acquisitions known as inversions.

In an inversion, a large U.S. firm acquires a much smaller target company domiciled in a tax-friendly jurisdiction such as Ireland or the U.K., but the deal is structured so that the foreign minnow swallows the domestic whale. U.S. shareholders of the U.S. firm must pay immediate capital gains tax for the privilege of inversion, and the U.S. company ends up as the nominal subsidiary of a publicly held foreign corporation.

The deals are driven by planning to avoid paying the U.S. tax that applies when firms repatriate their low-taxed foreign earnings to the U.S. This has triggered demands—most recently, from Treasury Secretary Jack Lew —to close down inversions through the tax code, or to deprive inverted firms of government contracts or other benefits.

Firms that invert argue that the deals are "legal," harmless to U.S. tax-revenue collection, and a necessary response to our anticompetitive world-wide corporate tax system. The first point is a red herring and the second demonstrably false, but there is a kernel of truth in the third. ...

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July 22, 2014 in Tax | Permalink | Comments (0)

Senate Report Criticizes Hedge Funds' Use of Basket Options Tax Strategy

Senate LogoSenate Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, Abuse of Structured Financial Products: Misusing Basket Options to Avoid Taxes and Leverage Limits (97 pages):

For the last decade, the U.S. Senate Permanent Subcommittee on Investigations has presented case histories showing how financial institutions, law firms, accountants, and others have designed and implemented complex financial structures to take advantage of and, at times, abuse or violate U.S. tax statutes, securities regulations, and accounting rules. This investigation offers yet another detailed case study of how two financial institutions – Deutsche Bank AG and Barclays Bank PLC – developed structured financial products called MAPS and COLT, two types of basket options, and sold them to one or more hedge funds, including Renaissance Technologies LLC and George Weiss Associates, that used them to avoid federal taxes and leverage limits on buying securities with borrowed funds. While that type of option product was identified as abusive in a public memorandum by the IRS 2010, taxes have yet to be collected on many of the basket option transactions and its use to circumvent federal leverage limits has yet to be analyzed or halted. 

July 22, 2014 in Congressional News, Tax | Permalink | Comments (0)

WaPo: 4 Pinocchios for Rocker’s Off-base Claims About Taxes and the ’1 Percent’

Washington Post:  4 Pinocchios for a Rocker’s Off-base Claims About Taxes and the ’1 Percent’:

Kiss“The 1 percent pays 80 percent of all taxes. Fifty percent of the population of the U.S. pays no taxes. The 1 percent provides all the jobs for everybody else. If the 1 percent didn’t exist, there would be chaos and the American economy would drop dead.”

–Kiss bassist Gene Simmons, in an interview with the San Diego Union-Tribune, published July 4

Kiss rocker Gene Simmons is not a politician, but here he echoes claims that are often made by politicians about who pays taxes in the United States.

There is certainly a history of rock stars being unhappy with taxes. George Harrison of the Beatles penned the iconic “Taxman” after discovering that he was liable for the 95 percent margin tax rate imposed on income at that time in the United Kingdom.

In the interview, Simmons is an unabashed fan of the “1 percent lifestyle,” calling it “fantastic” and noting, “I have been part of the 1 percent for the past 30 years.” We will assume his bold assertion that the 1 percent provides “all of the jobs for everybody else” reflects his enthusiasm rather than hard data. But do his tax claims add up? ...

Simmons may enjoy the 1 percent lifestyle, but he needs to get his facts straight. The top 1 percent certainly pays a large share of taxes (and has a large share of income) but his claims are wildly off-base, especially when talking about “all taxes.”

FOur

(Hat Tip: Bryan Camp.)

July 22, 2014 in Tax | Permalink | Comments (4)

Senate Holds Hearing Today on The Taxation of Income of U.S. Multinational Enterprises

Senate LogoThe Senate Finance Committee holds a hearing today on The U.S. Tax Code: Love It, Leave It or Reform It!:

  • Mihir Desai (Harvard University)
  • Peter Merrill (PricewaterhouseCoopers)
  • Leslie Robinson (Dartmouth College)
  • Pascal Saint-Amans (OECD)
  • Allan Sloan (Fortune)
  • Robert Stack (U.S. Treasury Department)

In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Related to Proposals to Reform the Taxation of Income of Multination Enterprises (JCX-90-14) (99 pages):

This document ...  includes a description of present law, background on recent global activity related to the taxation of cross-border income, and descriptions and a comparison of recent proposals to reform the U.S. international tax system. ...

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July 22, 2014 in Congressional News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 439

What Are The Chances? (An IRS Love Song):

(Hat Tip: Glenn Reynolds.)

Wall Street Journal, New Information Deepens the Mystery of the Missing IRS Emails:

The mystery of the missing IRS emails has deepened.

An IRS official told congressional investigators in an interview last week that — despite what agency leaders thought previously — some of the missing IRS emails might still exist on backup tapes.

Those tapes were thought to have been recycled several years ago, destroying the data.

Washington Post:  6 Questions About the IRS’s Missing Emails, From IT Experts:

Did the IRS intentionally lose e-mails to cover up potentially incriminating communications relating to the agency’s targeting controversy, or did the records go missing because of bad technology management?

As for the latter question, few organizations are in a better position to make an assessment of the situation than the International Association of Information Technology Asset Managers, which deals with these types of issues on a regular basis.

The group, which runs the only worldwide certification program for IT asset managers, released six questions on Monday that it thinks lawmakers and federal investigators should ask about the missing e-mails of former IRS official Lois Lerner, a central figure in the targeting affair.

  1. What happened to the IRS’s IT asset managers who appear to have disappeared at a key juncture?
  2. Where is the documentation to prove that the IRS wiped or destroyed Lois Lerner’s hard drive?
  3. Were the drives destroyed by an outside vendor or firm? If so, by who, and can they verify the destruction?
  4. What are the IRS’s specific policies and procedures on document retention when hard drives are damaged or destroyed?
  5. What is the IRS’s disaster-recovery policy?
  6. Where are Lois Lerner’s Blackberry e-mails?

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July 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Monday, July 21, 2014

Wealthier New Yorkers Are Not Fleeing the City for Tax Havens

New York Times:  Wealthier New Yorkers Aren’t Fleeing the City for Tax Havens, a Study Says, by Sam Roberts:

Sean Hannity, the Fox News prime-time host, threatened last month to leave New York for a tax haven down south. Tiger Woods transplanted himself from California to Florida for the same reason. The actor Gerard Depardieu decamped from France and sought citizenship in Russia after complaining that 85 percent of his income was consumed by taxes. ...

But a new analysis being released Monday undermines the frequent assertion that wealthy people reflexively flee New York City — where Mayor Bill de Blasio campaigned to raise taxes on those who make more than $500,000 — for low-tax states.

The study, by the city’s Independent Budget Office, found that the share of higher-income households that moved from the city in 2012, 1.8 percent, equaled the share of lower-income households that left.

Moreover, the budget office determined that 42 percent of households that made more than $500,000 and left the city in 2012 moved elsewhere in New York State. Another 22 percent departed for New Jersey, which is hardly considered a tax haven and where a so-called millionaire’s tax was imposed in 2004.

The third favorite destination among the wealthy, with 12 percent, was Connecticut, where the Tax Foundation, a nonpartisan research group, estimated that taxpayers typically did not earn enough until May 9, the latest of any state, to pay their total tax bill. Fourth on the list of top destinations was California, where 9 percent of the wealthy households went. That means that 86 percent of the households making $500,000 or more that left the city moved to four states with reputations for high taxes. Only 45 percent of the less wealthy households relocated to those states.

Despite the allure of tropical fishing, only 2 percent of the wealthier households bolted for Florida (compared with 10 percent of households that made less than $500,000, many of them retirees). Just over 4 percent of the wealthier households headed for Texas (as did exactly the same percentage of less wealthy households).

New York City Independent Budget Office, When New Yorkers Move Out of New York City Where Do They Go?:

NYC

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July 21, 2014 in Tax | Permalink | Comments (3)

Marian: The Function of Corporate Tax-Residence in Territorial Systems

Omri Y. Marian (Florida), The Function of Corporate Tax-Residence in Territorial Systems, 18 Chapman L. Rev. ___ (2014):

In this symposium Essay, I explore the instrumentality of corporate tax-residence determination in territorial tax systems. Using the United States as a case study, I show that tax-residence determination had a historic “positive functionality”. Namely, tax-residence positively pointed to the source of income earned, and distributed by, a corporation. However, in current economic environment the positive functionality is obsolete. Instead, the modern functionality of corporate tax residence is a “negative” one. That is, to assure that income is not sourced at a jurisdiction in which income could not have possibly been produced. Under such a view, corporate tax-residence should be constructed as an anti-income-shifting mechanism. One way to achieve such result is to base corporate tax-residence determination on formulary apportionment that takes into account the corporation's real economic attributes, as well as the proportional part of corporation’s contribution to the control-group earnings. The functionality of formulary apportionment in this a context is not to allocate tax jurisdiction (the traditional use of formulary apportionment), but rather to assure that a corporation is not resident where is has no economic existence. Current territorial reform proposals in the United States ignore the important function of tax-residence in supporting source-taxation. I therefore conclude with a call to incorporate a reform of corporate-tax residence determination in any territorial reform legislation.

July 21, 2014 in Scholarship, Tax | Permalink | Comments (0)

NLJ: Law School Enrollment Slump Continues

National Law Journal, Enrollment Slump Continues: For Fourth Year, the Number of Law School Applicants Declined in 2014:

The number of applicants to ABA-accredited law schools declined by about 8 percent this year, dashing hopes for a reversal in a four-year downward trend. Applicants have fallen by more than 37 percent since 2010, according to figures from the Law School Admission Council, offering further proof that plenty of would-be lawyers now view a law degree as a risky investment.

"Law school just isn't the path into the middle class that it once was," said Alfred Brophy, a University of North Carolina School of Law professor who has tracked enrollment. "Things have tumbled downhill very rapidly. … Students are disappearing, and it's unclear when they're going to come back." The latest decline in applicants should translate into about 38,000 new law students next fall, Brophy estimates — a nearly 28 percent drop compared to the first-year class of 2010, which had a record 52,488 students.

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July 21, 2014 in Legal Education | Permalink | Comments (5)

Johnston: California Job Growth Defies Predictions After Tax Increases

Sacramento Bee op-ed:  State’s Job Growth Defies Predictions After Tax Increases, by David Cay Johnston (Syracuse):

WelcomeDire predictions about jobs being destroyed spread across California in 2012 as voters debated whether to enact the sales and, for those near the top of the income ladder, stiff income tax increases in Proposition 30. Million-dollar-plus earners face a 3 percentage-point increase on each additional dollar.

So what happened after voters approved the tax increases, which took effect at the start of 2013?

Last year California added 410,418 jobs, an increase of 2.8 percent over 2012, significantly better than the 1.8 percent national increase in jobs. California is home to 12 percent of Americans, but last year it accounted for 17.5 percent of new jobs, Bureau of Labor Statistics data shows. ...

These results may surprise those who have heard that tax increases are job killers. Taxes can do that – if what is being taxed directly applies to job creation. For example, a 10 percent increase in payroll taxes (Social Security, Medicare and state disability) would probably hamper job growth, said David Neumark, chancellor’s professor of economics and director of the Center for Economics & Public Policy at the University of California, Irvine.

Neumark said he asks his students, “Does raising income tax rates reduce hiring?” “The answer is no. What firms care about when deciding how many workers to hire is the marginal product of workers and the marginal cost of those workers. So if you are an employer and your personal income tax rate is increased, that does not raise the marginal cost of your workers, but it may encourage you to work a little less hard,” Neumark noted, applying standard economic theory.

Some research into tax rates indicates that high rates have the opposite effect: People may work harder, trying to make more money to achieve a desired after-tax income and may slough off if tax rates are lowered. This is known to be the case for people who have a savings target for money to leave their children and are subject to estate taxes – they save more to leave the after-tax sum they prefer, but save less when the tax is lowered or no longer applies to them.

The empirical evidence also shows that the best-paying jobs tend to be clustered in states (and countries) with high taxes. The same tends to be true of wealth creators, including the most money-motivated among scientists, and existing wealth holders not actively engaged in business. ...

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July 21, 2014 in Tax | Permalink | Comments (6)

More Reviews of Piketty's Capital in the Twenty-First Century

CapitalMore reviews of Thomas Piketty (Paris School of Economics), Capital in the Twenty-First Century (Harvard University Press, 2014):

July 21, 2014 in Book Club | Permalink | Comments (0)

The IRS Scandal, Day 438

TaxProf Blog Weekend Roundup

Sunday, July 20, 2014

WSJ: Tax Dos and Don'ts for Hiring Your Child

Wall Street Journal Tax Report:  Tax Dos and Don'ts for Hiring Your Child, by Laura Saunders:

CHildDoes your child work in your family business? Here's a tip: don't pay the wages in pizza if you want to pass muster with the IRS.

This month, a Tax Court judge ruled that Patricia Diane Ross, a tax preparer in Washington who also runs an employment agency, had taken. The children worked in her business, Ross Professional Services, when they were ages 15, 11, and 8. According to the decision, the children together earned more than $15,000 during 2007 and 2008 for services such as stuffing envelopes and filing. Ms. Ross deducted their pay as business expenses, and the IRS disallowed it.

Employing your minor children is legal, as is deducting their pay as a business expense. But the judge found fault with Ms. Ross's method of paying her children, which was often not in cash. The decision says she used most of the children's wages to buy either meals, often of pizza, or tutoring services—the kind of support parents are expected to provide. Ms. Ross said her children told her to use the earnings in these ways. [Ross v. Commissioner, T.C. Summ. Op. 2014-68]...

Here are other tips for taxpayers who want to employ a child:

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July 20, 2014 in Tax | Permalink | Comments (0)

Top 5 Tax Paper Downloads

An Epic Weekend

Madison 1I am heading back to San Diego today after one of the great weekends of my life, helping my daughter Jayne get settled in Madison, Wisconsin before she starts her job at Epic Systems, a medical records software company recently profiled in the New York Times and Forbes, on September 2.

Jayne graduated from college last month and is spending the summer with us studying for the MCATs before beginning her job.  She will be joining her brother Reed, who started at Epic last summer following his college graduation.  I helped Jayne open a bank account, join a gym, and move into the apartment she will be sharing with her brother.  We took a break today to attend Epic's annual company picnic ("Epicnic") on its amazing campus (photos herehere, and here).

It was a memorable weekend, filled with warm reminisces about the past and excited speculation about the future.  Shopping with Jayne was a different experience than shopping with Reed last year.  She took the time to outfit her place with exactly the right items, including this spiffy shower curtain:

Madison 2

July 20, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (1)

The IRS Scandal, Day 437