TaxProf Blog

Department of Education Should Terminate ABA's Role as Law School Accreditor

National Law Journal op-ed:  ABA and Legal Education: Change Won't Come from Within, by Michael L. Coyne (Associate Dean, Massachusetts School of Law):

With calls from The New York Times among others for drastic changes in legal education; near-universal agreement that the ABA's system of legal education is broken; and with hope in the air that this time meaningful reform will come to legal education, it's time to review the recent history of attempts to reform ABA legal education.

Time and again, the ABA's Section on Legal Education has stood steadfast against efforts to reform its law school accreditation activities. Since legal education provides access to justice, power and social mobility, urgent reform is needed now. The Department of Education should terminate recognition of the ABA as a federally approved accreditor of law schools, and state supreme courts or state legislatures must amend their rules or statutes to allow the graduates of any law school accredited by any federally approved accrediting agency who are of sufficient character and fitness to take that state's bar examination.

TaxProf Blog Weekend Roundup

Saturday:

• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling
• ABA Tax Section May Meeting
• College Advice From The Daily Show
• State Beer Taxes

Sunday:

• Happy Mother's Day:  Tax Attorney Son Tries to Deduct $1.2 Million for Caring for Infirm Mother
• Schmalbeck on the IRS 'Targeting' of Conservative Groups
• A Cincinnati Lawyer's Rise, Fall, and Redemption ... in Hawaii (Thanks to a Tax Prof)
• Top 5 Tax Paper Downloads

Happy Mother's Day: Tax Attorney Son Tries to Deduct $1.2 Million for Caring for Infirm Mother

Robert Wood reminds us on Mother's Day about the 2011 Tax Court decision in Estate of Olivo v. Commissioner, T.C. Memo. 2011-163 (July 11, 2011):

[T]he issues we must decide are: (1) Whether the estate is entitled to deduct [$1,240,000] as an expense the claim on the estate tax return for services rendered by Anthony M. Olivo (Mr. Olivo), the son of Emilia W. Olivo (decedent) to decedent before her death; (2) whether the estate is entitled to deduct the [$44,200] administrator’s commission paid to Mr. Olivo; and (3) whether the estate is entitled to deduct the [$55,000] accountant’s and attorney’s fees claimed by Mr. Olivo.

Mr. Olivo, the administrator of the estate, resided with decedent at the time of her death and had provided care for her for many years before her death. Mr. Olivo began providing nearly full-time care for decedent and her late husband, Matthew W. Olivo, his parents (we sometimes refer to Matthew W. Olivo as his father), around September 18, 1994. ...

[D]uring September 1994, Mr. Olivo began to find it increasingly difficult to maintain his practice as an attorney. He had received his J.D. from Rutgers University School of Law (Camden) in 1976 and his LL.M. in taxation from New York University School of Law in 1979. Mr. Olivo practiced law at private firms in Cherry Hill, New Jersey, from 1976 until 1988, when he began his own practice. However, his solo practice began to disintegrate during the mid-1990s, in part because of the amount of time he devoted to his parents’ health problems. He earned no significant income from his law practice during the period when he was caring for his parents, from 1994 through 2003....

Mr. Olivo’s care for decedent during the last years of her life was extraordinary, and the efforts he expended on her behalf are commendable. However, we conclude that the estate has not established that Mr. Olivo is entitled to recover for that care....

Applying the statutory formula to the estate value of $1,711,163.81 reported on the return yields an administrator’s commission of $52,223.28. ...

The record shows that Mr. Olivo did perform some legal services for the estate, in addition to his services as administrator. For instance, he filed the estate’s tax return,handled the IRS examination on behalf of the estate, and filedthe estate’s original petition with this Court. However, the record does not establish the value of his legal services. Mr. Olivo kept no records of the time he spent performing legal services for the estate. Instead, he merely estimated the numberof hours and used a billing rate of $150 per hour. On account of the lack of corroborating evidence in the record concerning theattorney’s fees issue, we decline to accept Mr. Olivo’s estimates of the amount of time he spent performing legal services for the estate.

Schmalbeck on the IRS 'Targeting' of Conservative Groups

Following up on my prior posts:

• IRS Admits to Targeting Conservative Groups in 2012 Election (May 10, 2013)
• WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling (May 11, 2013)

Richard Schmalbeck (Duke) agreed to allow me to share his perspective posted on the TaxProf Email Discussion Group:

I was at the Exempt Organizations Committee meeting of the ABA Tax Section meeting when Lois Lerner, the director of the division that handles exempt organizations matters, dropped the bombshell that is in the papers today, and generating a lot of media outrage, especially but not exclusively on Fox News. I think her explanation in person was probably better than the statement that the IRS released, at least in terms of explaining why some exemption applications actually require more scrutiny than others.

The IRS position on 501(c)(4) organizations ("social welfare organizations")is that, while they can engage in campaign activities, they cannot do so as their primary activity—which they understand as more than 50% of the organization's activities. Many organizations that seek this status probably should be section 527 political organizations rather than social welfare organizations. So when the service center in Cincinnati, which handles exemption applications, was inundated with unusually large numbers of (c)(4) applications, they tried to find ways to triage them, so that the traditional social welfare organizations would not have their processing held up, but organizations that might be close to the 50% campaign activity zone would get the appropriate level of scrutiny. In developing ways to identify the applications requiring attention, one of the tests that somebody decided would work is whether the organization had "tea party" or "patriot" in its name. The IRS did also look at other organizations with potential for abuse of the social welfare organization status, but apparently did not come up with any shorthand ways of identifying any such organizations that did not have "tea party" or "patriot" in their names.

This was obviously a bad idea for a number of reasons, including its political asymmetry. But a) it didn't come from the top—Lois is herself a career employee, and it was a decision made somewhere below her level; and b) it did not involve scrutiny that was inappropriate under the circumstances. The content of some of the scrutiny may have been inappropriate, however, in seeking names of donors, which is not ordinarily done. (Even here, I can imagine some basis for thinking this was relevant to the inquiry: if all an organization's funds were coming from a party, or other 527 organizations, it would be a matter of some concern, and raise a somewhat higher suspicion that the organization was being used to finance campaign activities primarily. And while public disclosure of donors is not required, there is no absolute bar on the IRS seeking information about donors. They do it routinely in their efforts to determine private foundation status and compliance, since major donors are disqualified persons for purposes of the private foundation excise taxes. I should emphasize that Lois did not offer this explanation however—it is just my speculation on why IRS staff might have asked that question.)

I think the problem is that if you hear that tea party organizations were "targeted" for special scrutiny, it is hard to imagine an explanation that doesn't depend on partisan bias. But there is such an explanation: the need to draw the line between (c)(4) and 527 organizations. I'm not saying that this was the right way to go about this, and neither is Lois or anyone else in the IRS. But at the same time, it isn't the smoking gun that some in the media seem to think it is. It is nothing like Richard Nixon asking the IRS to audit his political enemies, though it is being compared to that.

• Legal Ethics Forum, Legal Ethics Angle in That IRS Auditing Scandal?, by John Steele
• New York Times op-ed, The Taxman vs. the Tea Party, by Ross Douthat
• San Diego Union-Tribune editorial, A Shameful Abuse of Power by the IRS

A Cincinnati Lawyer's Rise, Fall, and Redemption ... in Hawaii (Thanks to a Tax Prof)

In the small world department:  my Pepperdine colleague Shelley Saxer is completing a visit at Hawaii and dropped me a note about her colleague next door, Ken Lawson, whose faculty bio only begins to capture his extraordinary journey:

Ken Lawson is the associate director of the Hawaii Innocence Project and an associate faculty specialist at the William S. Richardson School of Law. He had a successful law practice in Cincinnati, Ohio, until his license to practice law was revoked because of misconduct while addicted to prescription painkillers. He pled guilty to the felony of obtaining controlled substances by fraudulent means and served 10 months in federal penitentiary. Mr. Lawson is now active in the Hawaii Lawyers and Judges Assistance Program.

Ken started his legal career as an associate in one of Ohio’s oldest and largest law firms. He eventually started his own firm, which grew to 12 lawyers. Over that 18 year period, he was lead counsel in more than a hundred criminal trials, including many murder and capital cases. He also litigated numerous civil rights and police misconduct cases in both federal and state courts and had an active appellate practice. Ken won numerous cases that were considered by many to be “unwinnable”. These and many of Ken’s other cases were followed closely by the media, and he made numerous appearances on CBS, ABC, CNN, CNBC, MSNBC, Court TV, and numerous radio shows. Some of the appearances related to his cases but he also was frequently asked by reporters to comment on and explain to lay audiences the legal issues in other newsworthy cases.

Ken’s high-profile clientele included NFL star Elbert “Ickey” Woods, NFL star and professional baseball player Deion Sanders, and entertainer Peter Frampton. More important to Ken, he represented many “everyday” people, including a single mother whose 16 year old juvenile son, incarcerated in an Ohio prison for adults, had died after being stabbed 16 times by the leader of a racist hate group, the Aryan Nation.

From a recent article in Cincinnati Magazine, Soul Survivor: From His Fiery Fame as "The Pit Bull Lawyer" to Finding His Family, the Unlikely Redemption of Ken Lawson:

At the top of his game, Ken Lawson was the Ray Lewis of the Hamilton County Courthouse — the linebacker lawyer nobody wanted to run into.

He was “Law Dog,” bigger than life on a colorful two-story mural in the West End. On posters he was a warlord, seated on a skull-topped throne, the decapitated head of a white man rolling at his feet. On the streets he was the answer to the Cops theme song: “What ya gonna do when they come for you, bad boys, bad boys?”

In the eye of the hurricanes that swirled around race — riots, lawsuits, stormy city council meetings, press conferences, headline-grabbing accusations — there was Lawson, an adopted kid who traced his biological father to Cincinnati heavyweight boxing champ Ezzard Charles. ...

His drug habit — prescription opiates (Oxycontin, Percocet), weed and cocaine — reached $1,000 a day. He stole from his clients, failed to show up in court, was “sick” for weeks at a time. A judge finally asked for an investigation. He was convicted of organizing a drug ring with a local doctor and sentenced to two years in prison.

But that’s not the end of his story. It was just the beginning. ...

“It was a nightmare,” he says from his new home in Hawaii. “If I had a way of dying, I would have done it.” During detox, “for 45 days, the only way I could stop shaking was to take three or four hot showers a day. I would put a chair in there and just sit until the hot water ran out. I was hopeless. Hopeless.”

“My first day sober in years was Feb. 1, 2007.  My drug habit was so expensive that I had depleted all of our money and was stealing from the client trust account to support my addiction to painkillers.  When I got out of detox, our house was in foreclosure, my law license was about to be suspended, I was being investigated by the DEA, the kids’ tuition had not been paid, all of the rotten stuff I did and the rotten person I had become was all over the news for months, and I was looking at going to prison.

“My sponsor kept telling me that God had me right where I was supposed to be. The kids and I were living in my mother’s house in my old bedroom. Boy, was I being humbled; and, looking back, I needed to learn some humility.”

His wife, Marva, stuck by him through it all. “I love him unconditionally,” she explains. “I knew him as ‘Kenny,’ that boy in high school who was relentless even then. ... Marva, whose parents didn’t finish eighth grade, went to college, then medical school, became a psychiatrist, found a job in Hawaii and moved there “on a wing and a prayer, trusting God.” To raise money to join her, Ken mowed lawns and did odd jobs. “My sponsor took up a collection, and we had enough funds for plane tickets. ...

The dark hours emphasized the light around the corner. “If I had not gone to prison, I would not be the person I am today.” ...

Randall Roth, the University of Hawaii [tax] law professor who took a chance to help Lawson get hired as office manager for the Hawaii Innocence Project, says, “Anyone who doesn’t believe in second chances, or the concept of redemption, hasn’t met Ken. His failures are well documented, but I’m convinced that he can and will do more good for people during the rest of his life than anyone else I know could do in 10 lifetimes. I value his friendship greatly and I trust him completely.” ...

“The easy answer to what happened is alcohol and drugs,” Lawson says. “But the honest answer is that I was off track way before I took my first drink or drugs. My thinking about what life was about was way off track. I thought it was money, things, power, prestige. I kept chasing that stuff and none of it could fill that hole in my soul.”

“The irony is that all of the people that God put in my life to help me have been white. I found it ironic that very few blacks showed up in court to support to me. I’m not angry or even bitter about this as I’ve come to learn to accept people for who they are, wherever they are in life. 

“However, over the last few years I have come to see how racism was such a distraction from the truth. The truth is, I ended up hitting bottom as a direct result of choices I made. I had to learn that blaming others for my problems keeps me from seeing the truth about myself. By refusing to accept responsibility for our own conduct, by refusing to forgive others for their wrongs, the community stays resentful.

“I was wrong for the positions I took with the police and race in Cincinnati, but it’s not until I was able to do a complete and honest self-inventory that I was able to see the truth about my actions. So I have learned that my resentments and anger hurt me more than the person I’m resentful at.

“Life and where it takes us is so amazing. When I can stay in the moment and think of others more than myself, is when I truly realize what a gift life really is! Sometimes I look back on that part of my life when I chased money, power and success thinking it is what life is about and I often just wonder, ‘Where have I been all this time to miss so much of what really matters?’ “Well, I’m present now.”

Top 5 Tax Paper Downloads

This week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list:

1.  [306 Downloads]  Using a Sledgehammer to Crack a Nut: Why FATCA Will Not Stand, by Frederic Alain Behrens (J.D. 2013, Wisconsin)

2.  [277 Downloads]  The Supercharged IPO, by Victor Fleischer (Colorado; moving to San Diego) & Nancy Staudt (USC)

3.  [216 Downloads]  Was Blackstone's Initial Public Offering Too Good to Be True?: A Case Study in Closing Loopholes in the Partnership Tax Allocation Rules, by Emily Cauble (DePaul)

4.  [173 Downloads]  Recent Developments in Federal Income Taxation: The Year 2012, by Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston) & Daniel L. Simmons (UC-Davis)

5.  [157 Downloads]  Reforming the Taxation of Retirement Income, by Richard L. Kaplan (Illinois)

WaPo and WSJ Agree: IRS Targeting of Conservatives Is Appalling

Following up on yesterday's post, IRS Admits to Targeting Conservative Groups in 2012 Election:

Washington Post editorial, Playing Politics With Tax Records:

A bedrock principle of U.S. democracy is that the coercive powers of government are never used for partisan purpose. The law is blind to political viewpoint, and so are its enforcers, most especially the FBI and the IRS. Any violation of this principle threatens the trust and the voluntary cooperation of citizens upon which this democracy depends.

So it was appalling to learn Friday that the IRS had improperly targeted conservative groups for scrutiny. It was almost as disturbing that President Obama and Treasury Secretary Jack Lew have not personally apologized to the American people and promised a full investigation. 

“Mistakes were made,” the agency said in a statement. IRS official Lois Lerner explained that staffers used a “shortcut” to sort through a large number of applications from groups seeking tax-exempt status, highlighting organizations with “tea party” or “patriot” in their names. The IRS insisted emphatically that partisanship had nothing to do with it. However, it seems that groups with “progressive” in their titles did not receive the same scrutiny.If it was not partisanship, was it incompetence? Stupidity, on a breathtaking scale? At this point, the IRS has lost any standing to determine and report on what exactly happened. Certainly Congress will investigate, as House Majority Leader Eric Cantor (R-Va.) promised. Mr. Obama also should guarantee an unimpeachably independent inquiry. 

Wall Street Journal editorial, The IRS Targets Conservatives:

Just because you're paranoid doesn't mean the IRS isn't out to get you. We only wish that were a joke. On Friday, an IRS official disclosed for the first time, and by way of apologizing, that the agency that wields the taxing power of the federal government had targeted conservative groups for special scrutiny during the 2012 election season. Apology or not, that can't be the end of the matter.

The stunning admission didn't emerge in an official statement by a senior official at the Treasury Department, which supervises the IRS. Instead, IRS Director of Exempt Organizations Lois Lerner disclosed it on Friday in response to a question from the audience at a meeting of American Bar Association tax lawyers in Washington, D.C.

Ms. Lerner acknowledged that the agency had flagged groups with the words "tea party" or "patriot" to have their tax returns inspected, presumably with an eye on the legality of their tax exemption. Ms. Lerner called this "inappropriate," which it certainly was, and she said it wasn't done "out of any political bias," which is hard to believe. If there was no political bias, why were only conservative groups targeted? White House spokesman Jay Carney also called the IRS actions "inappropriate" on Friday, which makes that the word of the day.

Ms. Lerner added the tax inspections were carried out entirely by low-level workers in Cincinnati without any direction from Washington. Forgive us if we also don't take that claim as gospel.

Even if the idea did arise as some kind of spontaneous Cincinnati political combustion, where could they possibly have come up with the idea that targeting the tea party might be a good career move? That certainly was the uber political message coming out of the White House, even if it wasn't a directive from the top of the IRS. Another question is who stopped the "inappropriate" requests once they were discovered. Was anyone punished? And how far up the chain of command did knowledge go? ...

Republicans were up in arms Friday about the IRS disclosure, and rightly so. We assume they will use their oversight power in the House to find out what happened, and whether these Cincinnati kids were really operating on their own.

Other than the power to prosecute, the taxing authority is the most awesome power the government has. It can ruin people and companies. When wielded for political purposes, it is a violation of the basic contract the American people have with their government. The abuse admitted by Ms. Lerner can't be dismissed in a casual apology on a casual Friday as no big deal. It's a very big and bad deal.

• Christian Science Monitor, IRS Apologizes for Singling Out Conservative Groups: How Did It Happen?
• The Daily Beast, IRS Singled Out Conservative Groups for Extra Scrutiny, by Megan McArdle
• The Hill, Camp Vows Hearing on IRS Treatment of Tea Party Groups
• Hot Air, 10 Crazy Things the IRS Asked Tea Party Groups
• Politico, IRS Under Siege With No Friends
• Power Line, Obama’s Abuse of the IRS–This Isn’t the First Time
• Wall Street Journal Law Blog, Reaction to the IRS Apology 
• Washington Examiner, IRS Won't Say Whether it Will Discipline Employees Over Targeting of Tea Party Groups

Update:   From the Associated Press:

Senior Internal Revenue Service officials knew agents were targeting tea party groups as early as 2011, according to a draft of an inspector general's report obtained by The Associated Press that seemingly contradicts public statements by the IRS commissioner. ...

Among the other revelations, on Aug. 4, 2011, staffers in the IRS’ Rulings and Agreements office “held a meeting with chief counsel so that everyone would have the latest information on the issue.” 

• The Hill, Report: Top IRS Officials Knew of Tea Party Targeting Two Years Ago
• L.A. Times, IRS Official Knew in 2011 That Tea Party Was Targeted
• Politico, IRS Officials Knew of Tea Party Targeting
• Volokh Conspiracy, IRS Officials Knew of Targeting in 2011
• Washington Post, Report: Top IRS Officials Knew in 2011 That Conservative Groups Were Targeted

ABA Tax Section May Meeting

The ABA Tax Section May meeting concludes today in Washington, D.C. The full program is here. Tax Profs with speaking roles include:

• Affiliated & Related Corporations:  Michelle Kwon (Tennessee), Don Leatherman (Tennessee)
• Diversity:  Patricia A. Cain (Santa Clara)
• Employee Benefits Distributions Update:  Kathryn J. Kennedy (John Marshall)
• Exempt Organizations:  Jill S. Manny (NYU)
• Individual & Family Taxation:  David L. Rice (California Polytechnic)
• Pro Bono & Tax Clinics:  Michael Campbell (Villanova), Keith Fogg (Villanova)
• Publications:  Alice Abreu (Temple)
• S Corporations:  Robert K. Morrow (Chapman)
• Sales, Exchanges & Basis:  Bradley T. Borden (Brooklyn), Erik Jensen (Case Western)
• Tax Policy & Simplification:  Itai Grinberg (Georgetown), Roberta F. Mann (Oregon), Erik Jensen (Case Western), Tracy Kaye (Seton Hall)
• Tax Practice Management:  Michael B. Lang (Chapman)
• Teaching Taxation:  Joshua Blank (NYU), Adam S. Chodorow (Arizona State), Deborah A. Geier (Cleveland State), Omri Marian (Florida), Adam Rosenzweig (Washington U.)

Tax Prof Dinner:

College Advice From The Daily Show

The Daily Show with Jon Stewart
Get More: Daily Show Full Episodes,Indecision Political Humor,The Daily Show on Facebook

• New York Times, Student Debt Slows Growth as Young Spend Less
• Wall Street Journal, Cutting Down Student Debt Obama Plan Would Ease Burden, but Critics Say It Could Promote Overborrowing
• Matt Leichter, I Attempt to Match the Times’ Non-Reporting:

[The New York Times] article states that the average ... debt-to-income ratio for households under 35 has grown from 1:1 to 1.5:1 between 2001 and 2010. How lifetime earnings can rise while the young ... are spending more on debt service is unexplained. ... [C]ollege-educated Americans make less money than they used to.

To be fair, though, I’m going to give a little credit to the Times because people’s incomes would be higher if the economy were at full employment, and it’s not. In other words, it’s unlikely structural degree oversupply is the primary force depressing college graduates’ earnings. Thus, the 1.5:1 debt-to-income ratio should be lower than it is. But just when exactly will college graduates in their 20s and early 30s “make up for lost ground” after their prime earning years? The Times doesn’t say.

State Beer Taxes

Law Prof: Let's Scrap the 'Gentleman's C'

Wall Street Journal Law Blog:  Law Prof: Let’s Scrap the ‘Gentleman’s C’:

Law schools should embrace grade inflation, says Professor Joshua Silverstein of the William H. Bowen School of Law. In a forthcoming paper in the University of San Francisco Law Review [A Case for Grade Inflation in Legal Education], Mr Silverstein makes the case for why law schools should substantially eliminate C grades and raise the minimum cumulative GPA for good academic standing to a B minus.

Joshua Silverstein (Arkansas-Little Rock), A Case for Grade Inflation in Legal Education:

This article contends that every American law school ought to substantially eliminate C grades by settings its good academic standing grade point average at the B- level. Grading systems that require or encourage law professors to award a significant number of C marks are flawed for two reasons. First, low grades damage students’ placement prospects. Employers frequently consider a job candidate’s absolute GPA in making hiring decisions. If a school systematically assigns inferior grades, its students are at an unfair disadvantage when competing for employment with students from institutions that award mostly A’s and B’s. Second, marks in the C range injure students psychologically. Students perceive C’s as a sign of failure. Accordingly, when they receive such grades, their stress level is exacerbated in unhealthy ways. This psychological harm is both intrinsically problematic and compromises the educational process. Substantially eliminating C grades will bring about critical improvements in both the fairness of the job market and the mental well-being of our students. These benefits outweigh any problems that might be caused or aggravated by inflated grades. C marks virtually always denote unsatisfactory work in American graduate education. Law schools are the primary exception to this convention. It is time we adopted the practice followed by the rest of the academy.

	75th Percentile		50th Percentile		25th Percentile
	Undergrad	Law School	Undergrad	Law School	Undergrad	Law School
1st Tier	3.81	3.49	3.68	3.28	3.45	3.03
2d Tier	3.68	3.40	3.47	3.17	3.20	2.96
3rd Tier	3.61	3.34	3.38	3.06	3.11	2.83
4th Tier	3.45	3.20	3.17	2.91	2.88	2.66
Total	3.64	3.35	3.44	3.09	3.17	2.84

IRS Admits to Targeting Conservative Groups in 2012 Election

After months of denying that the IRS has been targeting tea party groups for special scrutiny, Lois Lerner, Director of the IRS's Exempt Organizations Division, admitted that the IRS had been giving additional scrutiny to applications for tax-exempt status from goups with the "Tea Party" or "patriot" in their title. She denied there was any political motivation and blamed the practice on a low-level employee in Cincinnati.

Update:  The IRS has released this statement.

• ABC News, Tea Party Rejects IRS Apology
• Daily Beast:  The IRS Takes Aim at the Tea Party
• Election Law Blog, “IRS Apologizes For Targeting Conservative Groups In 2012 Election”
• Forbes, IRS to Tea Party: Sorry We Targeted You and Your Tax Status 
• National Review, 'Mistakes Were Made'
• New York Times, IRS Apologizes to Conservative Groups Over Application Audits
• Tax Update Blog, Look at a Celebrity Return? You’re Fired! Harass a Tea Party Outfit? Carry On.
• Volokh Conspiracy, IRS Admits Targeting “Tea Party” Groups
• Wall Street Journal, IRS Apologizes for Scrutiny of Conservative Groups 
• Wall Street Journal, The New Nixon:  This Time, the Press Cheered as the IRS Investigated the President's Opponents.
• Washington Post, IRS Admits Targeting Conservatives for Tax Scrutiny in 2012 Election
• Washington Times, Congress Vows to Investigate IRS Over Conservative Audits

Prior TaxProf Blog coverage:

• Is President Obama Ineligible to Work for the IRS?
• Barack Milhous Obama: Presidents Should Not Joke About Using the IRS as Political Enforcer

Joint Tax Committee Scores President's Budget as $890 Billion Tax Increase

The Joint Committee on Taxation today released Estimated Budget Effects of the Revenue Provisions Contained in the President’s Fiscal Year Budget Proposal (JCX-11-13).  The Joint Tax Committee estimates that the President's budget would raise taxes by $890 billion over ten years.

Johnson: Reforming Federal Tax Litigation: An Agenda

Steve R. Johnson (Florida State), Reforming Federal Tax Litigation: An Agenda, 41 Fla. St. L. Rev. ___ (2013):

King Vertigorn, it is said, wished to build a castle to defend Britain against invaders. Each day, his mason raised and set the stones. Each night, however, the earth would rumble, bringing the work crashing to the ground. Vexed, Vertigorn asked Merlin for an explanation. Merlin’s mystical divination revealed that, in a cavern far below the surface, there resided two foes, a red dragon and a white dragon. In their perpetual struggle for dominance, first one dragon then the other would gain temporary ascendancy. Their jostling unsettled the ground, rendering all construction temporary.

In federal tax procedure, the red dragon and the white dragon are facilitation of revenue collection and fairness to taxpayers.

Continue reading "Johnson: Reforming Federal Tax Litigation: An Agenda"

IRS Releases FY2012 Criminal Investigation Report

IR-2013-50, IRS Criminal Investigation Issues Fiscal 2012 Report:

IRS Criminal Investigation (CI) today released its Annual Report for fiscal 2012, highlighting strong gains in enforcement actions and penalties imposed on convicted tax criminals.

The 28-page report summarizes a wide variety of IRS CI activity on a range of tax related issues during the year ending Sept. 30, 2012. CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law.

"The key to our successes is perseverance and dedication to working complex financial investigations aimed at stopping tax fraud, identity theft, offshore tax evasion, public corruption, money laundering and other financial crimes," said Richard Weber, Chief of Criminal Investigation. ...

Investigations initiated and prosecution recommendations were both up nearly 9 percent in fiscal 2012 compared to the prior year. Filings of indictments and other charging documents rose 13 percent. Meanwhile, convictions and those sentenced both gained roughly 12 percent from the prior year.

Criminal investigation initiations totaled 5,125 cases in fiscal 2012 while investigations completed were 4,937 – up 5 percent from fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.

Virginia Tax Review Publishes New Issue

The Virginia Tax Review has published Vol. 32, No. 2 (Summer 2012):

• Steve R. Johnson (Florida State), Preserving Fairness in Tax Administration in the Mayo Era, 32 Va. Tax Rev. 269 (2012)
• Richard Kaplan (Illinois), Reforming the Taxation of Retirement Income, 32 Va. Tax Rev. 327 (2012)
• Deborah L. Paul (Wachtell, Lipton, Rosen & Katz, New York), Another Look Through the Worthless Stock Deduction: Section 165(g)(3) as Applied to Foreign Subsidiaries, 32 Va. Tax Rev. 367 (2012)
• Peter V. Nelson (Pillsbury, Washington, D.C.), Conflicts of Interest: Resolving Legal Barriers to the Implementation of the Foreign Account Tax Compliance Act, 32 Va. Tax Rev. 387 (2012)

Reinventing Law (and Law School)

ABA Journal Legal Rebels: How This Duo Is Trying to ReInvent Law School, by Daniel Martin Katz (Michigan State) & Renee Newman Knake (Michigan State):

Greetings from ReInvent Law, our law laboratory devoted to technology, innovation, and entrepreneurship at Michigan State University College of Law. You read that right. We are law professors with a laboratory where we teach technology, analytics, innovation, and entrepreneurship in legal services. We are law professors devoted to training lawyers for the law jobs of the 21st century. And yes, math will be on the exam. This is the New Normal in legal education.

The legal services and products industry is undergoing a significant transition. For many current and future legal jobs, understanding the law is a necessary but no longer sufficient condition for success. We believe that part of the solution to the crisis currently facing the law profession and legal education involves principles of technology, legal analytics, design thinking, and the advent of new, process-driven delivery models.

Entrepreneurship is one cross-cutting and core component that is often missing in legal education. At most institutions, {law + entrepreneurship} involves law students advising would-be entrepreneurs. While we support such efforts, this conception largely misses significant, emerging opportunities that are being created in the legal market. To this end, we are interested in training lawyers to be entrepreneurs, not merely to advise them. This training is useful for a variety of future pursuits, whether to better understand clients or to embark on one’s own entrepreneurial endeavor. Along with traditional legal training, entrepreneurship pedagogy also can help inspire students to curate new markets for legal services and thereby help fill the vast access-to-justice gap. Many appropriately bemoan the reality that millions in this country go without needed legal representation, but few actually craft scalable solutions to help tackle the problem. Clinics are simply not sufficient. The answer is better regulatory and business models with technology and analytics as core components.

We do not purport to have solved all of the issues in legal education, but we are working thoughtfully and quickly to offer students the additional skills that employers have told us would make a difference in their respective hiring decisions.

(Hat Tip: Greg McNeal.)

Klass: The Future of Tax Benefits for Renewable Energy

Alexandra B. Klass (Minnesota), Tax Benefits, Property Rights, and Mandates: Considering the Future of Government Support for Renewable Energy:

This essay explores the history of tax benefits, property rights benefits, and mandates for energy development for the purpose of gaining insights on how such incentives can best be used to encourage the development of renewable energy. Part I describes some of the tax preferences and other financial incentives the U.S. government has historically provided to the energy sector, including to fossil fuel development, renewable fuels (particularly ethanol), and renewable electricity sources. It compares and contrasts the varying types and levels of support for these energy sectors, and concludes that the tax preferences and other financial support provided to date to renewable electricity do not provide the same level of continuity for investment purposes and long-term growth as the support provided to the fossil fuel and biofuels industries. Part II turns to property rights incentives, and discusses the long-time property rights benefits states have conveyed to oil, gas, and other natural resource developers as well as to electric utilities to encourage the development and use of energy resources. This Part suggests that policymakers should use caution in conveying new property rights incentives to renewable energy developers to avoid upsetting existing certainty in property law and also to avoid a situation where the burdens of such changes fall too heavily on a small and discrete number of landowners. Part III considers mandates in the energy industry. These include: (1) state renewable portfolio standards (RPS) for renewable electricity; (2) the federal Renewable Fuel Standard (RFS) that benefits the biofuels industry; and (3) California’s Low Carbon Fuel Standard regulations that mandate use of an increasing amount of fuels with lowered GHG emissions each year in the state. It compares the federal RFS for biofuels with the lack of a similar mandate at the federal level for renewable electricity, and discusses the potential benefits associated with a federal RPS for electricity. Finally, Part IV considers the important role certainty and continuity play in efforts to support renewable energy development. Ultimately, this essay concludes that the continuity and relative certainty associated with certain types of tax benefits and mandates may be the best means of providing long-term support to renewable energy markets. Property rights incentives, on the other hand, should be used more sparingly to provide benefits to particular energy sectors or markets, but may be best used to create the nationwide, physical networks such as electric transmission grid expansions necessary for those markets to exist.

Senate Releases Tax Reform Option Paper on International Competitiveness

The Senate Finance Committee yesterday released its Fifth Tax Reform Option Paper on International Competitiveness:

This document is the fifth in a series of 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 options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress.  For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or Ranking Member.  ...

The paper outlines the following broad goals for reform in this area:

• Increasing U.S. competitiveness and job creation by reducing barriers to U.S. and foreign multinationals investing in the U.S.;
• Reducing tax incentives for multinationals to be foreign-based;
• Reducing tax incentives for U.S. multinationals to keep foreign earnings abroad;
• Preventing base erosion and profit shifting to low-taxed foreign entities lacking relevant business substance; and
• Reducing complexity, uncertainty, and compliance burdens.

Some of the reform options discussed in the paper in greater detail include:

• Tightening anti-base erosion rules and reforming the treatment of non-subpart F earnings;
• Strengthening the subpart F rules via several specific changes;
• Repealing deferral for controlled foreign corporations;
• Strengthening thin-capitalization rules to limit base erosion through excessive debt financing;
• Strengthening rules against U.S. base erosion by foreign companies;
• Limiting cross-crediting of foreign tax credits;
• Improving the sourcing of income rules;
• Repealing Domestic International Sales Corporation (DISC) provisions;
• Reforming passive foreign investment company (PFIC) rules;
• Reforming effectively connected income rules;
• Providing an election to long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions; and
• Repealing the foreign-earned income exclusion.

Patent Box Litigation in Europe: A Model for the U.S.?

Jason M. Brown (J.D. 2013, SMU), Student Article, Patent Box Taxation: A Comparison of Four Recent European Patent Box Tax Regimes and an Analytical Consideration of if and how the United States Should Implement its Own Patent Box, 46 Int'l Law. 913 (2012):

As the global economy is increasingly driven by the commercialization of highly mobile assets, several European governments have sought to encourage investment in and retention of such assets within their domestic borders by offering heavily incentivized tax rates on profits derived from patents and other highly mobile assets. Notable among the European and Asian countries to enact such patent-income tax incentives--colloquially known as patent box tax regimes--are Belgium, Luxembourg, the Netherlands, and the United Kingdom. This paper addresses the primary distinguishing features of these four regimes, including their effective tax rates, their scope, and their general qualification requirements and further addresses the preliminary economic results of the enactment of these regimes. Finally, this paper considers the shortcomings in the four regimes and discusses how the United States can capitalize on such shortcomings to enact a more effective patent box tax regime. 

Max & Dave's Excellent Tax Reform Adventure

Bloomberg:  ‘Max and Dave’ Start Public Campaign for Simpler Tax Code:

Calling themselves “Max and Dave,” the top two tax writers in Congress are starting a public-relations campaign for a simpler U.S. tax code.

Max Baucus, chairman of the Senate Finance Committee, and Dave Camp, his counterpart on the House Ways and Means Committee, set up a website -- taxreform.gov -- and a handle on Twitter -- @simplertaxes -- to gather public support and input as they try to revise the U.S. tax system.  

Baucus and Camp are designing their public pitch as a 21st-century update of the “Write Rosty” campaign of Dan Rostenkowski, the Ways and Means panel chairman at the time of the last major tax-code rewrite in 1986. “We want to know what people think the nation’s tax system should look like and how we can make families’ lives easier,” Baucus said in a statement.

• The Hill:  Camp, Baucus Launch New Tax Reform Website
• NPR:  Lawmakers Use Web To Request Help Simplifying Tax Code
• Politico:  Dave Camp, Max Baucus Dream of a New Tax Code
• USA Today:  Lawmakers Seek Public Support for Tax Overhaul
• Wall Street Journal:  Camp, Baucus Launch Tax-Reform Campaign Online

NYU Tax Law Review Publishes New Issue

The Tax Law Review has published a new issue (Vol. 66, No. 1 (Fall 2012)):

• Chris William Sanchirico (Pennsylvania), Optimal Tax Policy and the Symmetries of Ignorance, 66 Tax L. Rev. 1 (2012)
• Jason S. Oh (UCLA), The Social Cost of Tax Expenditure Reform, 66 Tax L. Rev. 63 (2012)
• Leigh Osofsky (Miami), Some Realism About Responsive Tax Administration, 66 Tax L. Rev. 121 (2012)

IRS, Australia & UK Join Forces to Combat Offshore Tax Evasion

IR-2013-48 (May 9, 2013):  IRS, Australia and United Kingdom Engaged in Cooperative Effort to Combat Offshore Tax Evasion:

The tax administrations from the United States, Australia and the United Kingdom announced today a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world.

The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands. The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.

The IRS, Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their preliminary analysis, if requested by those other tax administrations.

• Bloomberg, IRS Opens Tax Cases Based on Trove of Offshore Data

Nine Law Schools Now Offer Two-Year J.D.

According to the National Law Journal, nine law schools now offer a two-year J.D.

• Brooklyn
• Dayton
• Drexel
• Florida Coastal
• Northwestern
• Pepperdine
• Southwestern
• Vermont
• Washburn

President Obama Nominates Two Tax Court Judges

President Obama yesterday nominated Joseph W. Nega and Michael B. Thornton to the United States Tax Court:

Joseph W. Nega, Nominee for Judge, United States Tax Court
Joseph W. Nega is a Senior Legislation Counsel to the Joint Committee on Taxation of the United States Congress, a position he has held since 2008.  His primary areas of responsibility are the individual income tax, tax exemption requirements for state and local bonds, tax credit bonds, and employment taxes.  Mr. Nega has served on the Joint Committee staff since 1985.  Prior to his current position, Mr. Nega served as a Legislation Counsel from 1989 to 2008, and as a Legislation Attorney from 1985 to 1989.  Mr. Nega received a B.S.C. in Accounting from DePaul University, a J.D. from DePaul University School of Law, and an M.L.T. (Taxation) from Georgetown University School of Law.

Judge Michael B. Thornton, Nominee for Judge, United States Tax Court
Judge Michael B. Thornton currently serves as a Judge of the United States Tax Court, a position held since March 1998.  From June 2012 to March 2013 he served as Chief Judge of the Tax Court.  Previously, Judge Thornton served in the U.S. Department of the Treasury as Deputy Tax Legislative Counsel in the Office of Tax Policy from 1995 to 1998, first joining the Department  as an Attorney-Adviser in February 1995.  He served with the U.S. House Committee on Ways and Means as Chief Minority Tax Counsel in 1995, and as Tax Counsel from 1988 to 1994.  Judge Thornton was an Associate Attorney with Miller and Chevalier from 1985 to 1988 and Sutherland, Asbill, and Brennan from 1982 to 1983.  He was a Law Clerk to the Honorable Charles Clark, Chief Judge, U.S. Court of Appeals for the Fifth Circuit from 1983 to 1984.  Judge Thornton received a B.S. and M.S. from University of Southern Mississippi, an M.A. from University of Tennessee, and J.D. from Duke University School of Law.

(Hat Tip: John Barrick.)

Graetz & Doud: Technological Innovation, International Competition, and International Taxation

Michael J. Graetz (Columbia) & Rachael Doud (J.D. 2012, Yale), Technological Innovation, International Competition, and the Challenges of International Income Taxation, 113 Colum. L. Rev. 347 (2013):

Because of the importance of technological innovation to economic growth, nations strive to stimulate and attract the research and development (“R&D”) that leads to that innovation and to make themselves hospitable environments for the holding of intellectual property (“IP”). Tax policies have taken center stage in their efforts to accomplish these goals and to capture a share of the income from technological innovations.

Designing cost-effective methods of supporting technological innovations has, however, become substantially more difficult as the world economy has become more interconnected. Where R&D is performed and where income is earned change in response to the nature and level of government support. The capacity of multinational enterprises (“MNEs”) to shift their IP production, IP ownership, and IP income across national borders, along with their ability to establish new corporations in tax-favorable jurisdictions, makes designing cost-effective incentives exceptionally difficult. Devising appropriate tax rules for developing IP and for taxing IP income has become the central challenge for international income taxation.

This Article examines the three primary tax policies supporting innovation: (1) incentives for R&D, (2) “patent boxes,” and (3) tax benefits for “advanced manufacturing.” It then briefly describes common techniques MNEs use to lower their taxes on IP income. The Article then assesses the various incentives and offers recommendations about how the United States might respond to challenges it now faces in promoting technological innovation. Based on extensive examination of the economic evidence, the Article concludes that, at most, only R&D incentives are justified.

This Article also summarizes the current proposals for limiting opportunities for U.S. MNEs to shift IP income to low- or zero-tax jurisdictions. In that connection, it offers proposals for change that would more closely align U.S. taxes with U.S. sales.

Wright: Financial Alchemy and Tax Shelter Promoters

Del Wright Jr. (Valparaiso), Financial Alchemy: How Tax Shelter Promoters Use Financial Products to Bedevil the IRS (And How the IRS Helps Them):

People often question why tax shelters proliferate and why it is so difficult for the government to stop them. This Article explains, through examples, how tax shelters are structured to be a no-lose proposition for wealthy taxpayers. In a manner accessible to non-finance people, the Article sets forth the legal and financial tools underlying modern tax shelters and sheds light on how those tools are used to create technical tax shelters; i.e., tax shelters that work from an often hyper-technical tax perspective but are contrary to any reasonable legislative purpose. The Article then goes on to detail some of the most costly tax shelters in history, including Son of Boss, which the government estimates has cost taxpayers over $6 billion since the mid-1990s. The Article further explains how many shelters, including Son of Boss, evolved from a ninety-year-old tax avoidance technique called short-against-the-box. The Article concludes with a prescription, informed by ten years' experience in the tax shelter industry, for combating tax shelters.

2013 World Law School Rankings

2013 Quacquarelli Symonds (QS) World Law School Rankings (methodology: academic reputation, employer reputation, citations per paper, h-index per faculty member), along with the latest SSRN World Law School Faculty Rankings:

1. Harvard (#1 in SSRN)
2. Cambridge (#39)
3. Oxford (#19)
4. Yale (#6)
5. Melbourne (#26)
6. NYU (#7)
7. London School of Economics (#96)
8. Columbia (#4)
9. Stanford (#5)
10. Sydney (#27)
11. University College (London) (#55)
12. New South Wales (#79)
13. Monash (#132)
14. Australian National (#102)
15. Chicago (#3)
16. King's College (London) (#128)
17. UC-Berkeley (#13)
18. Université Paris Panthéon-Sorbonne (#758)
19. Victoria University of Wellington (#148)
20. University of Hong Kong (#133)
21. University of Toronto (#25)
22. National University Singapore (#105)
23. Georgetown (#9)
24. University of Auckland (#385)
25. Katholieke Universiteit Leuven (#160)

Other law faculties in SSRN's Top 25 are George Washington (#2), Tilburg (#8), Pennsylvania (#10), Northwestern (#11), UCLA (#12), Illinois (#14), Vanderbilt (#15), Duke (#16), Michigan (#17), Minnesota (#18), George Mason (#20), USC (#21), Virginia (#22), San Diego (#23), and Fordham (#24).

Ryznar: Incentivizing Parental Support for College Tuition through the Tax Code

Margaret Ryznar (Indiana-Indianapolis), Incentivizing Parental Support for College Tuition through the Tax Code, 2013 Mich. St. L. Rev. ___:

University tuition costs continue to increase, while education continues to be important. Efforts to alleviate this problem must be undertaken carefully as to not simply aggravate the problem. To this end, this Article proposes that parental contribution towards university tuition be treated more favorably by the tax code, and in particular, be treated as tax deductible. Universities already expect parental contributions as part of a child’s financial aid package, and this proposed tax deduction may help fulfill that expectation. Furthermore, this proposed deduction would spare students some reliance on the loan system, including the risk of default. This proposed deduction, finally, may be structured in a cost-neutral way. Specifically, the funds used for this deduction would be the taxpayer funds saved from the decrease in loan defaults and loan interest subsidies, which currently cost tens of billions of tax dollars.

Tax and the Catastrophe Insurance Industry

Thomas Berghman (J.D. 2012, Illinois), A Market Under(writing) the Weather: A Recommendation to Increase Insurer Capacity, 2013 U. Ill. L. Rev. 221:

The Note begins by providing a background of (1) the state of the catastrophe insurance industry and its inadequate capitalization, (2) insurer incentives, basic insurance principles, and tax treatment, (3) basic principles and tax treatment of the reinsurance industry, and (4) current proposals to increase capacity in the catastrophe insurance industry. The Note then analyzes (1) the capacity shortage problem, comparing the costs and benefits of reinsurance and alternative risk transfer, (2) the various federal policies purporting to address the increasing price of homeowner insurance premiums, and (3) several alternative risk transfer devices. The Note then discusses the advantages of the cat bond, such as the adaptability of bonds to numerous circumstances. Furthermore, the Note discusses the ability of cat bonds to supplement traditional reinsurance methods of increasing capacity. Lastly, the Note analyzes the benefits of treating cat bonds as tax-free. 

Brooks Presents The Standard Deduction, Progressivity and Simplification Today at the Treasury Department

John R. Brooks II (Georgetown) presents Doing Too Much: The Standard Deduction and the Conflict Between Progressivity and Simplification, 2 Colum. J. Tax. L. 203 (2011), at the Treasury Department's Office of Tax Analysis today:

In U.S. federal income tax, the standard deduction, along with the personal exemptions, provides taxpayers with a minimum amount of untaxed income, effectively creating a “zero bracket amount.” For historical and political reasons, however, the standard deduction also operates as a simplified substitute for the itemized deductions, such as the deductions for extraordinary medical expenses, charitable contributions, and home mortgage interest. This seemingly reasonable compromise in fact leads to substantial, and surprising, conceptual complexity. In particular, close analysis of each of the two roles shows that their effects, and related criticisms, are often contradictory, which in turn makes it difficult to have coherent debates regarding the proper roles of the standard deduction and the personal deductions.

This article argues that, while the standard deduction is worse than we think it is, it is also easier to fix than we think it is. We can replace the standard deduction with a true, independent zero bracket amount and a floor under the itemized deductions while staying revenue-and distribution-neutral. This would effectively divorce the two roles of the standard deduction – zero bracket amount and simplification of the itemized deductions – leading to more coherence in individual income taxation and giving more flexibility to policymakers. This article proposes further to disaggregate the single floor under the itemized deductions into multiple, independent floors under each itemized deduction. This also would lead to greater coherence and flexibility in tax system design. While creating multiple floors would marginally increase complexity for some taxpayers, the costs of such complexity are overstated relative to the benefits of more accuracy and coherence.

Record Number of Americans (Including Hamid Karzai's Brother) Renounce Their Citizenship

CNN, U.S. Citizens Ditch Passports in Record Numbers, by Lynnley Browning:

If the recent quarter's pace continues, 2013 will become a landmark year for saying goodbye to America, tax-wise. ...

Americans are ditching their U.S. passports in record numbers, a sign of growing frustration with a system that taxes U.S. citizens on their global wealth whether they live in Montana or Mongolia.

The latest bold-faced names to relinquish their U.S. citizenship include Mahmood Karzai, a brother of Hamid Karzai, the president of Afghanistan, according to federal data released Wednesday. Also on the list, published quarterly by the IRS, is Isabel Getty, the daughter of jet-setting socialite Pia Getty and Getty oil heir Christopher Getty.

In total, more than 670 U.S. passport holders gave up their citizenship -- and with it, their U.S. tax bills -- in the first three months of this year. That is the most in any quarter since the I.R.S. began publishing figures in 2008. And it is nearly three-quarters of the total number for all of 2012, a year in which the wealthy songwriter-socialite Denise Rich (christened "Lady Gatsby" by Yachting magazine) and Facebook co-founder Eduardo Saverin joined more than 932 other Americans in tossing their passports.

If the recent quarter's pace continues, 2013 will become a landmark year for saying goodbye to America, tax-wise.

International Tax Blog, Q1 2013 - Highest Quarterly Number of Expatriates Ever (But . . . ):

The number of Published Expatriates was 679. This is the highest quarterly number of Published Expatriates ever. However, the prior quarter number of expatriates (Q4 2012) was only 45. For the 8 quarters prior to the fourth quarter of 2012, the average number of names listed per quarter was 383. The average of the two quarters (Q4 2012 and Q1 2013) is 362. It appears that the government forgot to include some of the names in the Q4 2012 list, and that they have now included those names in the Q1 2013 list.

Houston Business & Tax Journal Publishes New Issue

The Houston Business & Tax Law Journal has published Vol. 12, Part 1 (2012):

• Bret Wells (Houston), "Territorial" Tax Reform: Homeless Income Is the Achilles Heel, 12 Hous. Bus. & Tax L.J. 1 (2012)
• Genevieve Loutinsky (Judge Advocate General Corp), Gladwellian Taxation: Deterring Tax Abuse Through General Anti-avoidance Rules, 12 Hous. Bus. & Tax L.J. 82 (2012)
• Blake W. Gipson, Student Article, The Disappearing Discount: Applying the Minority and Marketability Discounts to the Cost of Capital in Shareholder Appraisals, 12 Hous. Bus. & Tax L.J. 129 (2012)
• Rachel Goodson, Student Article, The Adequacy of Whistleblower Protection: Is the Cost to the Individual Whistleblower Too High?, 12 Hous. Bus. & Tax L.J. 161 (2012)
• Nicole Washington, Student Article, Transparency v. Intelligence: Corporate Information Privacy Rights under the Freedom of Information Act and Whether Inquiring Minds Still Have a Right to Know, 12 Hous. Bus. & Tax L.J. 194 (2012)

LLM: Lawyers Losing Money

The American Prospect:  LLM: Lawyers Losing Money, by Bryce Stucki:

To critics, the degree is little more than a scam making extra cash from attorneys desperate to burnish their credentials in a brutal legal job market. ...

From the early 1970s to the late 1990s, the LLM was a marginal degree aimed primarily at foreign students and a few American lawyers looking for specialized knowledge in areas like tax law. An LLM is not necessary to work as a lawyer, no member of the Supreme Court holds one, and successful pursuers of the Master in Laws will end with more education than most of their professors. Since LLM candidates take the same courses as JDs, students earning a first degree in law, they require little overhead. LLM students often pay the same tuition as JDs and rarely receive financial aid. Schools are not required to report any job stats for LLM graduates, meaning students cannot investigate either the salary or nature of the work a typical graduate from the program can expect to land. LLMs also cannot hurt a school’s U.S. News ranking since their qualifications aren’t disclosed, meaning schools admit less-qualified applicants into their LLM programs. In the context of the massive threats to revenues law schools are now facing, it’s easy to see why the degree referred to by critics as a “cash cow” is growing in popularity at schools around the country. Although LLM students comprise less than 7% of law school enrollments, the total number of LLM degrees has risen 65% in the past decade, including, since the financial crash, an abundance of new programs aimed at U.S.-trained lawyers, such as Nebraska’s LLM in space law or NYU’s in environmental law. Given the lack of data and their generally poor reputation with big law firms, most lawyers and law students who’ve heard of the degree tend to view non-tax LLM programs as cash grabs. ...

Since schools must now be transparent about employment numbers, many are seeking to maintain revenues by lowering their admissions standards and venturing further into what Paul Caron, a visiting professor at Pepperdine University calls the “unregulated wasteland” of the LLM. The ABA does not require schools to publish employment figures for LLMs and does not plan to. Law schools are still free to disseminate these numbers but the few that do, such as New York University and Northwestern, often release stats that are not up to ABA standards for JD outcomes. To critics, the lack of transparency is strikingly familiar to the opacity surrounding JD employment numbers pre-2012.

“The lack of data tells you something,” says Brian Tamanaha, a professor at Washington University in St. Louis and author of the book Failing Law Schools. “Certainly if they were paying off quite well, schools would be advertising that.” Despite the lack of data, critics are quick to question the value of an LLM—“LLM stands for Lawyer Losing Money,” says University of Colorado-Boulder professor and frequent law school critic Paul Campos. Even tax, often considered an exception to the bad-LLM rule, may be losing its luster in a weak job market flooded with more and more LLM grads every year. “It’s almost a ‘don’t ask, don’t tell’ kind of attitude,” says Caron, an expert in tax law who has co-authored guides for selecting a LLM program in tax [Pursuing a Tax LLM Degree: Why and When?; Pursuing a Tax LLM Degree: Where?]. “It’s a shame there’s not more information available.” ...

Despite the downsides, LLM programs continue to grow. And while many U.S.-trained LLM students are professionals looking to improve their skills who continue to work at their current jobs, a significant, and likely increasing, number are either fresh out of law school or victims of underemployment. They may see an LLM program as a good place to network or to improve their credentials if their JD is from a lower-ranked school, no matter what the cost.

Urquhart: Why Is Taxpayer Standing Permissive in State Courts and Restrictive in Federal Courts?

Joshua G. Urquhart (Law Clerk, Chief Judge Philip P. Simon, U.S. District Court for the Northern District of Indiana), Disfavored Constitution, Passive Virtues? Linking State Constitutional Fiscal Limitations and Permissive Taxpayer Standing Doctrines, 81 Fordham L. Rev. 1263 (2012):

This Article contrasts the permissive state taxpayer standing doctrines in place in most states with the restrictive federal and state taxpayer standing rules applied in federal court. It proposes a new theory to explain this disparity, arguing that ubiquitous state constitutional fiscal restrictions, which specifically limit a state government’s ability to tax, spend, and borrow, are a primary impetus in the creation and development of liberal state taxpayer standing doctrines. The Article evaluates this novel hypothesis through an empirical-historical survey of the early state taxpayer standing decisions in every permissive jurisdiction and finds that these provisions are indeed involved in most cases and in most states. It concludes by discussing the implications of these results.

Tobin Reviews Hickman's Unpacking the Force of Law

Donald Tobin (Ohio State), Temporary Treasury Regulations and IRB Guidance in a Post-Mead and Mayo World (Jotwell) (reviewing Kristin Hickman (Minnesota), Unpacking the Force of Law, 66 Vand. L. Rev. 465 (2013)):

With the Supreme Court’s recent decision in Mayo Foundation for Education and Research v. United States, there is a huge void of scholarship regarding how administrative law principles apply in the tax context.  Kristin Hickman helps fill that void by continuing her work at the intersection of administrative law and tax procedure in her recent Vanderbilt Law Review article “Unpacking the Force of Law,” which deals with the treatment of temporary treasury regulations and IRB guidance after the Supreme Court’s decisions in Mayo and United States v. Mead Corp. ...

Hickman’s work here is insightful, and she clearly and painstakingly explains the application of administrative law principles in the tax context.  Her conclusions naturally come from her argument that temporary Treasury regulations and IRB guidance have the “force of law,” and her work here is incredibly important.  The Treasury has routinely argued that the APA does not apply in the tax context.  Hickman’s work convincingly argues that it does and also sets out the significant mess that will be caused if Treasury does not ensure that its regulatory practices comply with the APA.  Hickman’s work reminds us all, and most importantly the Treasury, that tax exceptionalism does not apply in the administrative law context and that the Treasury should take action to ensure that its promulgation of temporary Treasury regulations (and maybe IRB guidance) comply with the APA.

Georgetown Symposium on The Intersection of Tax Law, Gender and Sexuality

Symposium, Confronting the Intersection of Tax Law, Gender and Sexuality, 13 Geo. J. Gender & L. 1- 105 (2012):

• Anthony C. Infanti (Pittsburgh), LGBT Taxpayers: A Collision of "Others", 13 Geo. J. Gender & L. 1 (2012)
• Deborah H. Schenk (NYU), Reflections on Women in Tax Law Academia, 13 Geo. J. Gender & L. 47 (2012)
• Nancy Staudt (USC), April Yanyuan Wu (Boston College) & Chao Wang (Fried, Frank, New York), Is Gender-Based Policymaking Relevant in the 21st Century?, 13 Geo. J. Gender & L. 59 (2012)

More on Reconsidering the Conventional Wisdom on the Legal Job Market

Following up on last week's post, Reconsidering the Conventional Wisdom on the Legal Job Market:  Benjamin Barros (Widener):

• Reconsidering the Conventional Wisdom on the Legal Job Market - Part II
• Reconsidering the Conventional Wisdom on the Legal Job Market - Part III

I have made three major points in this series of posts.  First, I have argued that based on data on what graduates of the Widener-Harrisburg classes of 2010 and 2011 are doing now, many more recent law schools graduates are getting legal jobs than the nine-month job data would suggest.  Second, I have explained why I am skeptical that the current anemic state of the job market is the result of structural, as opposed to economic, factors.  Third, I have explained why we should be cautious in our interpretation of Bureau of Labor Statistics data on the legal job market.

I will close with two other points.  First, I think that an important concrete step that we could take to improve graduate employment rates is to move the timing of the bar exam from the summer after graduation to the summer after the second year of law school.  As I explained in my first post in this series, I think that bar timing is one part of the story of why nine-month data does not provide a full picture of graduate employment.  Moving up the bar exam would help even in a more robust economy where more students are getting jobs within nine months of graduation, because graduates who landed jobs could start working sooner.

Second, nothing in this post suggests that we should not be concerned about student debt.  At a few points in this series, I mentioned as an aside that I think it is wrong to focus on first year salaries when talking about law school affordability.  I do think that – many entry level legal jobs (clerkships, ADA positions) have relatively low salaries but typically provide graduates with experience that can lead to higher paying jobs later.  Entry level small firm jobs also often don’t pay a high salary to start, but the salary goes up over time.  I also think that statements about graduates’ ability to service their debt that do not take cost of living into account paint with too broad a brush.  A given salary goes a lot farther in, say, Harrisburg PA, than it does in New York City.  This said, we could always use better and more thorough salary data, especially data that captures salary changes as a lawyer progresses through her career.  I hope to include some data on salary in future iterations of my alumni study.  Further, legal academics should be concerned about cost and student debt issues.  Constant tuition increases of above the rate of inflation are inherently unsustainable.  Finally, cost issues have come up at various points in the comments to this series.  I plan to address cost issues in a future post.

More on Tax License Plates

Above the Law yesterday blogged our recent posts on tax license plates and noted the availability of this California license plate:

A reader sent in this license plate from my New Jersey counterpart:

Unequal Burdens in EITC Compliance

Karie Davis-Nozemack (Georgia Institute of Technology, Scheller College of Business), Unequal Burdens in EITC Compliance, 31 Law & Ineq. 37 (2012):

Lower income means harsher treatment from the government for taxpayers who claim the Earned Income Tax Credit (EITC). EITC claimants are audited more often than any taxpayers other than the very wealthy. More concerning, however, is that the IRS audits EITC claimants by correspondence examination in a manner that unduly burdens access to this refundable tax credit, a credit that often keeps lower income workers out of poverty.

Improper payment law brings increased scrutiny to federal programs that issue erroneous payments. Because the EITC is alleged to have substantial improper payments, it is subject to federal improper payment law, which adds administrative process and burdens in hopes of diminishing erroneous payments. While other scholars have noted the relationship between improper payment law and the EITC, this article takes the unique view that improper payment law, instead of burdening EITC administration, could provide relief to the Service’s onerous EITC compliance methods.

Law Faculty Salaries, 2012-13

The Society of American Law Teachers has released the results of its 2012-13 Salary Survey, reporting the median faculty salaries and summer stipends at 68 of the 200 American law schools (132 law schools either refused to participate or did not respond to the survey). Here are the median faculty salaries and summer stipends of the responding law schools in the Top 102 of the latest U.S. News law school rankings:

U.S. News	Law School	Assistant Professor	Tenured Professor	Summer             Stipend
26	Iowa	n/a	184,800	15,000
31	North Carolina	115,826	174,417	15,000
33	Georgia	121,400	180,765	27,500
36	Ohio State	118,320	159,216	12,500
46	Florida	111,240	158,000	26,757
48	UC-Hastings	112,942	187,221	10,000
58	Kentucky	107,134	123,221	12,000
61	Nebraska	101,178	150,720	11,000
61	Tennessee	n/a	122,316	17,000
64	Denver	107,620	140,922	9,000
64	New Mexico	87,159	121,909	16,250
68	Arkansas-Fay.	89,100	139,300	17,500
68	Loyola-L.A.	114,268	174,673	15,000
68	Oklahoma	95,000	126,080	10,000
68	San Diego	n/a	173,400	15,000
68	UNLV	n/a	147,002	17,000
76	LSU	104,000	145,170	18,000
80	Michigan State	115,825	146,832	12,000
86	Kansas	112,560	143,250	12,000
86	Northeastern	109,306	179,362	7,500
86	Rutgers-Newark	133,599	186,000	10,000
91	Rutgers-Camden	121,251	171,508	10,187
91	West Virginia	n/a	139,629	10,000
94	Oregon	105,000	135,578	5,832
98	Indiana-Indy	n/a	127,047	14,000
98	South Carolina	114,860	140,080	20,250
102	Mississippi	105,000	141,359	9,000
102	St. Louis	96,600	128,000	13,000

Above the Law recently has blogged individual law faculty salaries at these elite schools:

• Virginia (#7 in U.S. News) (salary spreadsheet)
• Michigan (#9) (salary spreadsheet)
• UC-Berkeley (#9) (salary spreadsheet)

See here for individual law faculty salaries at twenty public law schools (Arizona State, Florida, George Mason, Illinois, Michigan, Missouri-Columbia, North Carolina, Ohio State, Rutgers-Camden, Rutgers-Newark, SUNY-Buffalo, Texas, Texas Tech, UC-Berkeley, UC-Davis, UC-Irvine, UCLA, Virginia, William & Mary, and Wisconsin). 

Chetty Presents Active vs. Passive Decisions and Retirement Savings Today at NYU

Raj Chetty (Harvard University, Department of Economics) presents Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) and William Gale (Tax Policy Center; visiting at NYU):

Do retirement savings policies -- such as tax subsidies or employer-provided pension plans -- increase total saving for retirement or simply induce shifting across accounts? We revisit this classic question using 45 million observations on savings for the population of Denmark. We find that a policy's impact on total savings depends critically on whether it changes savings rates by active or passive choice. Tax subsidies, which rely upon individuals to take an action to raise savings, have small impacts on total wealth. We estimate that each $1 of tax expenditure on subsidies increases total saving by 1 cent. In contrast, policies that raise savings automatically even if individuals take no action -- such as employer-provided pensions or automatic contributions to retirement accounts -- increase wealth accumulation substantially. Price subsidies only affect the behavior of active savers who respond to incentives, whereas automatic contributions increase savings of passive individuals who do not reoptimize. We estimate that 85% of individuals are passive savers. The 15% of active savers who respond to price subsidies do so primarily by shifting assets across accounts rather than reducing consumption. These individuals also offset changes in automatic contributions and have higher wealth-income ratios. We conclude that automatic contributions are more eective at increasing total retirement savings than price subsidies for three reasons: (1) subsidies induce relatively few individuals to respond, (2) they generate substantial crowdout conditional on response, and (3) they do not influence the savings behavior of passive individuals, who are least prepared for retirement. 

The Shrinking Law Faculty Lateral Market

Lawrence Cunningham (George Washington) reports on the "deep dive" in law faculty lateral moves this year:

Year	Schools	Faculty
2006	71	132
2007	72	131
2008	80	136
2009	68	114
2010	72	92
2011	55	93
2012	56	84
2013	41	56

Of course, the 2013 figures are still incomplete (two lateral tax faculty moves are not reflected in the data). One commenter notes that over 10% of the moves (6) are from St. Louis, which suffered greatly in the past year. Interestingly, seven of the nine lateral tax faculty moves involved California law schools.

Houston Business & Tax Law Journal Publishes New Issue

The Houston Business & Tax Law Journal has published Vol. 10, Part 2 (2010):

• Kathryn J. Kennedy (John Marshall Law School), Excessive Executive Compensation: Prior Federal Attempts to Curb Perceived Abuses, 10 Hous. Bus. & Tax J. 196 (2010)
• James R. Raborn (Baker Botts, Houston), Executive Compensation: Much to do About. . ., 10 Hous. Bus. & Tax J. 262 (2010)
• Shane M. Tucker (Vinson & Elkins, Dallas), Deferred Compensation for the Employees of Tax Indifferent Private Equity Funds, 10 Hous. Bus. & Tax J. 295 (2010)

Sulami: Tax Abuse -- Lessons from Abroad

Orly Sulami (SMU), Tax Abuse -- Lessons from Abroad, 65 SMU L. Rev. 551 (2012):

How does a government distinguish between tax planning and tax abuse? Most democratic societies agree that citizens have a right to limit their tax liability through tax planning. However, governments generally also agree that this right does not extend to tax abuse. Tax abuse substantially reduces government tax revenues and weakens the integrity of our tax systems and the efficiency of our economy. Thus, making this distinction between tax planning and tax abuse is critical. In an attempt to identify and counter tax abuse and its detrimental effects, the United States recently enacted an anti-abuse rule in § 7701(o). Because tax abuse is difficult to legislatively define, § 7701(o) relies heavily on the judiciary to make the ultimate determination of which transactions are abusive. This Article contends that the international experience with similar general anti-avoidance rules indicates that § 7701(o) will not be a universal cure for tax abuse but can be an effective anti-abuse tool if certain judicial, legislative and administrative steps are taken. Therefore, it proposes a reform to § 7701(o) that would counter the textualist trend and other judicial approaches that potentially undermine the statute while simultaneously increasing the statute’s fairness and predictability.

More Tax License Plates

Following up on yesterday's post, Who Is NY Tax Prof?:  readers sent in these additional tax license plates:

New York CPA Alan Weiner:

UC-Davis Law Prof Bruce Wolk:

Former IRS Commissioner Sheldon Cohen:

Joint Tax Committee Releases 568-Page Tax Reform Report

Joint Committee on Taxation, Report to the House Committee on Ways and Means on Present Law and Suggestions for Reform Submitted to the Tax Working Groups (JCX-3-13) (568 pages):

On February 13, 2013, Ways and Means Committee Chairman Dave Camp and Ranking Member Sander Levin announced the formation of 11 Ways and Means Committee Tax Reform Working Groups. The mission of each working group was to review current law in its designated area, research relevant issues, and compile related feedback from stakeholders, academics and think tanks, practitioners, the general public, and colleagues in the House of Representatives.

This document ... provides an overview of the Internal Revenue Code as in effect for 2013 and provides a more detailed description of the Code provisions relevant to the topic area of each working group. The document also summarizes the suggestions for reform and other commentary submitted by the public to the various working groups ... In addition, at the request of Chairman Camp and Ranking Member Levin, the document briefly summarizes a selection of proposals to reform the Federal tax system that members of Congress, commissions, and others have presented to policy makers over the past several years.

Parts One and Two of this document provide a description of present law. Part Three summarizes selected tax reform proposals. Part Four summarizes the feedback received by the various working groups.

Dharmapala & Riedel: Earnings Shocks and Tax-Motivated Income-Shifting

Dhammika Dharmapala (Illinois) & Nadine Riedel (Oxford University, Centre for Business Taxation), Earnings Shocks and Tax-Motivated Income-Shifting: Evidence from European Multinationals, 97 J. Pub. Econ. 95 (2013):

This paper presents a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995-2005. The central result is that parents’ positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature.

Cauble: Tax Elections

Emily Cauble (DePaul), Tax Elections: How to Live With Them If We Can't Live Without Them, 53 Santa Clara L. Rev. ___ (2013):

Tax elections are prevalent. They include: elections that determine how certain business entities are classified; elections by individual taxpayers to either claim the standard deduction or itemize deductions; an election that determines the tax treatment of alimony payments; an election by divorced parents to determine which parent claims a child as a dependent; and elections that affect the tax consequences of certain corporate transactions; just to name a few.

Tax elections produce unfairness given that sophisticated, well-advised taxpayers will be most able to make favorable elections. Tax law is, by no means, alone in terms of benefiting sophisticated individuals. In many areas of law and of life, people who acquire relevant information and plan ahead of time will fare better than those who do not. However, despite the prevalence of societal advantages for the informed, the existence of such preferences in tax law is especially problematic. Objections to the advantages that are bestowed upon sophisticated individuals by other areas of law are often met with the response that redistribution should be relegated to the tax system. For example, those arguing for rules that facilitate economically efficient outcomes in contractual relationships will often contend that the manner in which the benefit of a contract is divided between the parties need not be addressed by contract law because any desired redistribution should be accomplished through the tax system. Because other areas of law dodge criticisms of bias against unsophisticated individuals in this manner, tax law must be less tolerant of bias against ill-informed, unsophisticated individuals. To further the aim of reducing such bias, this paper discusses how to design tax elections to mitigate the unfairness and other harms that they cause.

Legal Education: A New Paradigm

Ernst Van Bemmelen van Gent (Bynkershoek Research Center on Legal Education), Legal Education: A New Paradigm, 1 Bynkershoek L. Rev. 2 (2012):

In the past, between the years 1800 and 1950, legal education was a local, generalist, apprentice-based, non-corporate, and highly academic self-explanatory affair. Most of the legal professionals regarded themselves as involved in ex-post private law and criminal litigation/trials. Legal theory and the curriculum, correspondingly, could focus mainly on local private and criminal law contained in approximately 10.000 pages.

At the start of the 21st century a number of things have changed. Around 100 specialized areas of legal theory and practice have emerged, along with millions of pages of new material. The sources of these new rules are increasingly international and regional, especially in Europe. The legal profession has also industrialized. The sole practitioner is outnumbered by legal professionals that are mass producing legal services and legislative instruments, as well as adjudicative products. Client demand has changed the emphasis to be more focused on ex ante: preventing disputes. Employers are expecting more than ever that graduates are well on their way through this increased volume of material, plus well versed in critical thinking, advocacy and research techniques. Moreover, in the countries where legal education is subsidized, universities are expected to educate more pupils for less money, plus accepting lower entry qualifications favoring historically less privileged groups. This process includes attempts, again especially in Europe, to harmonize the higher education degree structure across states.

Law school traditions have not responded to these developments yet. The curriculum and teaching techniques have remained largely the same as in the 1800 to 1950 era.

The time is ready to change legal education drastically. To guide and justify that change, a modern, 21st century paradigm is required, addressing what the legal profession entails, what issues the legal profession deals with and what legal competences are required, to solve legal problems cheaply, efficiently and in a client friendly manner. Such a new paradigm should also provide the necessary assessment criteria evaluating, which law graduates may be permitted access to legal practices, including the various professional bodies admission procedures but also corporate hiring practices for junior and senior positions.

This article provides such paradigm. It describes and defines the legal profession along four types of legal practices that exist all over the world. It identifies the “top 55 legal issues” that are most fundamental to any legal practice. It selects 50 areas of law that are necessary for instruction in law schools. More importantly, it argues which 6 legal skills/competencies should be the guiding tool for curriculum and assessment design, as well as the criteria for recruitment, life-long learning and career development in the legal profession. Furthermore, the new paradigm for legal education integrates the global ambitions (UN, OECD, G20) in the fields of sustainable development and rule of law into the daily reality of the legal profession, legal education and legal research.