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Editor: Paul L. Caron
Pepperdine University School of Law

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Wednesday, July 30, 2014

Experts Assess Whistleblower's Lawsuit Challenging Vanguard's Tax Structure

Following up on Saturday's post, Former Vanguard Tax Lawyer Files Whistleblower Suit Alleging Mutual Fund Giant Became Low-Cost Leader by Evading $1 Billion in Taxes:  Philadelphia Inquirer, Vanguard's Singular Model Is Under Scrutiny:

VanguardVanguard Group stands atop the mutual fund business, and credits its "unique" structure: The largest mutual fund company is owned, not by for-profit investors, but by more than 100 of Vanguard's own mutual funds, which are owned by millions of clients. Vanguard says this frees managers to "focus on keeping costs as low as possible," passing savings to clients through lower fees for investment advice and other support services.

Vanguard's singular model is now under scrutiny. One of Vanguard's own tax lawyers has blown a whistle on its practices. In his lawsuit filed under seal in the New York State Court for Manhattan before he was fired by Vanguard in 2013, Daniel Danon alleges Vanguard's low costs are based on "illegal" income tax avoidance.

Vanguard denies wrongdoing. The company, based in Malvern, said Danon's complaint "is without merit" and promises to "vigorously defend" against it in court. Vanguard traces its client-owned structure to its founding in 1975. Government regulators have had almost 40 years to complain, if there were a problem.

Still, corporate tax lawyers [Stanley Kull, David Shakow, Lee Sheppard, Robert Willens] and mutual fund industry observers contacted by The Inquirer say that Danon is basing his arguments on well-known provisions of federal tax law - and that his insider analysis, if upheld by courts and adopted by the IRS, could provoke changes, and perhaps reduce Vanguard's cost advantage in the marketplace.

July 30, 2014 in Tax | Permalink | Comments (0)

House May Vote This Year to Repeal Estate Tax

Bloomberg, House May Vote This Year to Repeal Estate Tax, Camp Says:

Form 706Republicans are considering voting this year to repeal the U.S. estate tax, said House Ways and Means Chairman Dave Camp. Camp, a Michigan Republican, told reporters in the Capitol today that many recently elected U.S. House members haven’t had a chance to vote on the issue. He said no final decisions have been made. “It’s been a long time since we’ve had a vote on total repeal,” he said. “Obviously, I don’t believe death should be a taxable event.”

The measure would probably pass the House, given that more than half of the House members are co-sponsoring a repeal bill. President Barack Obama and many Democrats favor going in the other direction and expanding the estate tax, so the proposal stands little chance of becoming law.  

July 30, 2014 in Tax | Permalink | Comments (0)

Are Academic Law Libraries Doomed?

Law LibraryFollowing up on my previous post, WSJ: Law Libraries Are Doomed: Kenneth J. Hirsh (Cincinnati), Like Mark Twain: The Death of Academic Law Libraries Is an Exaggeration:

At the 2013 CALI Conference on Law School Computing, Professor James Milles, professor and former library director of the SUNY Buffalo Law School, presented his draft paper positing that academic law libraries are doomed [Legal Education in Crisis, and Why Law Libraries are Doomed]. The author presented his contrasting viewpoints in the same session. This paper is based on his presentation and has been updated to account for adoption of the revised law school accreditation standards approved by the ABA Council on Legal Education and Admissions to the Bar in 2014. While the author agrees with the underlying observations set out by Professor Milles, he envisions a scenario where law libraries, and more importantly librarians, remain an essential part of law school life.

July 30, 2014 in Legal Education | Permalink | Comments (0)

UCLA Lowell Milken Institute Law Teaching Fellowship

UCLAThe Lowell Milken Institute for Business Law and Policy at UCLA School of Law is now accepting applications for the Lowell Milken Institute Law Teaching Fellowship:

This fellowship is a full-time, year-round, one or two academic-year position (approximately July 2015 through June 2016 or June 2017). The position involves law teaching, legal and policy research and writing, preparing to go on the law teaching market, and assisting with organizing projects such as conferences and workshops, and teaching. No degree will be offered as part of the Fellowship program.

July 30, 2014 in Legal Education | Permalink | Comments (0)

Bar Exam Technology Disaster: ExamSoft Servers Unable to Handle Crush of Applicants Trying to Upload Their Exams

Inside Higher Ed, Bar Exam Technology Disaster:

Exam SoftNew law graduates in many states experienced a technology snafu at the worst possible time Tuesday night: as they were attempting to upload bar examinations just before deadlines in their states. Many reported spending hours trying and failing to upload their answers. ExamSoft, a company that manages the bar test submission process in many states, acknowledged "slowness or difficulty" being experienced by many test-takers, and said that it was sorry for the difficulties many were having. The company, working with various state bar associations, announced 17 deadline extensions by states, so that people who couldn't submit their exams would not be penalized.

The legal blog Above the Law posted some of the emails and social media messages being posted by angry law graduates. the blog said that the situation "appears to be the biggest bar exam debacle in history."

Many bar exams continue today, so the frustrated test-takers who were up late, some fearing that they may have failed by not submitting their day's results, have another stressful day ahead of them, for many of them without as much sleep as they might have had otherwise.

July 30, 2014 in Legal Education | Permalink | Comments (2)

Law Professor Blogs Network Launches International Financial Law Prof Blog

LPBN LogoThe Law Professor Blogs Network is thrilled to announce the launch of International Financial Law Prof Blog, edited by William Byrnes (Thomas Jefferson), Gary Heald (Georgetown) & David Herzig (Valparaiso).

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 30, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Grewal: Petaluma and the Limits of Treasury's Authority

Tax Analysys Logo (2013)Andy Grewal (Iowa), Petaluma and the Limits of Treasury's Authority, 144 Tax Notes 479 (July 28, 2014):

In a prior article, I explained how taxpayers could make arguments that would potentially avoid the Supreme Court's adverse holdings in United States v. Woods. The Court deliberately left one issue open, citing a brief that I had submitted, and another issue went unacknowledged but can still be presented by taxpayers.

In Petaluma v. United States, currently pending in the D.C. Circuit, the taxpayer has adopted the regulatory arguments I presented in the earlier article. Consequently, what was once a mind-numbing case about partnership audit procedure has become a case about fundamental tax and administrative law doctrines.

Continue reading

July 30, 2014 in Scholarship, Tax | Permalink | Comments (1)

3' 10" Former IRS Agent Turned Clinical Sexologist for Little People of America

The Atlantic, The Challenges of Having Sex as a Little Person:

Dr. Marylou Naccarato was an agent for the Internal Revenue Service for decades before she became a clinical sexologist. “As a former IRS agent of 23 years,” she quips, “people ask, ‘How did you shift from working in the tax field to sexology?’ I always reply, ‘Well if you think about it, I haven’t really changed professions. It’s all about whether or not you’re gonna get screwed.’”

Standing at 3’10” with a rare type of dwarfism called Kniest, Naccarato has become something of a pioneer in the Little People of America community. She was a speaker at their conference earlier this month in San Diego where she broke through conservative boundaries to talk the ins and outs of sex, intimacy, and lovemaking with the various limitations that may come with life as a person of short stature.

Born and raised in Los Angeles to a Sicilian Catholic father and a Moroccan Jewish mother, Naccarato found herself in the sex counseling and education field by accident. Although she was working for the IRS, she had always wanted to be a social worker, until one night when she watched a program on sexual health on a cable network. “They were talking about the Kama Sutra," she recalls. "The narrator was explaining that in this particular male-female intercourse position, if the man was standing and the woman was on her back on the edge of the bed, it would be less pressure on his lower back." ...

She quit her job at the IRS and has since become something of a sex education mogul. She is a board certified clinical sexologist, has a doctorate from the Institute for Advanced Study of Human Sexuality, and certification as a sexuality educator from the American Association of Sexuality Educators, Counselors, & Therapists, where she was a speaker last month. She also serves on the board of the American College of Sexologists, was recently featured on Playboy Radio, and is a sex and disability blogger for sex-positive pioneer Betty Dodson’s website.

July 30, 2014 in IRS News | Permalink | Comments (0)

The IRS Scandal, Day 447

IRS Logo 2The House Oversight & Government Reform Committee holds a hearing today on IRS Abuses: Ensuring that Targeting Never Happens Again:

  • David Keating (Center for Competitive Politics)
  • Cleta Mitchell (Foley & Lardner)
  • James Sherk (Heritage Foundation)
  • Hans A. von Spakovsky (Heritage Foundation) 

Wall Street Journal:  GOP Report Floats IRS Changes on Tax-Exempt Group Oversight:

As the IRS probe grinds on, congressional Republicans are floating ideas to ensure IRS targeting of conservative groups doesn’t happen again. While they don’t call for ripping up the floorboards at the agency’s Washington headquarters, they come pretty close, according to a new report reviewed by the Wall Street Journal.

The House Oversight and Government Reform Committee report, prepared in advance of a hearing scheduled for Wednesday, recommends getting the IRS out of the business of regulating political activities by tax-exempt groups in order to ensure its continued objectivity.

“Congress must disentangle politics from the IRS,” the report said. “To regain the trust of American taxpayers, the IRS must return to its traditional role as a dispassionate administrator of the federal tax code.” ...

Perhaps the most eye-catching of the ideas in the report: eliminating the IRS commissioner job. Republicans say the commissioner structure has provided insufficient oversight of the agency at a time when its workload has been expanding rapidly.

Instead, lawmakers said, Congress should turn the IRS over to a bipartisan commission, like the ones that runs some regulatory agencies.

Wall Street Journal editorial:  The IRS's Foreign Policy:

The IRS has stuck by its story that tax-exempt applications by conservatives got slow-rolled because of bureaucratic bungling not because the groups opposed President Obama's policies. Now the slow drip of email evidence to congressional investigators is casting further doubt on that tale.

In 2009 the Pennsylvania group Z Street applied for tax-exempt status for its mission of educating people about Israel-related issues. In 2010 an IRS agent told Z Street that its application was delayed because the tax agency's Washington, D.C. office was giving special scrutiny to groups whose missions might conflict with Administration policies. The IRS's "Be On the Lookout" list that November also included red flags for groups referring to "disputed territories."

Z Street sued in August 2010 for viewpoint discrimination and its case is headed for discovery in federal court. Now emails uncovered by the House Ways and Means Committee show that the IRS and State Department were conferring in 2009 about pro-Israel groups like Z Street and considering arguments to deny their tax-exempt applications. ...

On Monday the IRS filed an appeal of the judge's decision denying its motion to dismiss Z Street's case. The government says the action stops all discovery while the appeal is pending, a process that could take months or even years. By filing the appeal on the last possible day, the Justice Department is running out the clock on discovery during the remainder of the Administration.

This is a whole lot of effort to prevent discovery in a case that is not even seeking damages. Ways and Means uncovered the email exchange between State and the IRS only after Treasury was forced to turn over documents it had previously withheld. What else did it lose in the ether?

Continue reading

July 30, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, July 29, 2014

Rostain & Regan: The IRS Under Siege

ConfidenceTanina Rostain (Georgetown) & Milton C. Regan, Jr. (Georgetown), Confidence Games: Lawyers, Accountants, and the Tax Shelter Crisis (MIT Press, 2014):

Confidence Games provides an account of the wave of tax shelters that occurred at the turn of the twenty-first century. During this period, some of America’s most prominent law and accounting firms created and marketed products that enabled the very rich — including newly minted dot-com millionaires — to avoid paying their share of taxes by claiming benefits not recognized by law. These abusive tax shelters bore names like BOSS, BLIPS, and COBRA and were developed by such prestigious firms as KPMG, Ernst & Young, BDO Seidman, the now defunct Jenkens & Gilchrist and Brown & Wood, now merged into Sidley Austin. These shelters brought in hundreds of millions of dollars in fees from clients and deprived the U.S. Treasury of billions in revenue before the IRS and Justice Department stepped in with civil penalties and criminal prosecutions targeting the professionals and firms involved. As we suggest, the decade of tax shelter activity between the mid-1990s and mid-2000s is the most serious episode of professional misconduct in the history of the American bar.

Chapter 1, The IRS Under Siege, describes how an overstretched and under-resourced IRS came under attack in the late 1990’s by anti-tax and anti-government members of Congress.

Continue reading

July 29, 2014 in Book Club, Scholarship, Tax | Permalink | Comments (0)

More Tax Inversion News

Jost: IRS Releases Premium Tax Credit Rules and Draft Forms

Timothy Jost (Washington & Lee), Implementing Health Reform: IRS Releases Premium Tax Credit Rules and Draft Forms:

Although the focus of activity the week of July 21 was in the courts, the agencies were not totally silent. On July 24, 2014 the Internal Revenue Service released final and temporary  and proposed regulations addressing issues that are presented by the premium tax credit program. The IRS also released drafts of the forms that individuals, insurers, and employers will use for reporting information to the IRS necessary for reconciliation of premium tax credits and for the enforcement of the individual and employer mandate programs. Finally, the IRS set the maximum individual mandate penalty for individuals whose income is high enough that they pay the penalty as a percentage of income rather than a flat dollar amount. This amount is established by the statute as the average cost of a bronze level plan for the applicable family size for 2014 and was set by the IRS at $2,448 per individual annually, up to $12,240 for families of five or more.

Continue reading

July 29, 2014 in IRS News, Scholarship, Tax | Permalink | Comments (0)

Foster: Partisan Politics and Income Tax Rates

William E. Foster (Washburn), Partisan Politics and Income Tax Rates, 2013 Mich. St. L. Rev. 703:

With income tax reform dominating so much of the current political discourse, now is an optimal time for tax scholars to reflect on the lessons and trends from a century of legislative tinkering with the primary revenue-generating device in the United States. Tax rate changes do not occur in a vacuum, and this article explores one increasingly prominent and often overlooked ingredient in the mixture of variables that can produce or inhibit tax reform ― partisan politics. It does so by comparing individual income tax rates with partisan control of federal political bodies. This article reviews majority party status in the House of Representatives and the Senate, and control of the presidency at times of revisions to top marginal tax rates applicable to various income groups, and notes larger rate trends in the parties’ respective eras of most significant influence. Despite the limitations inherent in isolating a single influential factor, the data analyzed in this article provides strong support for the following trends: higher income earners are the tax rate battleground for party policy implementation; a vast political mandate represented by control of the House, Senate, and presidency is usually necessary to accomplish significant rate revisions; when a sufficient political mandate is achieved, the parties’ implementation of rate changes follows their respective rhetorical associations; and in the end, absent armed conflict or economic crisis, sizeable rate changes are exceptionally rare. These extractions from a century of legislative maneuvers bring scholars closer to unearthing the political recipe for tax rate reform, and accordingly, to a fuller understanding of the necessary components of tax policy implementation.

July 29, 2014 in Scholarship, Tax | Permalink | Comments (0)

Washington University Symposium: A New Framework for International Taxation

Wash U.Symposium, Conceptualizing a New Institutional Framework for International Taxation, 44 Wash. U. J.L. & Pol'y 1-101 (2014):

July 29, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Polsky: Private Equity Monitoring Fees as Disguised Dividends

Tax Analysys Logo (2013)Gregg D. Polsky (North Carolina), Private Equity Monitoring Fees as Disguised Dividends: Collateral Impact, 143 Tax Notes 1053 (June 2, 2014):

In an earlier article (The Untold Story of Sun Capital: Disguised Dividends, 142 Tax Notes 556 (2014)), I argued that in many cases monitoring fees paid by private-equity controlled companies should be recharacterized as nondeductible dividends. This recharacterization would increase the tax liability of portfolio companies because they deduct monitoring fees as compensation. In response, some have argued that the recharacterization of monitoring fees as dividends would also reduce the tax liability of private equity managers. This article argues that there would in fact be no tax benefit to the manager or to the vast majority of private equity fund investors. The recharacterization could in some cases provide a tax advantage to the small minority of private equity investors who are U.S. individuals but the advantage would be constrained by the overall limitation on miscellaneous itemized deductions and, in any event, would typically pale in comparison to the additional taxes due from the portfolio company.

July 29, 2014 in Scholarship, Tax | Permalink | Comments (0)

Florida Lawyers' #1 Problem: Too Many Lawyers (and Law Schools)

FloridaABA Journal, The Most Serious Problem Facing Lawyers? Too Many Colleagues, Say About Half of Florida’s Lawyers:

The most serious problem facing the legal profession today is too many lawyers, according to about half the attorneys who responded to a Florida Bar survey last year.

Since 2000, five new law schools have opened in Florida and the number of lawyers in the state has increased from 60,900 to 96,511, the Tampa Bay Times reports. In 1980, the state had only 27,000 lawyers.

Matt Leichter, Florida Legal Sector Peaks Higher, Troughs Lower Than Country’s:

Florida’s legal sector peaked higher and troughed harder than the rest of the southeast and the country.

Real Legal Services (Fla. edition)

Although, the surveyed lawyers have a point: It’s also true, as the article points out, that the number of law schools in Florida needlessly doubled over the last 15 years or so. Unhelpfully, the article publishes law schools’ unemployment rates rather than my preference: percent employed in bar-passage-required jobs, full-time/long-term excluding law-school-funded jobs. Here’re Florida’s law schools’ 2013 results:

  • Florida State – 69.6%
  • University of Florida – 66.4%
  • Stetson – 62.0%
  • University of Miami – 60.7%
  • Nova Southeastern – 60.5%
  • Florida International – 59.6%
  • Thomas – 47.8%
  • Barry – 39.8%
  • Florida A&M – 38.5%
  • Ave Maria – 34.6%
  • Florida Coastal – 30.8%
  • Average Florida Law School – 51.8%
  • Southeast BEA Region Average Law School (Excl. Fla.) – 57.3%
  • Average U.S.A. Law School (Excl. P.R., Fla.) – 56.1%

In general, Florida’s law schools are doing worse than the regional and national averages.

July 29, 2014 in Legal Education | Permalink | Comments (1)

Paleveda: Optimal Marginal Tax Rates -- A Solution to Wealth Disparity

Nicholas A. Paleveda (Northeastern), Optimal Marginal Tax Rates -- A Solution to Wealth Disparity:

Optimal Marginal Tax rates may be used to lower the potential for wealth disparity and increase productivity at the same time. The author reviews the correlation of the optimal marginal tax rates by historical data.

July 29, 2014 in Scholarship, Tax | Permalink | Comments (0)

Anderson: The Reading Level of Law Professor Blogs

Robert Anderson (Pepperdine), The Reading Level of Law Professor Blogs:

I recently discovered a feature of Google that allows the user to filter searches by "reading level." ... [D]rawing on the websites listed in Paul Caron's blog traffic rankings on TaxProf Blog, plus a few choices of my own, I produced the following ranking [of 59 blogs and websites]. ...

Rank

Caron Rank

Blog

Basic Level

Advanced Level

Advanced/Basic Difference

1

50

Legal History Blog

2

51

49

2

24

Antitrust & Comp. Policy Blog

1

44

43

3

8

Patently-O

4

32

28

4

18

Harvard Law Corp Gov

1

25

24

5

19

Opinio Juris

1

16

15

6

45

Civil Procedure Prof Blog

0

14

14

7

10

The Incidental Economist

10

23

13

8

31

EvidenceProf Blog

1

12

11

9

30

Legal Whiteboard

0

10

10

10

48

Dorf on Law

1

10

9

11

29

Workplace Prof Blog

2

11

9

12

20

Concurring Opinions

3

12

9

13

6

Leiter Reports: Philosophy

11

20

9

14

NA

Witnesseth

1

9

8

15

47

Legal Ethics Forum

3

10

7

16

22

Constitutional Law Prof

1

7

6

17

11

Lawfare

1

6

5

18

15

Sentencing Law & Policy

1

6

5

19

38

CrimProf Blog

1

6

5

20

28

Balkinization

3

8

5

21

41

Nonprofit Law Prof Blog

0

4

4

22

4

TaxProf Blog

1

5

4

23

2

Volokh Conspiracy

2

6

4

24

49

Adjunct Law Prof Blog

1

4

3

25

13

Leiter's Law School Reports

7

10

3

July 29, 2014 in Blog Rankings, Legal Education | Permalink | Comments (0)

The IRS Scandal, Day 446

Monday, July 28, 2014

Median Household Net Worth Has Fallen 36% Since 2003

New York Times:  The Typical Household, Now Worth a Third Less:

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

Wealth 1

Wealth 2

July 28, 2014 in Tax | Permalink | Comments (1)

Morrow: Rethinking Valuation Discounts for Built–In Gains

Rebecca N. Morrow (Wake Forest), Valuation in Light of Uncertainty: How Stock Option Pricing Models Can Inform More Accurate Valuation Discounts for Built–In Gains, 102 Ky. L.J. 653 (2014):

What is the value of a closely-held corporation that does not engage in ongoing service activities but owns $100 million worth of assets that it initially purchased for $20 million? When a corporation does not engage in ongoing service activities but owns property, its value depends on the value of its property. Accordingly, some might say that the corporation is worth $100 million since it could sell its assets for $100 million and liquidate. Others might say that the corporation is worth $72 million since it could sell its assets for $100 million but would be required to pay a $28 million tax bill (representing a 35% tax rate applied to the $80 million built-in gain it would recognize upon sale of its assets) before liquidating. Courts and scholars have come to both conclusions, most recently favoring the latter. However, a rational purchaser would not buy the corporation for $100 million and a rational owner would not sell it for $72 million. The value of the corporation falls between these amounts. This is because, in addition to the option of selling its appreciated assets immediately, the corporation also has the option of selling its assets in five, ten, or more years. By delaying the sale of the appreciated assets, the corporation delays incurring tax and, in present value terms, pays less tax. This Article proposes a new valuation method to calculate the present value of a future tax liability when it is uncertain when that future tax liability will be incurred. Instead of ignoring uncertainties about when a tax liability will be incurred and what tax rate will apply at the time it is incurred, this method accounts for these uncertainties by using weighted probabilities of multiple likely outcomes. This Article's key insight is to adapt the binomial method (a stock option valuation technique that accounts for similar uncertainties) to this problem.

July 28, 2014 in Scholarship, Tax | Permalink | Comments (0)

Mark Cuban on Tax Inversions: If You Move Overseas, I’m Selling Your Stock

Wall Street Journal, Mark Cuban on Tax Inversions: If You Move Overseas, I’m Selling Your Stock:

CubanBillionaire investor Mark Cuban isn’t a fan of tax inversions.

In a series of tweets and interviews, the owner of the Dallas Mavericks said companies that buy a company to take advantage of another country’s lower tax rate are “gaming the system.” If the trend continues, he expects taxes in the U.S. will increase across the board.

He suggested investors should consider selling shares of companies that utilize the tactic. If I own stock in your company and you move offshore for tax reasons I’m selling your stock,” Mr. Cuban said Friday morning on Twitter “There are enough investment choices here.” In a subsequent tweet, he added: “When companies move off shore to save on taxes, you and I make up the tax shortfall elsewhere sell those stocks and they won’t move.”

July 28, 2014 in Tax | Permalink | Comments (1)

Platinum Tax Brackets

Frank & ErnestFunny tax reform suggestion from Frank & Ernestplatinum tax brackets.  (Hat Tip: Andy Morriss.)

July 28, 2014 in Tax | Permalink | Comments (0)

Krugman: Left Coast Rising

New York Times:  Left Coast Rising, by Paul Krugman (Princeton):

CaliforniaIn 2012, ... Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.  ... Needless to say, conservatives predicted doom. ...

What has actually happened? There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent. ...

For the big difference between the two states, aside from the size of the oil and gas sector, isn’t tax rates. it’s housing prices. Despite the bursting of the bubble, home values in California are still double the national average, while in Texas they’re 30 percent below that average. So a lot more people are moving to Texas even though wages and productivity are lower than they are in California. ... [T]axes aren’t important at all.

Continue reading

July 28, 2014 in Tax | Permalink | Comments (1)

Shay: Take the Tax Juice Out of Corporate Expatriations

Tax Analysys Logo (2013)Stephen E. Shay (Harvard), Mr. Secretary, Take the Tax Juice Out of Corporate Expatriations, 144 Tax Notes 473 (July 28, 2014):

Shay describes the principal tax benefits companies seek from expatriating, and he outlines regulatory actions that can be taken without legislative action to materially reduce the tax incentive to expatriate.

Bloomberg, Lew Can Use Tax Rule to Slow Inversions, Ex-Official Says:

The U.S. Treasury Department should use immediate stopgap regulations to make offshore transactions known as corporate inversions less lucrative, said the department’s former top international tax lawyer.

The administration can unilaterally limit inverted companies from taking interest deductions in the U.S. or from accessing their foreign cash without paying U.S. taxes, Stephen Shay said in an interview and in an article published today in Tax Notes.

July 28, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

Ed Kleinbard Named Johnson Professor in Law and Business at USC

USC Press Release:

KleinbardEdward Kleinbard, an internationally recognized tax scholar and author of We Are Better Than This: How Government Should Spend Our Money [(Oxford University Press Oct. 1, 2014)], has been named the Ivadelle and Theodore Johnson Professor in Law and Business at the USC Gould School of Law.

Dean Robert K. Rasmussen called Kleinbard “one of his generation’s leading tax attorneys in the world.  Ed Kleinbard’s career is unparalleled,” Rasmussen said. “The award of the Johnson Professorship signals that Ed is now one of the leading tax scholars in the academy. His work is a unique blend of tax theory with the insights and knowledge gained from years of practice. His book, We Are Better Than This, charts the way forward for us as a nation. All of us at the Gould School of Law are fortunate that he is our colleague and teacher.”

Kleinbard’s scholarship has received praise both inside and outside the legal academy. He has been called “a rock star in the world of tax law” by New York Times Pulitzer Prize-winning reporter Gretchen Morgenson and “a superstar tax practitioner, policy adviser and scholar,” by Harvard University President Emeritus Larry Summers, a former secretary of the U.S. Treasury. ...

Kleinbard joined USC Gould in 2009 after serving as the chief of staff of the U.S. Congress’ Joint Committee on Taxation, the nonpartisan tax resource to Congress. He previously worked on Wall Street for two decades as a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP.

July 28, 2014 in Legal Education, Tax | Permalink | Comments (1)

Overworked and Isolated: Work Pressure Fuels Mental Illness in Academia

The Guardian, Overworked and Isolated: Work Pressure Fuels Mental Illness in Academia:

Academics suffering mental health problems blame their university work directly for their illness, exclusive findings from a Guardian survey reveal.

Heavy workloads, lack of support and isolation are the key factors contributing to mental illness, according to respondents, who range from PhD students to vice-chancellors. The Guardian survey, which specifically targeted academics suffering mental health problems, found that two-thirds of more than 2,500 who responded see their illness as a direct result of their university job. 

Mental Health

The Guardian, We Don't Want Anyone to Know, Say Depressed Academics:

Academics are suffering in silence from mental health problems such as anxiety, depression and eating disorders, exclusive findings from the Guardian's mental health survey of 2,500 academics has shown.

Continue reading

July 28, 2014 in Legal Education | Permalink | Comments (0)

The IRS Scandal, Day 445

IRS Logo 2Wall Street Journal:  The ObamaCare-IRS Nexus, by Kimberley A. Strassel:

The IRS (famed for nitpicking and prosecuting the tax law), chose to authorize hundreds of billions of illegal subsidies without having performed a smidgen of legal due diligence, and did so at the direction of political taskmasters. The agency's actions provided aid and comfort to elected Democrats, even as it disenfranchised millions of Americans who voted in their states to reject state-run exchanges. And Treasury knows how ugly this looks, which is why it initially stonewalled Congress in its investigation—at first refusing to give documents to investigators, and redacting large portions of the information.

Administration officials will continue to use the IRS to try to improve its political fortunes. The subsidy shenanigans are merely one example. Add Democrats' hijacking of the agency to target and silence political opponents. What you begin to see are the makings of a Washington agency—a body with the power to harass, to collect, to fine, to imprison—working on behalf of one political party. Richard Nixon, eat your heart out.

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July 28, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, July 27, 2014

WaPo: An Interactive Guide to Decide Whether to Leave the U.S. For Lower Taxes

Washington Post, Should You Leave the U.S. For Lower Taxes? An Interactive Guide to Legal Tax Arbitrage:

Washington Post LogoWe know that corporations enjoy many of the legal rights of individuals these days. In this situation, they really have more rights, as Post columnist Catherine Rampell notes today. The number of people renouncing their citizenship for tax reasons has skyrocketed in recent years, as the IRS has stepped up its enforcement of foreign bank accounts, but individuals pay a much higher price — financially, practically, and in the popular consciousness.

To help you figure out whether or not to become an expatriate, whether corporate or individual, we’ve put together this handy flowchart. Under no circumstances should it be considered actual tax management advice.

July 27, 2014 in Tax | Permalink | Comments (1)

Top 5 Tax Paper Downloads

SSRN LogoThere is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with new papers debuting on the list at #1 and #3:

  1. [291 Downloads]  What Would Yale Do If It Were Taxable?, by Patrick Geddes (Aperio Group), Lisa Goldberg (UC-Berkeley) & Stephen Bianchi (UC-Berkeley)
  2. [240 Downloads]  Sales Suppression as a Service (SSaaS) & the Apple Store Solution, by Richard Ainsworth (Boston University)
  3. [227 Downloads]  Guide to FATCA Compliance (Chapter 1, Background and Current Status of FATCA) (LexisNexis 2d ed. 2014), by William Byrnes (Thomas Jefferson), Denis Kleinfeld, & Alberto Gil Soriano
  4. [213 Downloads]  A State Tax Approach to Regulating Greenhouse Gases Under the Clean Air Act, by Samuel Eisenberg (Stanford), Michael Wara (Stanford), Adele Morris (Brookings Institution), Marta Darby (Stanford) & Joel Minor (Stanford)
  5. [203 Downloads]  Desperate Retirees: The Perplexing Challenge of Covering Retirement Health Care Costs in a YOYO World, by Richard L. Kaplan (Illinois)

July 27, 2014 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Do You Work Too Much?

New York Times op-ed:  Do You Work Too Much?, by Anna North:

Overworked
The American economy generally operates on the assumption that the more hours you work, the better an employee you are. But increasingly, researchers and workers themselves are saying that working to the point of burnout can be unhealthy, unproductive, and even dangerous — and some are advocating for large-scale solutions that tackle the problem at its source.

At Time, Alexandra Sifferlin looks at burnout among physicians. She writes, “Research shows that up to 40% of U.S. doctors experience emotional, physical, and psychological burnout from their jobs, and the consequences are no different for them than they are for people in other occupations — substance abuse and cutting corners.” And she cites a paper published (appropriately enough) in the new journal Burnout Research, in which the psychology professor Anthony Montgomery delves into some possible causes of doctor burnout — and its dangers. He argues that the medical profession may be exceptionally bad at taking care of its own, which hampers doctors’ ability to care for others. ...

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July 27, 2014 in Legal Education, Tax | Permalink | Comments (0)

The IRS Scandal, Day 444

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.

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July 26, 2014 in Tax | Permalink | Comments (8)

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 (3)

The IRS Scandal, Day 443

Friday, July 25, 2014

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 (1)

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.

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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)