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Thursday, July 10, 2014

TIGTA: IRS's 17% Error Rate in Processing Amended Tax Returns Caused $2.1 Billion of Erroneous Tax Refunds

TIGTA The Treasury Inspector General for Tax Administration yesterday released Amended Tax Return Filing and Processing Needs to Be Modernized to Reduce Erroneous Refunds, Processing Costs, and Taxpayer Burden (2014-40-028):

The IRS received more than 4 million amended tax returns in Fiscal Year 2012. This audit was initiated because previous TIGTA audits have identified problems with IRS processes for verifying claims on amended tax returns. The objective of this review was to determine whether the IRS has controls in place to ensure that claims for refunds on amended tax returns are appropriate. ...

TIGTA’s review of a statistical sample of 259 amended tax returns claiming tax refunds of $500 or more in Fiscal Year 2012 identified 44 (17 percent) tax returns for which the IRS issued potentially erroneous tax refunds totaling $103,270. Based on the sample results, TIGTA estimates the IRS may have issued more than $439 million in potentially erroneous tax refunds claimed on 187,421 amended returns in Fiscal Year 2012. As such, the IRS could issue more than $2.1 billion in potentially erroneous tax refunds claimed on amended tax returns over the next five years.

To reduce erroneous refunds, processing costs, and taxpayer burden, the IRS could revise Form 1040, U.S. Individual Income Tax Return, to allow for corrections to original tax return filings and expand e-filing to include amended tax returns. TIGTA estimates that the IRS could have potentially saved more than $17 million in processing costs during Fiscal Year 2012 if it had allowed taxpayers to e-file their amended tax return.

July 10, 2014 in IRS News, Tax | Permalink | Comments (0)

I Don't Live in Cincinnati Anymore ... Marijuana Farmers Market Opens in LA

The IRS Scandal, Day 427

IRS Logo 2New York Times, Republicans Say Ex-I.R.S. Official May Have Circumvented Email:

Lois Lerner, the former Internal Revenue Service official at the center of an investigation into the agency’s treatment of conservative political groups, may have used an internal instant-messaging system instead of email so that her communications could not be retrieved by investigators, Republican lawmakers said Wednesday.

The accusation against Ms. Lerner, the former head of the agency’s division on tax exemption, came nearly a week after the I.R.S. gave investigators thousands of her emails, including some that were destroyed when her hard drive crashed in 2011 but were recovered from the accounts of people with whom she had corresponded.

The Republican lawmakers said that in one of those email exchanges — which took place in the spring of 2013, just days after the Treasury Department’s inspector general concluded in a report that agency officials had treated conservative groups improperly — Ms. Lerner asked another official whether messages sent over the instant-messaging system were recorded. When she was told that they were not, she responded, “Perfect.”

Republican lawmakers interpreted that response as an expression of relief.

“Ms. Lerner says, ‘Wow, I know I’ve gotten rid of the emails when the computer crashed two years earlier, but I’d better double check on this intraoffice instant-messaging capability we have at the Internal Revenue Service,’ and she says ‘perfect’ when she learns that it’s not traceable, not trackable, not stored,” Representative Jim Jordan of Ohio said during a hearing of a House oversight subcommittee.

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July 10, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, July 9, 2014

NY Times: Medtronic Shareholders Will Pay the Tax Price for Inversion

NY Times Dealbook (2013)New York Times Deal Book:  In Deal to Cut Corporate Taxes, Shareholders Pay the Price, by Steven Davidoff Solomon (UC-Berkeley):

Medtronic is pursuing a deal to move abroad and save taxes. But few have noticed that the company’s shareholders will be the ones left with a big tax bill as a result. ...

The IRS will treat the acquisition as if Medtronic shareholders had sold their shares. Under IRS rules, when a company moves abroad in a tax inversion, the buyer’s shareholders must pay capital gains if they will hold 50 percent or more of the shares.

That is the case for Medtronic, and so its shareholders will be stuck with that big tax bill — up to 33 percent in California after you include the state tax. ... Let’s pause and reflect that Medtronic is pushing a transaction that from Day 1 may cost some of its shareholders as much as 33 cents on the dollar.

The sand in the eye for the shareholders is that Congress tried to halt the tide of inversions about a decade ago. Lawmakers amended the tax code to provide that executives of companies like Medtronic that went abroad would have to pay a tax on their stock compensation. The tax is at the same capital gains tax that Medtronic’s shareholders will have to pay in connection with the transaction.

But unlike its shareholders, Medtronic’s executives will be “grossed up” by the company. Medtronic will spend millions to pay the tax obligations of its executives in connection with the transaction. At least seven other companies undertaking inversions have indemnified their executives to the tune of tens of millions of dollars, according to Bloomberg News. But shareholders will receive nothing from Medtronic.

The gross-up highlights the absurdities of some Washington tax policies. Congress initially acted to halt inversions, but succeeded only in costing shareholders more as their companies just pay the tax for executives.

The real question is why shareholders at Medtronic and other companies haven’t protested. After all, Medtronic’s shareholders will get to vote on this deal. One reason may be that inversions do have benefits for shareholders. By lowering the company’s tax rate, its stock price will readjust to reflect these additional earnings.

Still, giving up a third of their value to endorse this transaction and reap benefits down the road seems like quite a sacrifice to ask of shareholders.

July 9, 2014 in Tax | Permalink | Comments (2)

NY Law Students to Take Bar Exam in February of Their 3L Year

New York Law Journal:  Courts, Law Schools Gear Up for Pro Bono Scholar Program:

NYNew York's 15 law schools and the state court system are laying the groundwork for a new Pro Bono Scholars program, where students can dedicate their final semester to pro bono work on behalf of low-income clients in exchange for early bar admission.

Starting next spring, about 150 students will spend 12 weeks working full-time for a law school clinic, legal services nonprofit, government agency or law firm. Placements will begin March 2, after participants take the February bar exam.

Though their work will be unpaid, students will receive at least 12 academic credits and participate in a weekly, on-campus seminar to complement what they're learning on the job. Licensed attorneys will supervise them.

Early bar admission is a top selling point for potential Pro Bono Scholars. Participants will be admitted by June 2015, up to a year before their classmates who take the July bar exam.

July 9, 2014 in Legal Education | Permalink | Comments (2)

Seinfeld's 10 Enduring Tax Lessons

SeinfeldForbes:  Seinfeld's 10 Enduring Lessons---About The IRS, by Robert W. Wood:

On Seinfeld’s 25th anniversary–it debuted July 5th, 1989–it is being discussed again around today’s version of the water cooler. Yes, Seinfeld at 25: There’s Still Nothing Else Like It. Turns out even a show about nothing can teach us something, including tax lessons like these...

I realize that Seinfeld is not mostly about taxes. But actually, taxes come up a lot in daily life, and yada, yada, yada.

July 9, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

CTJ: Addressing the Need for More Federal Revenue

Citizens for Tax Justice, Addressing the Need for More Federal Revenue:

CTJAmerica is undertaxed, and the result is underfunding of public investments that would improve our economy and the overall welfare of Americans. Fortunately, Congress has several straightforward policy options to raise revenue, mostly by closing or limiting loopholes and special subsidies imbedded in the tax code that benefit wealthy individuals and profitable businesses.

Part I of this report explains why Congress needs to raise the overall amount of federal revenue collected. Contrary to many politicians’ claims, the United States is much less taxed than other countries, and wealthy individuals and corporations are particularly undertaxed. This means that lawmakers should eschew enacting laws that reduce revenue (including the temporary tax breaks that Congress extends every couple of years), and they should proactively enact new legislation that increases revenue available for public investments. Parts II, III, and IV of this report describe several policy options that would accomplish this. This information is summarized in the table to the right.

Even when lawmakers agree that the tax code should be changed, they often disagree about how much change is necessary. Some lawmakers oppose altering one or two provisions in the tax code, advocating instead for Congress to enact such changes as part of a sweeping reform that overhauls the entire tax system. Others regard sweeping reform as too politically difficult and want Congress to instead look for small reforms that raise whatever revenue is necessary to fund given initiatives.

The table to the right illustrates options that are compatible with both approaches. Under each of the three categories of reforms, some provisions are significant, meaning they are likely to happen only as part of a comprehensive tax reform or another major piece of legislation. Others are less significant, would raise a relatively small amount of revenue, and could be enacted in isolation to offset the costs of increased investment in (for example) infrastructure, nutrition, health or education.

For example, in the category of reforms affecting high-income individuals, Congress could raise $613 billion over 10 years by eliminating an enormous break in the personal income tax for capital gains income. This tax break allows wealthy investors like Warren Buffett to pay taxes at lower effective rates than many middle-class people. Or Congress could raise just $17 billion by addressing a loophole that allows wealthy fund managers like Mitt Romney to characterize the “carried interest” they earn as “capital gains.” Or Congress could raise $25 billion over ten years by closing a loophole used by Newt Gingrich and John Edwards to characterize some of their earned income as unearned income to avoid payroll taxes.  

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July 9, 2014 in Tax, Think Tank Reports | Permalink | Comments (15)

NY Times: GoDaddy IPO Generates Extra Tax Spoils Via Up-C Structure

New York Times Deal Book:  In Dividing Up Extra Tax Spoils, Risks for New Investors, by Robert Cyran:

GoDaddyInitial public offerings that generate extra tax spoils are in the spotlight. Two private equity firms, Kohlberg Kravis Roberts and Silver Lake, are listing the web-hosting company GoDaddy three years after buying it for $2.25 billion. The use of what’s called an Up-C structure means the company will go public with big potential tax deductions on its books. In GoDaddy’s case, investors and sponsors will both benefit. But other I.P.O.s with Up-Cs have more dubious arrangements.

The basic idea of Up-C structures, which bankers say are slowly proliferating, is that a partnership like the one used to control GoDaddy sells assets to a new company that the partner-sponsors and I.P.O. investors own — call it PubCo. Because the assets are sold at a higher price than their cost, the difference becomes a combination of goodwill and intangible assets on PubCo’s books. These items can be amortized over time, a deduction from profit that reduces taxable income.

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July 9, 2014 | Permalink | Comments (0)

Jensen: The Constitutionality of a Mark-to-Market Taxing System

Tax Analysys Logo (2013)Erik M. Jensen (Case Western), The Constitutionality of a Mark-to-Market Taxing System, 143 Tax Notes 1299 (June 16, 2014):

This article comments on Is a Broadly Based Mark-to-Market Tax Unconstitutional, 143 Tax Notes 952 (May 26, 2014), by Gene Magidenko. Magidenko gets all the big points right in questioning the constitutionality of a mark-to-market system of taxation, but this article suggests he did not emphasize one point enough: the Supreme Court’s 1920 decision in Eisner v. Macomber, which concluded that realization is a requirement for a tax to be on income within the meaning of the Sixteenth Amendment, continues to reflect the Court’s understanding. Although the Court cut back on Macomber’s scope over the years, it has not repudiated the case. And in National Federation of Independent Business v. Sebelius, decided in 2012, Chief Justice Roberts, in an opinion joined in relevant part by four other justices, cited Macomber favorably on an issue of constitutional law.

July 9, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (1)

Finding Meaning After Academe

Chronicle of Higher Education: Finding Meaning After Academe, by Elizabeth Segran:

BooksThe "do what you love" mantra pervades academe, engendering seemingly rational people to forsake lucrative careers for the study of Mediterranean archaeology or, in my case, classical Tamil love poetry.

During my years in graduate school, that philosophy toward work was rarely challenged. On the contrary, in subtle and overt ways, my colleagues and professors reinforced the belief that it is more noble to pursue a love of literature, history, or science than to pursue financial stability. It was a seductive fantasy, especially since, for a time, my work—the teaching, the research, and the digging through archives in far-flung corners of the world—made me very happy.:

The problem, however, is that for the vast majority of newly minted Ph.D.’s, it is now close to impossible to find financially viable academic work. Toward the end of my doctoral program, that grim economic reality eventually set in, forcing me to make difficult decisions about my future. I applied to hundreds of positions and went on dozens of interviews over the course of two years, only to find myself with no good options at the end of that grueling process. My choices came down to taking adjunct work or leaving the academy altogether. Reluctantly, I chose the latter: I filed my dissertation, started an internship at a public-relations agency, and put academe behind me. ...

When confronted with the instability and poverty that accompany adjunct employment, many Ph.D.’s are compelled to consider alternative careers, and a significant number will cross over into the nonacademic realm. According to recent studies from the American Historical Association and Modern Language Association, 24.2 percent of history Ph.D.’s and 21 percent of English and foreign-language Ph.D.’s have, over the last decade, pursued nonacademic careers. 

In my experience, the transition out of academe can be painful. Apart from the stresses of job hunting, one of the most challenging parts of the process for me was confronting the possibility that I might no longer be one of the lucky people able to do what I love. ...

It took me years—and several paradigm shifts—to arrive at the conclusion that it is possible for a former academic to have a meaningful career outside of academe. Here are a few things I wish I had known earlier in my journey. ...

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July 9, 2014 in Legal Education | Permalink | Comments (1)

Cunningham: Truth, Candor, and Crisis at Yeshiva University

Yeshiva LogoFollowing up on my previous post, Yeshiva University's Bonds Downgraded to 'Junk': Lawrence Cunningham (George Washington), Truth, Candor, and Crisis at Yeshiva University:

Among universities in trouble, the darkest cloud hangs over Yeshiva University, a venerable Jewish institution founded in New York in 1886. The University acknowledges huge economic losses and failed investment policies and is taking extraordinary steps to balance its books, including ceding control over its one-time crown jewel, Albert Einstein College of Medicine, which has close friends of its law school, Benjamin N. Cardozo School of Law, very concerned.  Critics, moreover, see a death spiral and question the leadership’s candor.

Amid calls for the resignation or dismissal of Yeshiva’s president, Mr. Richard M. Joel, he says the University will no longer engage with the media on fiscal questions. The Wall Street Journal reports that the University has hired the crisis-management communications firm, Kekst & Co., but any benefits from that hiring are not yet obvious. ...

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July 9, 2014 in Legal Education | Permalink | Comments (0)

The IRS Scandal, Day 426

Tuesday, July 8, 2014

Thoughts on Law Prof Work-Life Imbalance From Those Left Behind

Patricia Sun, the widow of Law Prof Andy Taslitz (American) who died of cancer on February 9 at age 57, wrote a gripping Facebook post on Thoughts on Work-Life ImBalance From Those Left Behind (excerpted here with a photo of Andy and Patricia, with Patricia's permission):

Patricia SunI'll post this on Andy's FB page because I'm not sure anyone reads mine anymore, and while this can apply to anyone, it's really addressed to law professors.

In the past 4 months I have kept seeing accolades to Andy's amazing productivity - the 100+ articles, the zillions of case books, etc., and I have always told people that yes, he led a normal life, yes, he got plenty of sleep and yes, he even took plenty of naps. 

But that's not really true. His life was not normal, at least not to me, and it certainly wasn't balanced. Yes, I know he genuinely loved his work and yes, I know he had a brilliant and unusual mind, and yes, I know he was cut down in his prime when he still had so much more to give. But all of that came with a price. Not the teaching or the mentoring, but all that scholarship. ...

So what was the price in the end? In the entire time we were married we only took a two-week vacation once, and just about every vacation we did take was wrapped around one of his conferences or presentations. The furthest he went on each of his two sabbaticals was his front bedroom, because he spent every single day on his manuscripts. He turned down trips to China, to South Africa, to Japan, and most impressively to me, he twice turned down a chance to be an observer at Guantanamo. Of course he always had different reasons -- S. Africa wasn't safe, the timing of the China trip was bad, etc., but I knew the real reason was he didn't want to take time away from work. ...

So in the end how do I feel about his productivity? Yes, he enjoyed it, but he also killed himself trying not to disappoint people or to break deadlines. 

And as I sit here with the dogs on July 4th, I think was it really that important to add one more book review to his CV or to do one more tenure letter as a favor for someone he never met? I'm glad his peers all loved him for the reliable genius that he was, and I don't know how he feels wherever he is now, but I am very, very bitter. 

Yes, he was a great academic mentor and collaborator, but the price for all that frenzied output was me, and there's a part of me that will never forgive him for it, because he died right after he promised to slow down and enjoy life itself more.

So think about it, members of the "academy." All that talk about US News rankings and SSRN citations. Do you REALLY think stuff like that is life and death to your loved ones? I think most of them would sacrifice one more line on your resume for one more day of quality time with you. I know I would. But it's a bargain I can't make any more.

Food for thought, especially for someone who last spent an entire 24-hour period not working exactly nine years ago to the day.

Update:  ABA Journal, Was Law Prof’s ‘Frenzied Output’ Worth It? His Widow Says Work Devotion Came at a Price

July 8, 2014 in Legal Education | Permalink | Comments (13)

U.S. Companies Land Federal Government Contracts as They Avoid U.S. Taxes

Bloomberg:  How to Win Billions in Federal Contracts on a Permanent Tax Holiday, by Zachary R. Mider:

IR LogoAmerican manufacturer Ingersoll-Rand forged the tools that carved the Panama Canal and shaped Mount Rushmore. When it shifted its legal address to Bermuda in 2001 to reduce taxes, the maneuver sparked bipartisan outrage in Congress. ...

Over the next dozen years, Congress passed law after law to prohibit American companies that reincorporate overseas from doing business with the federal government.

Those laws haven’t worked. Benefiting from loopholes and a cooperative Obama administration, the companies avoid the ban on federal contracts as effectively as they avoid U.S. taxes.

Ingersoll-Rand is one of more than a dozen large U.S. companies that have shifted their tax addresses offshore yet still earn federal business, a Bloomberg News investigation has found.

IR

In all, these companies are collecting more than $1 billion a year from the government, even as their tax-avoidance techniques have deprived the Treasury of untold billions of dollars in revenue.

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July 8, 2014 in Tax | Permalink | Comments (0)

Case Western and Former Dean Settle Retaliation Claim by Law Prof Over Reporting of Alleged Sexual Harassment of Students and Staff

SettlementFollowing up on my prior posts (links below):  the parties have reached a settlement in the lawsuit by Case Western Law Prof Raymond Ku alleging retaliation for reporting alleged sexual harassment of students and staff by former dean Lawrence Mitchell.

Prior TaxProf Blog coverage:

July 8, 2014 in Legal Education | Permalink | Comments (0)

Henderson: Supercharging Lawyer Development Through Feedback

William D. Henderson (Indiana), Supercharging Lawyer Development Through Feedback:

FeedbackI am a law professor. My job is to educate future lawyers. Experience has shown me that the best way to accelerate the development of legal skills is to provide more and better feedback to my students.

But feedback is expensive. It takes time to deliver intensive feedback. Moreover, feedback can be difficult emotional labor, as it is unpleasant to deliver bad news. Further, defensiveness is a relatively common reaction, so one has to be prepared to marshal facts and examples to show that the feedback is objective, fair, and accurate.

To compound matters, there are few if any institutional rewards for giving developmentally rich feedback,1 partially because it is difficult to measure the quality of feedback and its impact on lawyer development, and partially because scholarship remains the primary coin of the realm among university educators.

For all of these reasons, the majority of law school coursework involves very little feedback beyond a letter grade derived from a single end-of-the-term exam. Because high-quality feedback can accelerate lawyer professional development and is likely a winning strategy for any law school or law firm seeking to take market share, we are likely to see more of it in the years to come.

Drawing upon my experience as an educator who works closely with law firms and studies the legal profession, I am willing to wager on two predictions that others might find fanciful or utopian.

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July 8, 2014 in Legal Education | Permalink | Comments (2)

Sloan: Inversions -- An Un-American Tax Dodge

Following up on yesterday's post on the New York Times and Wall Street Journal articles on tax-motivated corporate inversions:   Fortune, Positively Un-American Tax Dodges, by Allan Sloan:

Yes, leaving the country–a process that tax techies call inversion–is perfectly legal. A company does this by reincorporating in a place like Ireland, where the corporate tax rate is 12.5%, compared with 35% in the U.S. Inversion also makes it easier to divert what would normally be U.S. earnings to foreign, lower-tax locales. But being legal isn’t the same as being right. If a few companies invert, it’s irritating but no big deal for our society. But mass inversion is a whole other thing, and that’s where we’re heading.

We’ve also got a second, related problem, which I call the “never-heres.” They include formerly private companies like Accenture, a consulting firm that was spun off from Arthur Andersen, and disc-drive maker Seagate, which began as a U.S. company, went private in a 2000 buyout and was moved to the Cayman Islands, went public in 2002, then moved to Ireland from the Caymans in 2010. Firms like these can duck lots of U.S. taxes without being accused of having deserted our country because technically they were never here. So far, by Fortune’s count, some 60 U.S. companies have chosen the never-here or the inversion route, and others are lining up to leave.

All of this threatens to undermine our tax base, with projected losses in the billions. It also threatens to undermine the American public’s already shrinking respect for big corporations.

Inverters, of course, have a different view of things. It goes something like this: The U.S. tax rate is too high, and uncompetitive. Unlike many other countries, the U.S. taxes all profits worldwide, not just those earned here. A domicile abroad can offer a more competitive corporate tax rate. Fiduciary duty to shareholders requires that companies maximize returns.

My answer: Fight to fix the tax code, but don’t desert the country. And I define “fiduciary duty” as the obligation to produce the best long-term results for shareholders, not “get the stock price up today.” Undermining the finances of the federal government by inverting helps undermine our economy. And that’s a bad thing, in the long run, for companies that do business in America. ...

How much money are we talking about inverters sucking out of the U.S. Treasury? There’s no number available for the tax revenue losses caused by inverters and never-heres so far. But it’s clearly in the billions. Congress’s Joint Committee on Taxation projects that failing to limit inversions will cost the Treasury an additional $19.5 billion over 10 years–a number that seems way low, given the looming stampede. ...

19

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July 8, 2014 in Tax | Permalink | Comments (4)

Law School Tuition Data (1996-2014)

TuiitonMatt Leichter, Law School Cost Data (1996-):

Here you will find analysis of the available information on law school costs, including tuition information from every juris-doctor-conferring law school going back to the 1996-1997 academic year. Also included are the percentages of full-time students paying full tuition by law school, the percentages of full-time students at private law schools receiving the median grant offered by their law school (or more), and the amount full-time students at private law schools pay if they receive the median grant—referred to as “median discounted tuition.” Tuition discounting at most public law schools and one private law school is not easy to measure because they charge their students different amounts. Also, many of the calculations carefully exclude the three ABA-accredited law schools in Puerto Rico because they behave very differently from stateside law schools. Many of the figures are inflation adjusted to 2013 dollars. ...

The sources used in this page are the American Bar Association’s Section of Legal Education and Admissions to the Bar’s statistics page and archived editions of the ABA-LSAC Official Guide to the ABA Law Schools, which going forward will only appear electronically as the Standard 509 Reports. Some of the data come from paper copies of the Official Guide I purchased, so they can’t be easily verified. ...

Click on the hyperlink to read information on the following topics:

Table 1

July 8, 2014 in Legal Education | Permalink | Comments (1)

Presbyterian Church: Tax Justice -- A Christian Response to a New Gilded Age

The General Assembly of the Presbyterian Church (USA) has approved (425-170) Tax Justice: A Christian Response to a New Gilded Age, which advocates overhauling the tax code to make it:

  • GAmore progressive, taxing those with greater wealth at higher proportions of their income, wealth, and inheritance;
  • more transparent, which includes both simplicity and accountability for all tax preferences and tax expenditures;
  • more solidarity-focused, which means reducing the use of tax expenditures, shelters and havens, and supporting more adequate international standards to reduce tax competition within and among nations;
  • more sustainable for current and future generations, which means avoiding unproductive financial and ecological indebtedness; and
  • more adequate, effectively addressing broader objectives of economic and social health than efficiency alone, such as meaningful employment, improved family life, and restored public trust. The tax system must be characterized by both efficiency in tax collection and revenue sufficient for the common good.

For more, see The Layman Online, PCUSA’s Social Witness Policy Now Advocates for Comprehensive Progressive Tax Reform.

(Hat Tip: Pat Oglesby.)

July 8, 2014 in Tax | Permalink | Comments (5)

The IRS Scandal, Day 425

IRS Logo 2New York Post editorial:  Audit the IRS!:

True the Vote has an idea that is the fantasy of every taxpayer who’s ever found himself sitting opposite an imperious tax collector: Audit the IRS.

On Thursday, the IRS will have to persuade federal Judge Reggie Walton why this shouldn’t happen.

True the Vote calls itself “the nation’s largest nonpartisan, voters’ rights and election integrity organization.” It is one of the conservative outfits whose application for nonprofit status was targeted by IRS authorities. And in its motion asking for an outside specialist in data recovery to be permitted to conduct a forensic audit into the lost Lois Lerner e-mails, True the Vote makes an eminently reasonable case:

“Even if the ill-timed hard drive ‘crash’ was truly an accident, and even if the IRS genuinely believes that the e-mails are ‘unrecoverable,’ the circumstances of the spoliation at issue cry out for a second opinion,” reads the motion.

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July 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, July 7, 2014

Hastings Dean Fights Dive in U.S. News Law School Rankings

UC-Hastings Logo 3The Recorder:  UC-Hastings Dean Fights Rankings Dive:

Frank Wu is ready. He's got visual aids, the assistance of a research analyst, and a laptop that's booted and flipped open. His sleeves are rolled up and he's set to talk rankings. It's a presentation the dean of UC-Hastings College of the Law has given before.

Wu is trying to pull Hastings out of a yearslong dive in the rankings. The school was ranked 19th by U.S. News and World Report in 1992, and 42nd when Wu arrived in 2010. This year, after it slipped to 54 from 48, Wu wrote to reassure students and alumni that despite getting clobbered by the bleak hiring climate, UC-Hastings remains among the top law schools in the nation. ...

Like most deans, Wu has plenty of gripes about the rankings, but says he can't afford to ignore them. "Prospective students care. Our faculty care, staff care, alumni care, I care. Our board cares. If I stood up and said, 'I don't care about U.S. News. I'm going to pay no attention to U.S. News,' if I used obscenity and other inappropriate language, I would be removed of my responsibilities," he said. "So, U.S. News is a looming presence, and to rail against it is futile." ...

[T]he school's tumble in the rankings has created an opening for critics. Wu's a talker more than a listener and his in-your-face style is not always welcome. ...

The dean is also taking heat from graduates unhappy with the school's downward trajectory in the U.S. News rankings. "There isn't a day that goes by when I don't go out and have some alum berate me," Wu said. ...

In 2012, UC-Hastings reduced its incoming class by nearly 100 students. To cover the loss of tuition revenue, Wu cut the equivalent of 23 full-time staff positions. The school also raised in-state tuition nearly 30 percent between 2010 and 2012. Since then, it has remained roughly unchanged at approximately $48,000, and Wu is pushing hard to raise revenue through fundraising, bringing in about $6 million in the 2012 fiscal year.

"Some credit is due for keeping tuition flat," said Kyle McEntee, executive director of the nonprofit Law School Transparency. However, McEntee notes that holding "really high" tuition stable isn't exactly a win for students. California law schools such as UC-Irvine, Pepperdine University, Santa Clara University and the University of San Diego have done a better job of controlling tuition, he said.

[T]he biggest drag on Hastings' rank is student employment rates. U.S. News weighs the percent of grads employed in full-time, permanent jobs for which a law degree is a requirement or an advantage. Only 47 percent of last year's Hastings grads could claim that distinction.

Wu has joined with other California law school deans in demanding U.S. News change its methodology, which they say penalizes schools in states with high overall unemployment.

Chapman Dean: U.S. News Rankings Methodology Penalizes Most California Law Schools:

U.S. News 2015Following up on yesterday's post, Deans Say Rankings Penalize California Law Schools for Bad Economy; U.S. News Rejects Call for State-Adjusted Employment Data:  Tom Campbell (Dean, Chapman) has asked me to post his letter to the editor of The Recorder, U.S. News Methodology Penalizes Most California Law Schools, on TaxProf Blog:

Your article Deans Say U.S. News Rankings Penalize Schools in the Golden State reported the unanimous position of the California law school deans, who agree that California’s poor employment prospects are a drag on the rankings at all 21 accredited California law schools – even though they are no fault of the California law schools or their students. Put simply, if a law school in Iowa, where unemployment is 4.2%, places 85% of its students, and a law school in California, where unemployment is 8.3%, places 84% of its students, U.S. News ranks the Iowa school ahead of the California school. That is nonsense, if the purpose is to rank the quality of the two law schools. ...

Let’s look at the top 10 ranked law schools in California, U.S. News Methodology Penalizes Most California Law Schools, over the last three years:

#4 USC, dropped 2 positions in the national rankings;
#5 UC Davis dropped 13 positions in the national rankings;
#6 UC Hastings dropped 12 positions in the national rankings;
#8 Loyola dropped 33 positions in the national rankings;
#9 UC San Diego dropped 12 positions in the national rankings; and
#10 Santa Clara dropped 23 positions in the national rankings.

The other four top-ten California schools [#1 Stanford, #2 UC-Berkeley, #3 UCLA, #7 Pepperdine] stayed the same in the national rankings.

The “California effect” on our rankings has nothing to do with the quality of education our schools provide. So we proposed to U.S. News to normalize the employment data on law schools the same way they do for differing state bar passage percentages. If a law school’s graduates pass their state bar at a 70% level, that means something different about the law school’s quality if the overall state bar passage is 80%, or if it is 60%. So, U.S. News normalizes for the bar passage rate of the state. They should do the same for employment. Otherwise, law students in entire states like California will be penalized in the rankings not because a lack of quality of their training, but instead due to economic factors beyond their control.

Below I share the full chart showing the significant U.S. News rankings downtrend in California. May I kindly ask that you share this chart and my comments here with your readers?

School

Name

2012

Rank

2013

Rank

2014

Rank

2015

Rank

1 Year

Change

3 Year

Change

Stanford

3

2

2

3

-1

0

UC- Berkeley

9

7

9

9

0

0

UCLA

16

15

17

16

+1

0

USC

18

18

18

20

-2

-2

UC-Davis

23

29

38

36

+2

-13

UC-Hastings

42

44

48

54

-6

-12

Pepperdine

54

49

61

54

+7

0

Loyola-L.A.

54

51

68

87

-19

-33

San Diego

67

65

68

79

-11

-12

Santa  Clara

84

96

96

107

-11

-23

Chapman

104

110

126

140

-14

-36

McGeorge

100

101

124

146

-22

-46

San Francisco

100

106

144

Tier 2

-2 +

-46+

Cal Western

Tier 2

Tier 2

Tier 2

Tier 2

n/a

n/a

Golden Gate

Tier 2

Tier 2

Tier 2

Tier 2

n/a

n/a

Southwestern

121

129

Tier 2

Tier 2

n/a

-25+

T. Jefferson

Tier 2

Tier 2

Tier 2

Tier 2

n/a

n/a

Western State

Tier 2

Tier 2

Tier 2

Tier 2

n/a

n/a

Whittier

Tier 2

Tier 2

Tier 2

Tier 2

n/a

n/a

July 7, 2014 in Legal Education | Permalink | Comments (13)

NY Times: When Taxes and Profits Are Oceans Apart

New York Times:  When Taxes and Profits Are Oceans Apart, by Gretchen Morgenson:

Here’s a question for investors in any big United States corporation with foreign operations: Do you know what the company’s tax bill would be if it had to bring its overseas earnings home?

The answer, alas, is that they probably don’t. That’s because most companies with large foreign earnings don’t disclose a potential tax liability associated with those earnings, even though inquiring shareholders want to know. Given the pile of foreign earnings amassed by large multinational companies in recent years, this has become a yawning disclosure gap.

Under the tax laws, companies with operations overseas pay no taxes on earnings generated there as long as the money stays there. When it is repatriated, though, taxes come due.

Accounting rules require that public companies disclose the amount of earnings they have generated and reinvested in foreign operations each year, even if they have no plans to bring the money home.

Last year, the nation’s top 1,000 companies reported $2.1 trillion in such earnings, a figure that has almost doubled since 2008, according to a report by Audit Analytics, a research firm in Sutton, Mass. Those foreign earnings also represented a growing percentage of the companies’ total assets, the report said: 8.7 percent last year, up from 5.8 percent in 2008.

Accounting rules also say companies should provide investors with an estimate of how much they’d have to pay in taxes if they were to bring those earnings back home. But rule makers gave companies an out, allowing them to forgo the disclosure if they concluded that it was “not practicable” to determine a potential tax bill.

It’s no surprise that most companies choose to leave investors in the dark about these potential liabilities.

Consider the 10 companies identified in the Audit Analytics report with the largest hoards of offshore earnings. Of them, seven don’t disclose the potential tax liability.

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July 7, 2014 in Tax | Permalink | Comments (0)

Breitbart-Johnston Kerfuffle Over Republican Racism in Opposition to Tax Increases

Breitbart:  Journo: Opposition to Taxes and Spending Is Racist:

In an appearance on the Thursday broadcast of MSNBC’s The Reid Report, [David Cay Johnston] stated that Republicans oppose higher taxes and spending because “there's all sorts of areas where a fixed ideology that has no support in the empirical data gets into people's heads and that's what becomes important and there's also an element of racism in here.”

David Cay Johnston responds:

Problem is I did not say that “being against high taxes is racist.” Go listen to my carefully nuanced words, especially the words "an element" and pay attention to what it refers to in my comments about opposition to spending on infrastructure - roads, bridges, dams, water mains.

Update:  More from David Cay Johnston:

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July 7, 2014 in Tax | Permalink | Comments (2)

10,000 Hours of Practice Does Not Guarantee Greatness

Business Insider:  New Study Destroys Malcolm Gladwell's 10,000 Hour Rule, by Drake Baer:

OutliersThe 10,000 Hour Rule — closely associated with pop psych writer Malcolm Gladwell — may not be much of a rule at all. 

The principle holds that 10,000 hours of "deliberate practice" are needed to become world-class in any field. When psychologists talk about deliberate practice, they mean practicing in a way that pushes your skill set as much as possible.

In Outliers, Gladwell contends that early access to getting 10,000 hours of practice allowed the Beatles to become the greatest band in history (thanks to playing all-night shows in Hamburg) and Bill Gates to become one of the richest dudes around (thanks to using a computer since his teen years). 

But a new Princeton study [Deliberate Practice and Performance in Music, Games, Sports, Education, and Professions: A Meta-Analysis] tears that theory down. In a meta-analysis of 88 studies on deliberate practice, the researchers found that practice accounted for just a 12% difference in performance in various domains. What's really surprising is how much it depends on the domain: 

  • In games, practice made for a 26% difference
  • In music, it was a 21% difference
  • In sports, an 18% difference
  • In education, a 4% difference
  • In professions, just a 1% difference

Click MomentThe best explanation of the domain dependency is probably found in Frans Johansson's book The Click Moment.

In it, Johansson argues that deliberate practice is only a predictor of success in fields that have super stable structures. For example, in tennis, chess, and classical music, the rules never change, so you can study up to become the best. 

But in less stable fields, like entrepreneurship and rock and roll, rules can go out the window:

  • Richard Branson started in the record business but quickly branched out into fields well beyond music: Virgin Group has 400 companies and is launching people into space.
  • Then there's a band like the Sex Pistols, who took the world by storm even though Sid Vicious could barely play his bass.

So mastery is more than a matter of practice.

July 7, 2014 in Legal Education, Tax | Permalink | Comments (5)

IRS Spending: Administration v. Refundable Credits

Following up on last Monday's post, Spending by the IRS, 1970-2014:  Joe Kristan links to this additional chart from the Cato Institute, which divides IRS spending into administration and refundable credits:

IRS Budget 2

July 7, 2014 in IRS News, Tax | Permalink | Comments (0)

Sullivan: The Pros and Cons of Federal-State Corporate Tax Harmonization

Tax Analysys Logo (2013)Martin A. Sullivan (Tax Analysts), The Pros and Cons of Federal-State Corporate Tax Harmonization, 73 State Tax Notes 11 (July 7, 2014):

Martin A. Sullivan examines the benefits and drawbacks of harmonizing federal and state corporate tax regimes.

STN

July 7, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

Boston Law Schools Shrink Enrollments, Faculties

The Boston Globe:  Waning Ranks at Law Schools:

BostonYears after the end of the recession, enrollment at the nation’s law schools continues to plummet, a wrenching shift that has forced many schools to cut expenses and raised concerns about the long-term financial prospects of some. ... With a difficult job market making students increasingly hesitant to take on massive student loan debt, nearly all law schools in Massachusetts — one of the top areas in the nation for legal education — have seen enrollment suffer.

The persistent decline has forced many law schools to take drastic measures. Suffolk University, where first-year enrollment fell 15 percent last year, recently offered buyouts to all faculty with tenure or with renewable long-term contracts, and Western New England University in Springfield has pared back its faculty among a number of cost-cutting measures. ...

At New England Law School in Boston, first-year enrollment has dropped 40 percent since fall 2010, while Western New England saw a 28 percent decline. In response, New England Law School last year froze wages, offered buyouts to some faculty members, and reduced its administrative staff. The dean, John O’Brien, took a voluntary pay cut of 25 percent.

Globe 1

Globe 2

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July 7, 2014 in Legal Education | Permalink | Comments (8)

The IRS Scandal, Day 424

IRS Logo 2New York Times editorial: The Real Internal Revenue Scandal:

There is a scandal going on at the Internal Revenue Service, but it has nothing to do with Lois Lerner or her missing emails. House Republicans have not given up on their noisy crusade to tie Ms. Lerner to what they imagine to be widespread political corruption within the Obama administration, but all they have proved is that the I.R.S. is no better at backing up its computer files than most other government agencies.

No, the real scandal is what Republicans did to cripple the agency when virtually no one was looking. Since the broad Tea Party-driven spending cuts of 2010, the agency’s budget has been cut by 14 percent after inflation is considered, leading to sharply reduced staff, less enforcement of the tax laws and poor taxpayer service.

As the economist Jared Bernstein noted recently in The Washington Post, a weakened I.R.S. enforcement staff will be unable to make a dent in the $385 billion annual gap between what taxpayers owe and what they pay — an unintended tax cut, mostly for the rich, that represents 11 percent of this year’s spending.

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July 7, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

TaxProf Blog Holiday Weekend Roundup

Sunday, July 6, 2014

WSJ: Waiting for Action on Taxes: What To Do Until Congress Deals With Expired Breaks

Wall Street Journal Tax Report:  Waiting for Action on Taxes: What To Do Until Congress Deals With Expired Breaks, by Laura Saunders:

Halfway through 2014, Congress has made no more progress on tax overhaul than it has on other big issues. Few expect any progress before the November elections. In February, House Ways & Means Committee Chairman Dave Camp (R., Mich.) took a step forward by releasing his proposal for a comprehensive revision of the code. Although experts of many political stripes praised the plan as a serious one, Mr. Camp's own party leaders lowered expectations before its release. ... 

Mr. Camp is retiring from Congress at the end of the year, but many expect his proposals will live on. "The Camp plan has many good ideas that would work better than our current system, so it gives reformers a good place to start," says Roberton Williams, an income-tax expert at the nonpartisan Tax Policy Center in Washington.

Meanwhile, the Senate and House are at loggerheads about how to treat a host of tax breaks that expired at the end of last year.

July 6, 2014 in Tax | Permalink | Comments (0)

Death of Don Schapiro

Donald Schapiro (Chadbourne Parke, New York) died on July 3 at the age of 88.  From the New York Times obituary:

Dschapiro[H]e graduated from Townsend Harris High School, Yale College '44, where he became an instructor in the department of economics, followed by Yale Law School '49, where he developed a course in legal accounting, which he continued to teach as a visiting professor for some 25 years. Joining the firm of Paul, Weiss, Goldberg, Rifkind, Wharton & Garrison, he left after two years to go to Washington, D.C., as Assistant Chief Counsel to the U.S. House of Representatives Ways and Means Subcommittee on Administration of the Internal Revenue Laws. Returning to New York, he became a partner at Barrett, Smith, Schapiro, Simon, & Armstrong. In 1988, he joined Chadbourne & Parke, where he worked as a senior tax partner until his death. ...

Donations in Don's memory may be made to Yale Law School or Memorial Sloan-Kettering Cancer Center. Funeral services will be held Tuesday, July 8, at 11am at Temple Emanu-El. The family will receive friends at their residence from 5pm to 8pm on Tuesday, July 8, Wednesday, July 9, and Thursday, July 10.

(Hat Tip: Mike Schler.)

July 6, 2014 in Obituaries, 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 a new #1 paper and new papers debuting on the list at #3 and #5:

  1. [206 Downloads]  Sales Suppression as a Service (SSaaS) & the Apple Store Solution, by Richard Ainsworth (Boston University)
  2. [201 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)
  3. [146 Downloads]  Desperate Retirees: The Perplexing Challenge of Covering Retirement Health Care Costs in a YOYO World, by Richard L. Kaplan (Illinois)
  4. [140 Downloads]  The Relationship between China's Tax Treaties and Indirect Transfer Antiavoidance Rules, by Qiguang Hardy Zhou (Baker & McKenzie, Shanghai City, China)
  5. [118 Downloads]  Reducing Inequality on the Cheap: When Legal Rule Design Should Incorporate Equity as Well as Efficiency, by Zachary Liscow (J.D. 2015, Yale)

July 6, 2014 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

The IRS Scandal, Day 423

IRS Logo 2Arizona Republic editorial:  Grant Lois Lerner Immunity in IRS Case:

Congress is facing a fork in the road in the Internal Revenue Service's tea party-harassment scandal.

It may have to take both. 

But, first, Republicans in the House must come to terms with a decision they really — really — do not wish to make.

They will have to offer immunity from prosecution to Lois Lerner, the IRS retiree who has refused to testify and whose emails so amazingly disappeared when her computer hard drive crashed.

And if they fail to get to the bottom of the IRS shenanigans through Lerner? Well, there is a Plan B. They can appoint a special prosecutor — and accept all the expense and power-wielding baggage that comes with such an appointment.

Following the contempt-dripping theatrics of IRS Commissioner John Koskinen, the GOP lawmakers have no choice but to take one or both of those dramatic steps. ... Lerner, of course, has been no more willing to get to the bottom of events than Koskinen. Or, for that matter, the Justice Department, whose own half-hearted investigation is languishing ... somewhere. Or, for that matter, the White House, which simply could order agencies that may have communicated with Lerner, et al, to cooperate.

Their determined resistance is beginning to tell its own suspicious story. If Lerner dodges Congress again, despite immunity, there is always the special prosecutor route. It may be the only way to make sure this episode is never repeated, by administrations of either party.

Above the Law, Some Thoughts About the IRS Scandal and Spoilation of Evidence:

On Tuesday, U.S. District Judge Reggie Walton issued an order to hear oral arguments from lawyers representing the Internal Revenue Service and the conservative nonprofit True the Vote. True the Vote is one of the conservative groups claiming IRS improperly targeted its application for nonprofit status based on the group’s political and philosophical affiliation. True the Vote filed a motion for a preliminary injunction and expedited discovery on Monday, calling for an independent forensics examination of any IRS hard drives, servers, or other computer hardware involved in the government agency’s possible targeting of conservative nonprofits’ applications for tax-exempt status. It wants an outside computer expert to try to ascertain how and when any electronic evidence, such as former IRS Commissioner Lois Lerner’s emails, may have been lost. Also, it would be great if the government didn’t spoliate — I mean “recycle” — any more evidence….

In its motion, True the Vote argues that the law obligated the IRS to preserve potentially relevant evidence, including electronically stored information. The IRS knew that the hard drives and emails of Lerner and other officials were of significant legal interest. By the time the agency supposedly began disposing of Lois Lerner’s computer hardware, Congress was publicly investigating the IRS scandal. Pro-Israel group Z Street, Inc. filed suit in August 2010, alleging similar improper targeting as True the Vote claims. In September 2013, True the Vote itself sent a litigation hold letter to counsel for the IRS officials, including Lerner, who the group believed were involved in IRS wrongdoing. The government clearly had notice that the computer equipment and information should be preserved as potential evidence.

If the account alleged in True the Vote’s motion is accurate, opposing counsel was none too cooperative. Despite earlier attempts to confer with IRS counsel, attorneys for True the Vote did not learn of the missing emails of Lois Lerner and other IRS officials until Friday, June 13, 2014, when news reports publicized the loss. On that day, IRS finally informed Congressional investigators that the agency could not recover two years’ worth of Lerner’s emails. Apparently, Lerner’s hard drive crashed in 2011, its data was unrecoverable, and the government had no available back-ups.

Talk about bad luck — finding out on Friday the 13th that two years’ worth of emails spanning the time period when you believe the federal government committed illegal acts have been “lost.”

Of course, it is hard to believe in bad luck when federal-government malfeasance is involved. Did IRS officials violate True the Vote’s constitutional rights by improperly singling out their application for tax-exempt status as the conservative group claims? Was this politically motivated targeting the result of overzealous lower-level employees? Did members of the Obama administration orchestrate this campaign to punish the administration’s political enemies? We don’t know. That’s the kicker about the spoliation of evidence.

IRS explanations of how Lerner’s emails during the crucial time period were lost have not inspired much confidence, under the circumstances. Perhaps the only reason to believe that the IRS and Obama administration are telling the truth about the lost evidence and the IRS scandal is that their explanations look so extraordinarily — almost laughably — suspicious that someone would have to have “courage” the size of the U.S. Treasury to claim such things with a straight face.

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July 6, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, July 5, 2014

Crawford: 7 Notable Estate & Gift Tax Articles of 2013

Tax Analysys Logo (2013)Bridget Crawford (Pace), Law Review Articles You Should've Read (But Probably Didn't) in 2013, 143 Tax Notes 1305 (June 16, 2014):

This short column is part of the annual Tax Notes issue that highlights noteworthy law review articles published during the previous year. In this piece, I identify articles relating to estate and gift taxation that practitioners likely will find of interest. The articles reviewed (in alphabetical order by author's last name) are:

  1. Ellen Aprill (Loyola-L.A.), Reforming the Charitable Contribution Substantiation Rules, 14 Fla. Tax Rev. 275 (2013)
  2. Arianne Renan Barzilay (Haifa), You're on Your Own, Baby: Reflections on Capato's Legacy, 46 Ind. L. Rev. 557 (2013)
  3. John F. Coverdale (Seton Hall), Of Red Bags and Family Limited Partnerships: Reforming the Estate and Gift Tax Valuation Rules to Achieve Horizontal Equity, 51 U. Louisville L. Rev. 239 (2013)
  4. John P. Goldberg (Harvard) & Robert H. Sitkoff (Harvard), Torts and Estates: Remedying Wrongful Inheritance, 65 Stan. L. Rev. 335 (2013)
  5. Adam Hirsch (San Diego), Incomplete Wills, 111 Mich. L. Rev. 1423 (2013)
  6. Grayson M.P. McCouch (Florida), Who Killed the Rule Against Perpetuities?, 40 Pepp. L. Rev. 1291 (2013)
  7. Carla Spivack (Oklahoma City), Killers Shouldn't Inherit From Their Victims -- Or Should They?, 48 Georgia L. Rev. 145 (2013)

July 5, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

Death of Louie Zamperini

UnbrokenNew York Times, Louis Zamperini, Olympian and ‘Unbroken’ War Survivor, Dies at 97:

Louis Zamperini, an Olympic runner who as an airman during World War II crashed into the Pacific, was listed as dead and then spent 47 days adrift in a life raft before being captured by the Japanese and enduring a harsh imprisonment, died on Wednesday in Los Angeles. He was 97.

Mr. Zamperini’s remarkable story of survival during the war gained new attention in 2010 with the publication of a vivid biography by Laura Hillenbrand, Unbroken: A World War II Story of Survival, Resilience, and Redemption. It rose to No. 1 on the New York Times best-seller list.

The story is to be retold in a film adaptation of the book directed by Angelina Jolie and scheduled to be released in December. Jack O’Connell plays Mr. Zamperini. ...

Past efforts to make Mr. Zamperini’s story into a movie failed. In the 1950s, Tony Curtis wanted to play the role. In the late ’90s, Nicolas Cage expressed interest. Despite Mr. Zamperini’s two autobiographies, Ms. Hillenbrand thought more could be done with the story. In an email she wrote:

“Louie’s story was well told, but as an autobiography it was limited to Louie’s point of view. No one had approached Louie’s story as a biography, incorporating numerous points of view. “I began interviewing Louie’s fellow airmen, POWs, Japanese camp officials and home front friends and family, and went through their diaries, memoirs and letters. What I found was a fascinating untold story.”

(Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

July 5, 2014 in Legal Education, Tax | Permalink | Comments (0)

High-Level Departures Roil IRS's International Division

IRS Logo 2At a time of unprecedented attempts to thwart tax avoidance with FATCA and BEPS, and controversy swirling over the rush of U.S. corporations to use inversions to reduce their U.S. tax exposure, the IRS's Large Business & International Division has been stung by the sudden departures of several key people:

  • Michael Danilack (Deputy Commissioner (International)), resigned effective July 2
  • Laura Prendergast (Deputy Commissioner (Domestic)), resigned effective July 3
  • Samuel Maruca (Director, Transfer Pricing Operations), resigned effective August 1
  • Diana Wollman (Director, International Strategy), resigned July 1
  • Richard McAlonan (Director, Advance Pricing and Mutual Agreement), resigned effective June 27

Tax Analysts:  Major Shake-Up at LB&I?,  by Jaime Arora, Amy S. Elliott, & Andrew Velarde:

One practitioner told Tax Analysts that a coming reorganization may have spurred the departures. ... A former IRS official, now in private practice, said that Danilack agreed to lead the IRS's international unit on the condition that the Service would realign its Large and Midsize Business Division (LMSB) in a way that would separate international tax administration from domestic tax administration. The 2010 LMSB/LB&I realignment meant that agents working on international issues would ultimately report to Danilack, giving him greater management authority.

Under the realigned structure, the domestic and international deputy commissioners had equal authority to resolve issues. The former official said that under the LMSB structure, international issues were ultimately resolved by the domestic territory managers, directors of field operations, and industry directors. Since the realignment, "there's not been anyone with a 51 percent vote to resolve issues for a particular taxpayer" aside from going to LB&I Commissioner Heather Maloy for a tiebreaker vote, and "that's not good management," the former official said.

With industry directors and Danilack's team having similar levels of authority under the realigned LB&I, neither could overrule the other, the former official said. "No one was in charge," he said. "It was the Achilles' heel of the organization."

The former official added that Danilack's departure indicates that he probably argued for getting tiebreaker authority, making the case that the larger assessments are often those stemming from international issues, and lost. "I knew he was frustrated," the former official said. Danilack declined to comment for this article.

Tax Analysts Blog:  What’s Behind the Brain Drain at the IRS?, by Christopher Bergin:

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July 5, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 422

IRS Logo 2Fort Wayne Telegram:  Federal Government Email From the Inside, by Richard Greene:

Since senior federal official Lois Lerner and I served together in the Bush Administration, surely she must have received the same sort of regular briefings about using the government’s email system as I did. ...

I was told that anything I did with my computer or Blackberry device would result in a permanent record being created. Only classified communications would be encrypted, and all the rest would be discoverable in any legal proceedings. That record would be available to virtually anyone but especially useful to Congress or the Justice Department in the event of their need to examine electronic communications dealing with public affairs.

Any notion that I could just erase something after it had been sent was conclusively dashed when the hard drive inside my desktop computer in my office crashed. The tech guy came in, quickly removed the drive and told me he would try to fix it. I explained to him that my concern was that all my data, including email that I often searched through, was on that drive and could be lost.

His reply was to assure me that every stroke of my keyboard had been backed up multiple times in the local office and off site as well, and nothing would be lost. If he couldn’t fix the drive he had removed, he would simply set up a new one and transfer everything that was there from the moment it failed and it would be completely restored.

Maybe my experience is why the latest polls are finding about 75 percent of the American people believe Congress should keep investigating what happened to Lerner’s emails.

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July 5, 2014 in IRS News, IRS Scandal | Permalink | Comments (0)

Friday, July 4, 2014

Weekly Tax Roundup

 Weekly Roundup

July 4, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly Legal Education Roundup

Weekly SSRN Tax Roundup

 Weekly Roundup

July 4, 2014 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

The IRS Scandal, Day 421

IRS Logo 2Wall Street Journal: House Lawmakers Press on IRS Probe:

House lawmakers are planning to step up pressure on the Justice Department to act on a contempt-of-Congress citation against former Internal Revenue Service official Lois Lerner.

Legislators view the citation—passed by the House in May—as a potential pressure point in their broader efforts to force action by the Justice Department in the controversy concerning IRS treatment of conservative tax-exempt organizations, committee aides said. ...

Federal law says the local U.S. attorney has the "duty" to present the contempt citation to a grand jury. Contempt of Congress is a misdemeanor punishable by a fine of up to $100,000 and a year in prison, under an 1850s statute. Republicans on the committee note the statute in demanding that prosecutors pursue the case.

But "it remains unclear whether the 'duty' of the U.S. Attorney…is mandatory or discretionary," a Congressional Research Service report says. Courts generally grant prosecutors wide discretion in deciding which matters to pursue.

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July 4, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, July 3, 2014

Brauner: What the BEPS?

Yariv Brauner (Florida), What the BEPS?, 16 Fla. Tax Rev. 55 (2014):

Florida Tax ReviewUnprecedented attention to aggressive international tax planning has shaken the earth under the most powerful players in the world of international tax policy design. The media exposure of what Bloomberg’s calls “The Great Corporate Tax Dodge,” combined with the ever-growing discontent of civil society with the magnitude of contribution of the largest multinational enterprises to the society within which they operate, has recently forced the politicians to take action. Leaders of the strongest world economies demanded a revision of the rules of the international tax regime that would generate more revenues for their challenged coffers and would restore public trust in the system. In what is now commonly known as the Base Erosion and Profit Sharing (“BEPS”) project, the OECD has established three principles: (1) promotion of collaborative rather than competition based solutions; (2) take a holistic view of the challenges and their corresponding solutions rather than an ad hoc approach; and (3) permit the consideration of innovative solutions even when they conflict with the traditional premises of the current international tax regime. This Article reviews the progress of the BEPS project and its compatibility with the fundamental principles for reform set by the OECD with a view to influence the discourse and the outcome of the project. This Article focuses on the importance of the paradigm shift from the current emphasis on competitiveness and the perfection of competition to a collaborative international tax regime, demonstrating the desirability of such a shift and suggesting how the OECD should go about making that shift.”

July 3, 2014 in Scholarship, Tax | Permalink | Comments (1)

6th Circuit Affirms Dismissal of Thomas Cooley Law School's Defamation Complaint Over Statements About Its Placement and Loan Default Rates

Thomas Cooley Logo (2013)Following up on this week's posts:

Thomas M. Cooley Law School v. Kurzon Strauss, No. 13-2317 (6th Cir. July 2, 2014):

Plaintiff Thomas M. Cooley Law School claims that defendants Kurzon Strauss, LLP, David Anziska, and Jesse Strauss published defamatory statements regarding plaintiff’s institution, causing $17 million in damages. ...

On June 8, 2011, under a heading titled “Investigating the Thomas Cooley School of Law,” Anziska posted the following statement on the website “JD Underground,” hosted at http://www.qfora.com/jdu:

My firm is currently conducting a broad, wide-ranging investigation of a number of law schools for blatantly manipulating their post-graduate employment data and salary information. These schools are preying on the blithe ignorance of naive, clueless 22-year-olds who have absolutely no idea what a terrible investment obtaining a JD degree is. Perhaps one of the worst offenders is the Thomas Cooley School of Law, which grossly inflates its post-graduate employment data and salary information. More ominously, there are reports that there [sic] students are defaulting on loans at an astounding 41 percent, and that the school is currently being investigated by the DOE for failing to adequately disclose its students’ true default rates. Unfortunately, the ABA has proven to be absolutely toothless in regulating these schools and stamping out these dubious practices, and most likely schools like Thomas Cooley will continue to defraud unwitting students unless held civilly accountable. If you have any relevant information or know of anyone who has attended Thomas Cooley feel free to contact me at anziska@kurzonstrauss.com. Obviously, all correspondences will be kept strictly confidential. ...

In granting defendants’ motions for summary judgment, the district court held that plaintiff was a limited purpose public figure and that the record would not allow a reasonable jury to conclude that defendants published the challenged statements with actual malice. We agree and affirm.

National Law Journal, Cooley Law Suffers Setbacks Financially and in Court:

The U.S. Court of Appeals for the Sixth Circuit on Wednesday affirmed a trial judge’s dismissal of a defamation lawsuit brought by the Thomas M. Cooley Law School against three plaintiffs lawyers who sued the school for alleged fraud in 2011. ...

“Cooley should have known better than to bring this meritless, vindictive, vexatious, farce of a lawsuit,” attorneys David Anziska and Jesse Strauss, who were defendants in Cooley’s suit, said of the Sixth Circuit ruling. “It was a waste of Cooley’s diminishing tuition revenue. Cooley's money could have been better spent helping its graduates find jobs.”

July 3, 2014 in Legal Education | Permalink | Comments (0)

Fleischer & Staudt: The Supercharged IPO

Victor Fleischer (San Diego) & Nancy Staudt (Dean, Washington University), The Supercharged IPO, 66 Vand. L. Rev. 303 (2013):

A new innovation on the IPO landscape has emerged in the last two decades, allowing owner-founders to extract billions of dollars from newly-public companies. These IPOs — labeled supercharged IPOs — have been the subject of widespread debate and controversy: lawyers, financial experts, journalists, and Members of Congress have all weighed in on the topic. Some have argued that supercharged IPOs are a “brilliant, just brilliant,” while others have argued they are “underhanded” and “bizarre.”

In this article, we explore the supercharged IPO and explain how and why this new deal structure differs from the more traditional IPO. We then outline various theories of financial innovation and note that the extant literature provides useful explanations for why supercharged IPOs emerged and spread so quickly across industries and geographic areas. The literature also provides support for both legitimate and opportunistic uses of the supercharged IPO.

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July 3, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 420

IRS Logo 2Forbes:  The Time Has Come: Defund The IRS, by Steve Forbes:

The current IRS scandals are now bigger than those of Watergate in the 1970s and Teapot Dome in the 1920s. The most powerful and feared government agency was turned loose on groups of citizens who the White House and congressional Democrats felt threatened their power. President Franklin Roosevelt used the IRS against opponents, as did Presidents John Kennedy, Lyndon Johnson and Richard Nixon. Conservative think tanks were rightfully suspicious they were being singled out for tax audits during the Clinton Administration. But none of those abuses was of the sweeping nature of the ones that began in 2010 and have taken place against ordinary citizens who have spontaneously come together in countless organizations to fight the current regime’s egregious policies and threats to liberty.

[Defenders of liberty, especially Republicans, should seek to defund] almost all of the IRS after the midterm elections, which the Democrats will lose badly. There can be no more continuing resolutions that allow the tax-collection agency to operate business as usual, even though Congress hasn’t passed an appropriations bill. If a continuing resolution is necessary to avoid a government shutdown, then by all means pass one–but specifically do a near-zeroing-out of the IRS (the only exception would be a handful of clerks to process refunds) until these scandals are fully and credibly investigated. If the President vetoes such a budget resolution, the onus is on him, not Congress.

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July 3, 2014 in IRS News, IRS Scandal | Permalink | Comments (1)

Wednesday, July 2, 2014

Thomas Cooley Law School Won’t Enroll New 1Ls at Ann Arbor Campus, Plans Faculty Layoffs

Thomas Cooley Logo (2013)ABA Journal, Cooley Law School Won’t Enroll New 1Ls at Ann Arbor Campus, Plans Faculty Layoffs:

According to an internal announcement obtained by Above the Law, Cooley “will hold off enrolling incoming first-term students at the Ann Arbor campus for fall 2014.” The Ann Arbor location is one of four Cooley campuses in Michigan; a fifth campus is in Tampa, Florida.

Thomas M. Cooley Law School Statement (July 1, 2014):

As with most law schools across the country, Cooley Law School’s enrollment and revenue have continued to decline while health care and legacy costs continue to rise. Despite ongoing cost control efforts, the school can no longer avoid the financial imbalance between the revenue and expenses it faces. As a result, the Cooley board of directors and administration are instituting a financial management plan to reduce expenses significantly and right size the organization.

The plan will help the school remain at the forefront of innovative approaches to legal education and continue to deliver the broad, high-quality access to legal instruction students have come to expect from Cooley. It demonstrates the school’s commitment to maintaining its high level of academic excellence and support for current and future students.

The plan includes:

      1. Faculty and staff reductions
      2. A system wide review of each program for capacity and quality
      3. A review of all campuses and facilities to reduce and rebalance costs
      4. A review of all purchases, travel and other expenses

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July 2, 2014 in Legal Education | Permalink | Comments (0)

GOP Nominee for Illinois Governor Comes Under Fire for Converting Millions in Ordinary Income Into Capital Gains Through Private Equity Management Fee Waivers

Following up on my previous post, WSJ: Private Equity Firms Save Millions in Taxes by Treating Dividends as 'Monitoring Fees,' Says Polsky:  Chicago Tribune, Rauner Used Strategy Now Under IRS Scrutiny to Slash Income Taxes:

Rauner AdIRS data show Bruce Rauner to be one of the 11,000 richest tax filers in the nation, but most of the millions he made in recent years was taxed at 15 percent — less than half the top federal rate for the wealthy, a review of tax documents released by the GOP governor hopeful shows.

One reason behind that sharp discount is that Rauner took advantage of a strategy that yielded big tax savings on his share of investment fees paid to his private equity firm, GTCR. That strategy is allowed under tax rules but has come under IRS scrutiny.

An analysis of the limited records Rauner has released, conducted by the Tribune in consultation with tax experts, gives the fullest picture yet of the steps he took to trim his tax bill. In ways both big and small, the Republican businessman's financial profile is one driven by tax-reducing strategies often out of reach for those of more modest means:

Rauner's campaign is built around his resounding success at the helm of GTCR, through which he earned millions of dollars a year. But a major portion of that money was reported to the IRS as capital gains taxed at a preferential 15 percent, including money from so-called management fee waivers used by many private equity firms to reduce tax bills for key partners. ...

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July 2, 2014 in Tax | Permalink | Comments (6)

WSJ: Improve Your Productivity and Your Life by Getting Rid of Internet Service at Home

Wall Street Journal, Say No to the Distraction-Industrial Complex:

No InternetOf all the potentially embarrassing things I confess to friends and acquaintances, perhaps the one most guaranteed to get a reaction is this: I don't have broadband Internet at home. And here's something I've never said aloud: I don't think you should, either, because it is ruining your productivity, if not your life. ...

Barring emergency, work is confined to work hours. This forces me to be more efficient at the office even as it allows me to be more emotionally present when I'm not there. It also has led me to notice that the times I am most productive while working are when I have no Internet connection at all—on planes, buses and trains.

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July 2, 2014 in Legal Education, Tax | Permalink | Comments (0)

Smith: Charitable Deductions for Live-Burn Donations

Eric Smith (Weber State), A Deduction Properly Extinguished? The Live-Burn Donation: A Proposed Sequence of Analysis and Policy Evaluation, 33 Va. Tax. Rev. 459 (2014):

This article updates the literature analyzing the charitable deduction associated with live-burn donations. This deduction has been the subject of multiple recent Tax and appellate Court rulings, all of which have disallowed the deduction. The article examines and reconciles the resulting live-burn donation line of cases. It agrees with prior scholarship finding that the courts’ treatment of the deduction has rendered it ineffective as a tax planning tool, but proposes a theoretical sequence of analysis to gauge the state of the law and determine whether any avenue remains which leads to deduction. Scholarly response to the disallowance of the live-burn donation has been generally negative. In contrast to these positions in the literature, this article finds that denial of a deduction for live-burn donations is consistent with and reconcilable on grounds of traditional tax policy notions of equity and fairness. Despite the live-burn donation’s initial acceptance on the basis of public benefit, the doctrine is fundamentally vulnerable on multiple fronts: it pushes the bounds of vertical equity, it disproportionately favors the wealthy, it undermines traditional concepts of charitable intent, and it provides an excessive private benefit in exchange for a public benefit which is too difficult to measure or quantify.

Prior TaxProf Blog coverage:

July 2, 2014 in Scholarship, Tax | Permalink | Comments (1)

Borden: 11 Notable Partnership Tax Articles of 2013

Tax Analysys Logo (2013)Bradley T. Borden (Brooklyn), Notable Partnership Articles From 2013, 143 Tax Notes 1513 (June 30, 2014):

July 2, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)