TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Sunday, December 11, 2016

The IRS Scandal, Day 1312: Impeachment Averted, But Will Koskinen Resign Or Be Fired By President Trump?

IRS Logo 2Politico Morning Tax, Impeachment Averted:

There’s not a ton of bipartisanship in the House these days, but lawmakers apparently made an exception for quashing a Freedom Caucus effort to impeach IRS Commissioner John Koskinen.

In the end, only 72 House Republicans voted to essentially bring the impeachment resolution to the floor. ... But while almost 350 House members decided to refer the resolution to a Judiciary Committee that hasn’t been gung ho on impeachment so far, that shouldn’t necessarily be viewed as an endorsement of Koskinen — who avoids becoming the first executive branch official since Reconstruction to be impeached. Top Republicans like House Ways and Means Chairman Kevin Brady made it clear they were no fans of Koskinen’s work, but that using time for impeachment proceedings might be unnecessary because they don’t expect the IRS chief to stay on under President-elect Donald Trump. (Koskinen's term ends next November, no matter what.)

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December 11, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, December 10, 2016

This Week's Ten Most Popular TaxProf Blog Posts

The Tax Implications Of Trump’s Disposal Of His Businesses

Trump (President Elect)Following up on Wednesday's post, Could President Trump Sell His Businesses, Tax-Free?: Bloomberg Law, Tax Implications of Trump’s Business Decisions: A Primer:

Donald Trump must confront major tax issues when deciding what to do with his real estate empire and other businesses in order to avoid conflicts of interest as he assumes the presidency.

What will happen if he decides to divest his businesses or simply pass them outright to his children?

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December 10, 2016 in Tax | Permalink | Comments (0)

The IRS Scandal, Day 1311:  The IRS 'Scandal' Was Part Of GOP's Strategy To Bog Down Obama Administration

IRS Logo 2Salon, Tom Cotton and Trey Gowdy Vow Vigilance Over the Trump Administration — No, Seriously, Stop Laughing:

Considering how the Republican Party has fallen in line behind Donald Trump over the last few months, does anyone seriously think that this will ever amount to anything? The Chicago Tribune recently reported on Thursday:

Sen. Tom Cotton, R-Ark., and Rep. Trey Gowdy, R-S.C. . . . agreed that House and Senate committees must keep close tabs on Donald Trump’s new government starting next year — not because they want to stick it to a man that neither originally endorsed for president, but because doing so would help rebalance power between the three branches of government.

Sure thing. And I’ve got a bridge over the Potomac to sell you. ...

[A]fter the partisanship of the last eight years, why would anyone give Gowdy or Cotton the benefit of the doubt? Gowdy can complain all he wants about the deeply unfair perception, as he put it in remarks on Tuesday to a room full of Cotton’s fundraisers, that any subpoenas sent to Hillary Clinton or contempt-of-Congress votes held on former IRS bureaucrat Lois Lerner were “politicized.” But that perception existed because the investigations that Congress conducted into the Benghazi tragedy and the IRS “scandal” were in fact part of the GOP strategy to bog down the Obama administration and harm Clinton’s presidential ambitions.

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December 10, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Friday, December 9, 2016

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses the estate tax advantages of cash basis farming.

KristanDeath takes all, but leaves the deductions.

Cash-basis accounting and the rule that adjusts the basis of inherited assets to their date-of-death value confounded the IRS in Tax Court yesterday.

Most businesses that produce things have to capitalize their input costs into the costs of their inventory. They wait to get the benefit of the costs on their tax returns as part of the cost of goods sold when they sell the inventory.

Farmers get a better deal. Assuming they are non-corporate farmers who are active in the business, they get to deduct their input costs when paid. This “cash basis” accounting allows farmers to buy seed, feed, and fertilizer at in December to reduce their taxable income, even when they don’t plan to use it until they plant next year’s crop or feed next year’s livestock. The tax planning opportunities are obvious, and jealously guarded by farm state congressmen.

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December 9, 2016 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly SSRN Tax Article Review And Roundup

This week, Daniel Hemel (Chicago) reviews a new paper by Edward D. Kleinbard (USC), The Right Tax at the Right Time.

HemelEdward Kleinbard’s newest paper lays out the case for a “Dual Business Enterprise Income Tax,” or “Dual BEIT,” as an alternative to the existing patchwork of federal taxes on business income. Readers familiar with Kleinbard’s past work know that he is a powerful analyst and a crystal-clear writer, and this paper is no exception. For reasons I explain below, I am not sure that a Dual BEIT is the “right tax” for our time, but all can agree that Kleinbard’s proposal is an important contribution to the business tax policy debate.

In a prior paper, Kleinbard explained why he thinks the United States should tax capital income annually at a flat rate; the latest installment explains why he thinks a Dual BEIT is the best way to achieve that result. In brief, a Dual BEIT would consist of a flat-rate entity-level tax on profits and a flat-rate investor-level tax on “normal returns.”

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December 9, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

TEDx Talk:  Tax Policy, Climate Change, And Innovation

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

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December 9, 2016 in Tax | Permalink | Comments (0)

The IRS Scandal, Day 1310:  Rep. Jim Jordan Is 'Frustrated' By House Passing On IRS Chief Koskinen's Impeachment

IRS Logo 2Newsmax, Rep. Jim Jordan 'Frustrated' by House Passing on IRS Chief Koskinen's Impeachment:

Rep. Jim Jordan said Thursday he is frustrated that the House passed on his bid to impeach IRS Commissioner John Koskinen, but pointed out the American public is also frustrated by Washington's actions.

'[They] voted a month ago, drain the swamp, clean the place up and hold people accountable, people like John Koskinen," the Ohio Republican told Fox News' "America's Newsroom" program.

The IRS, said Jordan, targeted people for their political beliefs with its increased targeting of conservative-based groups, and "you can't have that happen in a great country like ours. You cannot say, 'because you're a conservative we'll come after you.'"

On Tuesday, House members voted by a 342-72 margin to send Jordan's request to the House Judiciary Committee, which has not indicated it wants to prosecute the case. ...

Jordan and fellow Ohio Rep. Warren Davidson both voted against referring the matter to committee. Jordan and his fellow members of the House Freedom Caucus say Koskinen should lose his job for allowing evidence concerning former IRS official Lois Lerner to be destroyed, and for lying to Congress.

"We were told on Election Day to come here and clean this place up," Jordan said Thursday. "We had a chance to do it other day, but unfortunately we didn't get the votes."

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December 9, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, December 8, 2016

The American Dream Is Collapsing For Young Adults

Washington Post, American Dream Collapsing For Young Adults, Study Says, As Odds Plunge That Children Will Earn More Than Their Parents:

Rising income inequality has eroded the ability for American children to grow up to earn more than their parents, according to a new study from a team of researchers that could carry deep implications for President-elect Donald Trump's policy agenda.

The research from a group led by Stanford's Raj Chetty, and also including economists and sociologists from Harvard and the University of California at Berkeley, estimates that only half the children born in the 1980s grew up to earn more than their parents did, after adjusting for inflation. That's a drop from 92 percent of children born in 1940.

Chetty

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December 8, 2016 in Tax | Permalink | Comments (8)

Why Blue States Are the Real ‘Tea Party’

New York Times op-ed: Why Blue States Are the Real ‘Tea Party’, by Steven Johnson:

ImperfectWhen the modern Tea Party movement coalesced in the early days of the Obama presidency, its allusion to the political grievances of the protesters in Boston Harbor a couple of hundred years earlier seemed plausible enough: Its members felt that their taxes were too high and their interests not adequately represented by the remote authorities in Washington.

But the election of 2016 presents a challenge to that historical lineage. The home states to the Tea Party are actually doing great on the taxation and representation front. It’s the progressive blue states that should be protesting. ...

For complicated reasons — some of which have to do with rural poverty, some of which have to do with the basic physics of supporting infrastructure in low-density regions — a disproportionate amount of per capita federal spending and benefits now flow down to the low-density states. According to a study by the Tax Foundation conducted several years ago, for every dollar New Jersey pays in federal taxes, it receives 61 cents in benefits and other federal spending. For the same dollar of taxes Wyoming spends, it gets $1.11 back.

Put those two trends together and you have a grievance worthy of the original Tea Party: more taxation with less representation. The urban states are subsidizing the rural states, and yet somehow in return, the rural states get more power at the voting booth.

You can represent the injustice of this arrangement mathematically. Think of it as two different kinds of return on investment: how much does each state receive for every dollar it pays in taxes, and how much Electoral College influence does each state get for each vote cast. Take the average of those two data points and you have a measure of which states are getting shortchanged by the system. Call it the disenfranchisement index.

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December 8, 2016 in Tax | Permalink | Comments (8)

Piketty, Saez & Zucman:  Economic Growth in the United States — A Tale of Two Countries

Thomas Piketty (Paris School of Economics), Emmanuel Saez (UC-Berkeley) & Gabriel Zucman (UC-Berkeley), Economic Growth in the United States: A Tale of Two Countries (more here; PowerPoint slides here):

In a recent paper, the three authors of this issue brief attempt to create inequality statistics for the United States that overcome the limitations of existing data by creating distributional national accounts. We combine tax, survey, and national accounts data to build a new series on the distribution of national income. National income is the broadest measure of income published in the national accounts and is conceptually close to gross domestic product, the broadest measure of economic growth. Our distributional national accounts enable us to provide decompositions of growth by income groups consistent with macroeconomic growth.

In our paper, we calculate the distribution of both pre-tax and post-tax income. The post-tax series deducts all taxes and then adds back all transfers and public spending so that both pre-tax and post-tax incomes add up to national income. This allows us to provide the first comprehensive view of how government redistribution in the United States affects inequality. Our benchmark series use the adult individual as the unit of observation and split income equally among spouses in married couples. But we also produce series where each spouse is assigned their own labor income, allowing us to study gender inequality and its impact on overall income inequality. In this short summary, we would like to highlight three striking findings.

Our first finding—a surge in income inequality

Figure 2

Our second finding—policies to ameliorate income inequality fall woefully short

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December 8, 2016 in Tax | Permalink | Comments (0)

The IRS Scandal, Day 1309:  How Trump Got Yanked Into GOP's IRS Impeachment Fight

IRS Logo 2Politico, How Trump Got Yanked Into GOP's IRS Impeachment Fight:

John Koskinen's ouster was voted down after multiple conversations among Reince Priebus, the Freedom Caucus and House leaders.

House Freedom Caucus members were gearing up for a floor fight Tuesday to impeach IRS Commissioner John Koskinen when one of the group’s leaders, Rep. Jim Jordan, received an unexpected phone call from Reince Priebus.

Priebus, the new chief of staff for President-elect Donald Trump, asked Jordan (R-Ohio) to hold off on the effort to remove Koskinen, sources close to the matter said. The impeachment drive had been a long-running source of tension between Republican leaders who feared it was an abuse use of congressional oversight, and conservatives who believed Koskinen lied to them and deserved to be punished.

In the frenzied hours as the impeachment showdown neared, multiple conversations ensued between Priebus and Freedom Caucus leaders. There are conflicting accounts of where the outgoing Republican Party chairman came down.

GOP leaders say Priebus remained opposed to Koskinen's impeachment. Freedom Caucus sources counter that Priebus called them back several times to retract any such opposition and say Trump's inner circle would remain neutral. ...

Freedom Caucus sources say the back-and-forth over Koskinen shows that party leaders will use Trump and his inner circle as a lever against them. They fear that after years of bucking Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) and their top lieutenants, GOP leaders will point to a Trump-run White House to justify their positions and try to steamroll the group as it tries to push the party’s agenda to the right. ...

According to multiple sources, Ryan staffers contacted Priebus and urged him to weigh in on the Koskinen dispute. Ryan and other top House Republicans said they were worried that impeaching Koskinen would trigger a Senate trial for the IRS commissioner in early 2017 that could eat up weeks of Senate floor time, potentially impeding Trump's early agenda. Plus, most of the House Republican Conference had no interest in voting on this sensitive matter, which many felt pitted them between their base and their conscience. ...

A source familiar with their conversations said Priebus called back later Tuesday to clarify that Trump's team was not against impeachment and would remain neutral. “It’s ludicrous to suggest a president who ran on draining the swamp would oppose the impeachment of an IRS commissioner who targeted some of the very same people who voted for him,” said a Freedom Caucus member.

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December 8, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Wednesday, December 7, 2016

Grinberg Presents Issues To Consider In The EU State Aid Investigations Today At Pennsylvania

GrinbergItai Grinberg (Georgetown) presents Issues to Consider in the EU State Aid Investigations at Pennsylvania today as part of its Tax Policy Workshop Series hosted by Chris Sanchirico and Reed Shuldiner:

  • Washington Will Not Let Brussels Have the Last Word on Apple, Financial Times op-ed, Sept. 1, 2016
  • EU State Aid Investigations Demand an Aggressive Response, 83 Tax Notes Int'l 611 (Aug. 15, 2016) (Abstract: This article is the first in a multi-part series addressing the concerns raised by the European Commission’s state aid investigations. In this installment, the authors provide background on the state aid investigations and describe the ways in which these investigations represent a sharp departure from past commission practice. Subsequent pieces will respectively address the tax, investment law, and trade law concerns raised by the commission’s investigations.)

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December 7, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Americans Are Paying Apple Millions To Shelter Overseas Profits, Thanks To I.R.C. § 956(c)(2)

Apple TreasuryBloomberg: Americans Are Paying Apple Millions to Shelter Overseas Profits, by Andrea Wong:

Over the years, Apple Inc. has become the poster child for U.S. multinationals accused of sheltering overseas profits to avoid the IRS. What’s gone largely unnoticed is that it’s been paid more than half a billion dollars by the U.S. government to do just that.

Taking advantage of an exemption tucked into America’s Byzantine tax code, Apple stashed much of its foreign earnings—tax-free—right here in the U.S., in part by purchasing government bonds, according to people with direct knowledge of the matter. In return, the Treasury Department paid Apple at least $600 million and possibly much more over the past five years in the form of interest, a Bloomberg review of its regulatory filings shows.

The untold story of Apple and its taxes wends its way from Cork, Ireland, to New York and then Reno, Nevada. But according to tax experts interviewed by Bloomberg News, the maker of iPhones is hardly unique. Many of the biggest U.S. multinationals have seized on the same exemption, which lets them avoid or delay repatriation taxes by buying Treasuries with their overseas cash. (The top 10 alone hold over $100 billion of the bonds.) That, in effect, enables the companies to turn billions of dollars in potential tax liabilities into millions of dollars in taxpayer subsidies—all while they publicly bemoan the sky-high taxes that make it impossible for them to bring the money home.

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December 7, 2016 in Tax | Permalink | Comments (0)

Kleinbard:  The Why And How Of The Dual Business Enterprise Income Tax ('Dual BEIT')

Edward Kleinbard (USC), Capital Taxation in an Age of Inequality:

The standard view in the U.S. tax law academy remains that capital income taxation is both a poor idea in theory and completely infeasible in practice. But this ignores the first-order importance of political economy issues in the design of tax instruments. The pervasive presence of gifts and bequests renders moot the claim that the results obtained by Atkinson and Stiglitz (1976) counsel against taxing capital income in practice.

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December 7, 2016 in Scholarship, Tax | Permalink | Comments (1)

Could President Trump Sell His Businesses, Tax-Free?

Trump (President Elect)Following up on my previous post, Trump’s Emolument Tax Problem:  Steven M. Rosenthal (Tax Vox), Could President Trump Sell His Business, Tax Free?:

Yesterday, President-elect Trump tweeted he would leave his businesses “in total” to reduce his potential conflicts as President. The Office of Government Ethics (“OGE”), tweeted its praise for his remarks, and encouraged him to divest his interests rather than merely transfer control. But could Trump avoid paying tax on any profits from the sale of his businesses? Surprisingly, the answer may be yes. The law is ambiguous, a 50/50 proposition in my view.

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December 7, 2016 in Tax | Permalink | Comments (1)

Tuesday, December 6, 2016

Amiram Presents Tax Avoidance At Public Corporations Driven By Shareholder Taxes Today At Columbia

AmiranDan Amiram (Columbia) presents Tax Avoidance at Public Corporations Driven by Shareholder Taxes: Evidence from Changes in Dividend Tax Policy (with Andrew M. Bauer (Illinois) & Mary Margaret Frank (Virginia)) at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium Series hosted by Alex Raskolnikov and Wojciech Kopczuk:

We exploit exogenous changes in country-level corporate-shareholder tax integration systems to identify the effect of investor-level taxes on corporate tax avoidance. Specifically, we rely on the elimination of imputation systems by European countries in different years, in response to supranational judicial rulings. Under an imputation system, lowering corporate tax payments does not increase the cash flows available to shareholders after dividend taxes, but it does so after their elimination. Using a difference-in-difference model with fixed effects, we find that the average firm affected by the change reduces its cash effective tax rate by 17% relative to the eliminating group’s average statutory tax rate. Additional placebo tests provide evidence that supports this effect is present only in the countries and years in which the elimination occurs. Our results are partially driven by shifting income to foreign countries. Lastly, as expected, our results are more pronounced in closely held firms, firms with lower foreign income and firms with higher dividend payout.

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December 6, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Hemel & Herzig:  The Art Of The (Budget) Deal—Using Reconciliation To Repeal ObamaCare And Pass Tax Reform

Daniel Hemel (Chicago) & David Herzig (Valparaiso), The Art of the (Budget) Deal, Yale J. on Reg.: Notice & Comment (Dec. 2, 2016):

Republicans on Capitol Hill are reportedly planning to use the filibuster-proof budget reconciliation process to repeal the Affordable Care Act and overhaul the tax code. Against that background, Sam Wice says that “the most powerful person in America” in 2017 will be Senate Parliamentarian Elizabeth MacDonough, the nonpartisan official who will “determine” how much of their agenda Republicans can pass through reconciliation. This, of course, is an exaggeration: like it or not, the most powerful person in America in 2017 will be Donald J. Trump, who will wield all the power of the imperial presidency. But Wice’s post helpfully directs our attention to the budget reconciliation process, the rules of which quite likely will determine whether the Republican leadership on Capitol Hill can repeal the ACA and reform the tax laws.

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December 6, 2016 in Scholarship, Tax | Permalink | Comments (0)

Business Income And Business Taxation: How The U.S. Could Kill The Corporate Tax

Conor Clarke (Ph.D. 2017, Yale) & Wojciech Kopczuk (Columbia), Business Income and Business Taxation in the United States Since the 1950s:

In theory, the U.S. tax system aims to attribute and tax all business income to individuals. But the tax treatment of this income varies. Pass-through income is taxed when earned; capital-gains income is taxed when realized; dividends when distributed; other forms of business income may escape taxation entirely. Business owners often have control over the timing and character of their income: They can often choose, for example, between reporting business income or deducting it as wages or fringe benefits. And laws change, changing the incentive and ability to shift income between the individual and corporate sectors.

We integrate a wide variety of tax data to document the large long-run changes in the structure of business income and business taxation in the United States. These changes include the degree to which business incomes are taxed on a realization versus an accrual basis, the extent to which taxation is deferred, and the share of business income that is ultimately subject to taxation. We highlight the evolving relevance of retained earnings in the changing corporate sector and their relationship to equity values and unrealized capital gains. We also document the evolution of individual income components — profits of pass-through entities, dividends, and capital gains (both taxable gains and those escaping taxation through step-up). As a result of these changes, business incomes are increasingly taxed through personal income taxes instead of a combination of corporate and personal taxes. In particular, this implies that the observability of business incomes on personal income tax returns has improved over time, a fact that has implications for measuring and understanding the income distribution

Bloomberg View: How the U.S. Could Kill the Corporate Tax, by Leonid Bershidsky:

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December 6, 2016 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1307: Group Seeks Summary Judgment On Claim That Rev. Rul. 2004-6 Is So Vague That It Allows The IRS To Target Conservative Groups

IRS Logo 2Plaintiff's Reply Brief in Support of its Motion for Partial Summary Judgment, Freedom Path v. Lerner, No 3:14‐CV‐1537‐D (D.C. N.D. TX) (citations omitted):

The Government argues that the jeopardy for any group facing the “facts and circumstances” test is neither (1) being subjected to an unconstitutionally vague process nor (2) a chilling of its constitutionally‐protected speech. But the Government is incorrect in both respects, and even a cursory analysis of the “facts and circumstances” test reveals a regulatory test that is unconstitutional under the First and Fifth Amendments to the United States Constitution.

Over the years, the Internal Revenue Service has made clear that social‐welfare organizations, which are organized under § 501(c)(4) of the Internal Revenue Code, may make political communications so long as those communications are not “the primary purpose” of the organization. Those political communications are speech, and the ability to engage in it is an enormous benefit to social welfare organizations. Yet it is the IRS, which employs an unconstitutional test to analyze these organizations’ activities, that plays gatekeeper for such speech. And because the “facts and circumstances” test of Revenue Ruling 2004‐6 is so vague and overly broad, it allows the IRS—whether purposeful or not— to provide the benefit of speech for groups whose political persuasions the IRS prefers and to deny it to groups whose political persuasions the IRS dislikes. ...

Finally, the Government notes that Freedom Path, or any other social‐welfare organization or tax‐exempt applicant, may appeal any adverse determination the IRS may make in the future. But an appeal that adjudicates results created by an unconstitutional process—especially without the opportunity to first challenge the process itself—is, in fact, no remedy at all.

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December 6, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, December 5, 2016

Markovits Presents Meritocracy And Its Discontents Today At NYU

MarkovitsDaniel Markovits (Yale) presents Meritocracy and Its Discontents at NYU today as part of its High-End Inequality Colloquium Series (more here) hosted by Robert Frank (Cornell) and Dan Shaviro (NYU):

Aristocracy and meritocracy are commonly considered opposed, even opposite, ideals. According to the common view, where aristocracy entrenches fixed accidents of birth, meritocracy promotes equality of opportunity. And where aristocracy allocates advantage according to morally arbitrary heredity, meritocracy allocates advantage to track morally meaningful contributions to the social product, or common good.

In fact, the meritocratic achievement that we celebrate today, no less than the aristocratic virtue acclaimed in the ancien régime, is again a sham. What is conventionally called merit is actually an ideological conceit, constructed to launder a fundamentally unjust allocation of advantage.

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December 5, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (2)

IRS Releases Final Report On Richest 400 Americans

Forbes 400For the final time, the IRS has released its annual analysis of the richest 400 American taxpayers (The 400 Individual Income Tax Returns Reporting the Largest Adjusted Gross Incomes Each Year, 1992–2014):

This release contains four tables which contain information from the Top 400 Individual Income Tax Returns for each of Tax Years 1992 through 2014. Table 1 contains frequencies, money amounts, and average dollar amounts for the major income, deduction, and tax credits reported as part of the Form 1040 (U.S. Individual Income Tax Return). Table 2 shows ranges of marginal tax rate for the various statutory rates (including the alternative minimum tax rates) that were in effect for Tax Years 1992 through 2014 while Table 3 shows the range of average tax rates up to 35 percent and over, computed as total income tax divided by adjusted gross income.

The data in Tables 1–3 are based on the individual returns with the largest adjusted gross income reported each specific year shown and do not necessarily reflect the same taxpayers over the 23-year time period reflected. Therefore, Table 4 is available to present the number of times an individual return appeared among the 400 largest adjusted gross incomes for each of tax years 1992 through 2014.

Beginning with Tax Tear 2014, the annual October release of Individual Income Tax Return percentile data now includes a new table (Table 3) that contains all of the item content found in the top 400 data release. In addition, this new table shows data at the .001 percentile level—which in 2014 represented the top 1,396 returns. This is a more analytically useful tabulation compared to the top 400 tabulation in that it provides a longitudinally consistent data point relative to the entire percentile distribution.  As the number of returns increases with the growth of the economy, the number of returns in the .001 percentile will increase proportionally as well thus allowing for a consistent high-income data series.

As a consequence, the top 400 data series will be discontinued after Tax Year 2014.

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December 5, 2016 in IRS News, Tax | Permalink | Comments (0)

IRS Releases Fall 2016 SOI Bulletin

Left, Right Slam Trump's Carrier Tax Deal

The IRS Scandal, Day 1306:  Government Rejects Claim That Rev. Rul. 2004-6 Allows The IRS To Target Conservative Groups

IRS Logo 2Law360, IRS Defends Test Used To Determine Nonprofit Status:

Federal attorneys defending the Internal Revenue Service against accusations it used an unconstitutional method to deny tax-exempt nonprofit status to a conservative group told a Texas federal judge Wednesday that the test in question “is neither unconstitutionally vague nor overly broad.” [Government's Motion; Government's Brief]

In arguments against plaintiff Freedom Path Inc.’s bid for partial summary judgment, the federal government disputed the group’s assertion that the test used by the IRS to determine whether a group that otherwise is exempt from federal income tax has spent money on a function that Congress has made subject to tax [Revenue Ruling 2004-6] is unconstitutionally vague, subjectively applied and burdensome on free speech. ...

Revenue Ruling 2004-6 is not constitutionally invalid on its face, as it is sufficiently clear in its terms to give fair notice of its requirements, and its objective factors do not make it readily susceptible to arbitrary or discriminatory application, the U.S. argued in its brief. Nor does the test infringe First Amendment rights, the government said. “Revenue Ruling 2004-6 prohibits no speech; it merely aids in determining whether a tax is owed for activity that Congress has chosen not to subsidize in section 501(c),” federal attorneys said. “And the range of opportunities for both administrative and judicial review provides further insurance against any remote possibility of abuse in the Revenue Ruling’s application.” ...

The suit stems from allegations that the IRS improperly used “Be on the Look Out” lists to target conservative “patriot” and “tea party” groups’ requests for tax-exempt status for increased scrutiny. Although the IRS has ended its use of the lists, Freedom Path claims the “facts and circumstances” test in Ruling 2004-6, which involves an examination of an organization’s activities to determine whether it is engaged exclusively in social welfare rather than for-profit or partisan-political activity, continues to threaten the group’s ability to operate as a nonprofit advocacy group. The group has argued that the “facts and circumstances” test is unconstitutional, and that the IRS’ methodology invites “viewpoint discrimination.”

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December 5, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, December 4, 2016

WaPo:  Alt-Right Group Has Not Filed Form 990s Due To IRS Error, Allowing Group's Finances To Escape Scrutiny

Alt RightWashington Post, The Financial Secrecy Behind White-Nationalist Group Known For ‘Hail Trump,’ Nazi Salutes:

Richard Spencer, the face of a white-nationalist group that gained notoriety and momentum after Donald Trump’s election, has been allowed by the federal government to operate his nonprofit organization in financial secrecy for the past three years.

Spencer’s think tank, the National Policy Institute, has not filed financial returns with the federal government since 2013, according to a database of nonprofit records. That has allowed the institute to avoid public scrutiny at a time when the alt-right — the term Spencer coined to describe a movement seeking a whites-only state — has garnered international attention.

The institute is a public charity that relies heavily on contributions. The Internal Revenue Service almost always requires organizations such as his, which are exempt from paying taxes, to file returns that detail where the money comes from and how it is spent.

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December 4, 2016 in Political News, Tax | Permalink | Comments (6)

The 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, with a new #1 paper and a new paper debuting on the list at #5:

  1. [623 Downloads]  Aggressive Tax Planning & the Ethical Tax Lawyer, by Heather M. Field (UC-Hastings)
  2. [323 Downloads]  The Up-C Revolution, by Gregg D. Polsky (Georgia) & Adam H. Rosenzweig (Washington University)
  3. [293 Downloads]  Estate Planning for Digital Assets: Assigning Tax Basis and Value to Digital Assets, by Elizabeth Ruth Carter (LSU)
  4. [266 Downloads]  IRS Issues Final and Temporary Debt-Equity Regulations Under Section 385, by David S. Miller (Proskauer, New York) & Janicelynn Asamoto Park (Proskauer, New York)
  5. [181 Downloads]  Were Trump's Fake Losses Legal as Tax Deductions?, by Calvin H. Johnson (Texas)

December 4, 2016 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

NY Times Op-Ed:  The Evangelicalism Of Old White Men Is Dead

Red LetterNew York Times op-ed:  The Evangelicalism of Old White Men Is Dead, by Tony Campolo & Shane Claiborne (co-authors, Red Letter Revolution: What If Jesus Really Meant What He Said?):

As the election retreats like a hurricane heading back out to sea, first responders are assessing the damage left in its wake. One casualty is the reputation of evangelicalism. ... As white male evangelists, we have no problem admitting that the future does not lie with us. It lies with groups like the National Latino Evangelical Coalition, led by Gabriel Salguero, or the Moral Monday movement, led by William Barber II, who has challenged the news media on its narrow portrayal of evangelicals. For decades, we have worked within evangelicalism to lift up the voices of these “other evangelicals.”

But we cannot continue to allow sisters and brothers who are leading God’s movement to be considered “other.” We are not confident that evangelicalism is a community in which younger, nonwhite voices can flourish. And we are not willing to let our faith be the collateral damage of evangelicalism.

We want to be clear: We are not suggesting a new kind of Christianity that simply backs the Democratic Party. Jesus is neither a Democrat nor a Republican — even if, as William Sloane Coffin Jr. once said, his heart leans left. Many faithful Christians did not vote for Hillary Clinton because of their commitment to a consistent pro-life agenda. True faith can never pledge allegiance to anything less than Jesus.

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December 4, 2016 in Book Club, Legal Education, Tax | Permalink | Comments (12)

The IRS Scandal, Day 1305:  Group Seeks Summary Judgment On Claim That Rev. Rul. 2004-6 Is So Vague That It Allows The IRS To Target Conservative Groups

IRS Logo 2Courthouse News Service,  GOP-Tied Group Presses Attack on the IRS:

A Republican-affiliated group that says the Internal Revenue Service illegally targets conservative groups seeks partial summary judgment on its claim that the IRS uses an unconstitutional test to determine tax-exempt nonprofit status.

Dallas-based Freedom Path sued the IRS and Lois G. Lerner, the former director of the agency's Exempt Organizations Division, in April 2014 in Federal Court. It claimed that as early as February 2010, the agency targeted tax-exempt applications from groups with names including the words "Tea Party" and "Patriots," asking for unnecessary information such as donor names.

Last Wednesday, Freedom Path asked the court to grant partial summary judgment because the IRS' "facts and circumstances" test is too vague and violates the Fifth Amendment. "Pursuant to Revenue Ruling 2004-6, the determination of whether a communication constitutes issue advocacy versus an exempt-function activity (i.e., political campaign intervention) is based upon a highly subjective evaluation of all the facts and circumstance on each case, instead of by reference to any clearly defined bright-line rules," the 29-page memorandum in support of the motion states. Freedom Path says it has "no way of knowing" what speech is protected and what speech would harm its tax-exempt nonprofit status.

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December 4, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Saturday, December 3, 2016

This Week's Ten Most Popular TaxProf Blog Posts

WSJ:  Taxes Under Trump—Almost Everyone Pays Less, The Richest Pay A Lot Less

Wall Street Journal Tax Report: Taxes Under Trump: Almost Everyone Pays Less and the Richest Pay a Lot Less, by Laura Saunders:

Steven Mnuchin, the likely next Treasury secretary, this week said rich U.S. taxpayers won’t get “an absolute tax cut” under President-elect Donald Trump. But that is not what Mr. Trump says in his taxation plan. In fact, under his approach the wealthy would receive an average tax cut of about $215,000 per household, experts say.

In Mr. Trump’s plan, Americans in different income ranges would divide up several hundred billion dollars of revenue cuts for 2017. As a result, Americans would, on average, receive a lower tax bill for 2017 compared with current law.

The top 1% will benefit, as they would contribute a smaller percentage of total tax revenue under Mr. Trump than they do now. The group, which consists of about 1.1 million households and earns 17% of total income, would owe 25% of federal taxes for 2017 under Trump’s plan compared with 28.7% under current law.

Mr. Mnuchin said these high-income households won’t get an “absolute” cut, because reductions for high earners “will be offset by less deductions.” Notably, Mr. Trump’s tax plan currently limits “itemized” deductions on Schedule A, such as those for mortgage interest, charitable donations, and state taxes, to a maximum of $200,000 per couple and half that for singles. But these limits don’t fully offset the effects of income- and estate-tax cuts for high earners proposed by Mr. Trump, according to experts.

WSJ

WSJ 2

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December 3, 2016 in Tax | Permalink | Comments (5)

The IRS Scandal, Day 1304: 'The IRS Has Never Stopped Targeting Conservatives'

IRS Logo 2The Federalist, Despite Investigations, Obama’s IRS Has Never Stopped Targeting Conservatives:

The next Tea Party scandal is not only coming, it may already be happening. When it does, the charade will begin anew, and no one will pay a price.

“It’s not true, it’s not true, it’s not true, it’s old news.” Standard Washington crisis management says to deflect and deny political scandals until they can be ignored—preferably without the powerful punished. The guilty have deftly used this strategy in the Internal Revenue Service’s targeting scandal. Fleeting hours of feigned indignation quickly morphed into assigning blame to laws governing nonprofits and, that all-purpose scapegoat, the Supreme Court’s opinion in Citizens United.

Those who cultivated the scandal by pressuring ideological allies inside the IRS shrugged and moved on. Those within the agency lawyered up, pled the Fifth, and moved on. Those defending the IRS in court engaged in unconscionable dilatory tactics that continue today. New faces replaced old and nothing changed. That the government’s most feared agency had blatantly discriminated against the president’s ideological foes was declared history.

But “the past,” as William Faulkner declared, “is never dead. It’s not even past.” The IRS scandal never ended, because the behavior never stopped. More importantly, the structural forces that nurtured it—piqued politicians demanding agencies “do something” in accord with political objectives, and like-minded, eager-to-please career employees manning those agencies—means a repeat is not just predictable, it’s inevitable. In fact, it may already be occurring.

The IRS cover-up began in earnest with John Koskinen. He marred his tenure as IRS head with gross incompetence and perhaps willful obstruction. Yet he has achieved his mission. His middle finger to congressional investigations ensured destroyed evidence, denied justice, and perpetrators walking scot-free.

The administration sold Koskinen as a “turnaround artist” who specializes in stressed institutions. The all-business technocrat, so it went, would cooperate with congressional investigators and restore the tattered agency’s reputation. During his confirmation hearing, he assured as much: “[W]e will be transparent about any problems we run into; and the public and certainly this committee will know about those problems as soon as we do.” Six weeks into the job, opportunity tested Koskinen’s pledge. He failed miserably. ..

No IRS official ever suffered for the blatantly unconstitutional and unethical actions. Lerner pled the Fifth and then walked away with a $129,000 bonus and a pension that vests with 34 years of government “service”—she could receive almost $4 million over her lifetime. Koskinen impeachment talk fizzled, neutered by Republican leadership unwilling to stomach the difficult political fight. Even successful litigation will only result in victims getting official nonprofit status or, where a group’s privacy rights were violated, a damage award and perhaps payment of attorney’s fees. ...

Evidence suggests targeting will continue and indeed spread —even assuming the IRS henceforth uses objective criteria to approve tax-exempt applications.

 

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December 3, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, December 2, 2016

Weekly Tax Highlight And Roundup

This week, Joe Kristan (CPA & Shareholder, Roth & Company (Des Moines, Iowa); Editor, Tax Update Blog) discusses multi-level marketing business deductions.

KristanBig Hummer isn’t the same as a big deduction.

I have long been a doubter of multi-level marketing. I prepare no returns for MLM entrepreneurs, but they often seem to have a business model of deducting personal expenses as Schedule C business expenses.

My doubt is shaken a bit by a Tax Court case last week where a multi-level marketer generated a fair amount of revenue from his network. Unfortunately, his deductions were supported no better than you usually see when such cases reach Tax Court.

MLM entreprenuers often take an expansive view of just what constitutes a “business” expense. As they are always “on duty,” goes the logic, everything is an expense. That seems to have been the approach he took for his vehicle expenses:

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December 2, 2016 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly SSRN Tax Article Review And Roundup

This week, David Gamage (UC-Berkeley, moving to Indiana) reviews a new article by Walter Hellerstein (Georgia), Taxing Remote Sales in the Digital Age: A Global Perspective, 65 American University Law Review 1195 (2016).

Gamage (2017)Walter Hellerstein’s new article represents comparative legal scholarship at its best.  Hellerstein’s article analyzes the OECD’s recently issued International VAT/GST Guidelines so as to discuss the lessons for the design and reform of U.S. state-level retail sales taxes.  In doing so, the article argues that U.S. retail sales taxes (RSTs) should tax remote sales and should do so based on the destination principle.  The article then analyzes how RSTs should be reformed so as to best accomplish these goals.

Hellerstein is persuasive in arguing that RSTs should tax remote sales. His article offers important guidance for how RSTs should ideally be reformed. But how can we get there in light of the politically and judicially imposed constraints that currently confront U.S. state governments? I would rank the most plausible paths to reform as follows:

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December 2, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Josie Caron, Malibu Celebrity

The local paper featured this photo of our dog on the front page of the Malibu Life Section:

Josie

I fear we are going to have to evade the paparazzi on our future walks. Here is the original higher resolution photo:

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December 2, 2016 in Legal Education, Tax | Permalink | Comments (1)

The IRS Scandal, Day 1303:  Group Sues IRS For Failure To Produce Communications With Joint Committee on Taxation

IRS Logo 2Press Release, CoA Institute Sues IRS for Improperly Shielding Records:

Cause of Action Institute (CoA Institute) today filed a lawsuit against the IRS after the agency refused to produce records under the Freedom of Information Act (FOIA) relating to its dealings with Congress’s Joint Committee on Taxation (JCT).

In December 2015, the IRS Office of Chief Counsel issued new guidance claiming that nearly all IRS records relating to the JCT should be treated as “congressional records” and therefore shielded from public disclosure under FOIA. This revised guidance contradicts long-standing precedent for what records government agencies must provide in response to FOIA requests.

CoA Institute Vice President John Vecchione: “The IRS continues to withhold agency records that the American people have a right to see. Agency records, including communications with Congress, are subject to FOIA. But the IRS is now attempting to change the rules and withhold all of its communications with, and other records relating to, the JCT. Our lawsuit challenges what appears to be a ploy by the IRS to avoid transparency.”

For months, CoA Institute has sought IRS communications with JCT and other JCT-related records, including those that reflect internal deliberations concerning the agency’s dealings with the JCT.  By definition, these are agency records, as they would necessarily have been received or created by the IRS and are currently in the possession of the agency.  Such records would have been used by IRS employees and uploaded or stored into IRS recordkeeping systems, including e-mail or correspondence

On November 22, 2016, in response to CoA Institute’s administrative appeal, the IRS re-affirmed its conclusion that the requested records were not subject to FOIA and went a step further to describe CoA Institute’s FOIA requests as “too broad and too nebulous.” The Department of Justice has explained, however, that “[t]he sheer size or burdensomeness of a FOIA request, in and of itself, does not entitle an agency to deny that request on the ground that it does not ‘reasonably describe’ records.” The IRS never indicated that it was unable to locate records responsive to CoA Institute’s FOIA requests, nor did it suggest it required a narrowed scope or clarification as to the records sought.

CoA Institute’s lawsuit seeks to prevent the IRS from improperly shielding agency records from disclosure under FOIA.

The lawsuit can be found here.

Exhibits can be found here.

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December 2, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Thursday, December 1, 2016

NY Times:  How To Hide $400 Million

NY Times 2

New York Times Magazine, How to Hide $400 million:

In any given year, trillions of dollars sit safely in the offshore financial world, effectively stateless, protected by legions of well-compensated defenders and a tangle of laws deliberately designed to impede creditors and tax collectors. Even the United States government finds it challenging: A special Internal Revenue Service division known as the “wealth squad,” set up in 2010 to crack down on high-end tax evaders with multinational holdings, today has enough manpower to assess only about 200 cases a year.

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December 1, 2016 in Tax | Permalink | Comments (0)

University Of Basel Conference:  Global Histories of Taxation And State Finances Since The Late 19th Century

BaselThe three-day conference on Global Histories of Taxation and State Finances Since the Late 19th Century kicks off today at the University of Basel Institute for European Global Studies:

Taxation has wide-ranging implications for global as well as domestic orders, ranging from budgets and public finances to inequality, the social fabric of societies, and worldwide competition for corporate profits. Since the global financial crisis of 2008 in particular, taxation and the reform of tax systems have become talking points in many parts of the North Atlantic world. The current interest in taxation is welcome, but many of the issues raised more recently have long histories that deserve to be studied in their own right. This international symposium calls on historians and historically-minded sociologists and political scientists with different geographical specializations to engage with the topic of taxation from a wide variety of angles.

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December 1, 2016 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Full House Expected At Today's IRS Hearing On Proposed Estate Tax Valuation Discount Regulations

DiscountsBloomberg BNA, IRS Can Expect Groups in ‘Full Force’ at Estate Tax Hearing:

The IRS should expect a full house at its Dec. 1 hearing on the estate valuation discount regulations even though the guidance is unlikely to survive under President-elect Donald Trump.

A preliminary list of speakers for the hearing includes 30 individuals, including trade group representatives, estate tax attorneys and appraisers. The proposed regulations (REG-163113-02), issued in August under tax code Section 2704, would make changes to the valuation of interests in family-owned businesses for estate, gift and generation-skipping transfer tax purposes.

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December 1, 2016 in IRS News, Tax | Permalink | Comments (2)

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December 1, 2016 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

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December 1, 2016 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Wednesday, November 30, 2016

Dyreng Presents Trade-offs In The Repatriation Of Foreign Earnings Today At Pennsylvania

DyrengScott D. Dyreng (Duke) presents Trade-offs in the Repatriation of Foreign Earnings (with Kevin S. Markle (Iowa) & Jon C. Medrano (Iowa)) at Pennsylvania today as part of its Tax Policy Workshop Series hosted by Chris Sanchirico and Reed Shuldiner:

We examine repatriations of foreign earnings that have been designated as indefinitely reinvested. U.S. firms can repatriate foreign earnings without an immediate tax cost when there is a domestic loss, which frees the earnings to be used domestically. But using the domestic loss to offset repatriation taxes reduces financial accounting income, and removes a real option to tax deferral. We show that firms are more likely to repatriate indefinitely reinvested foreign earnings in domestic loss years, but they are less likely to repatriate when financial reporting incentives are strong.

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November 30, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

ABA Blawg 100 And Blawg Hall Of Fame

Top 100 2The ABA Journal has released its annual list of the Top 100 Blawgs.  I am delighted that five members of our Law Professor Blogs Network are honored:

Three members of our Law Professor Blogs Network are in the ABA Journal Blawg 100 Hall of Fame:

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November 30, 2016 in Legal Education, Tax | Permalink | Comments (0)

Tax Policy In The Trump Administration

The IRS Scandal, Day 1301:  If Koskinen Is Impeached Or Fired, Trump Could Appoint New IRS Commissioner To Go Easy On His Taxes

IRS Logo 2USA Today, Trump Faces Potential Decision on IRS:

President-elect Donald Trump could face a decision that may affect whether his tax returns will continue to be audited throughout his four-year term of office.

IRS regulations call for annual audits of tax returns filed by U.S. presidents and vice presidents. But those rules, in place roughly 40 years, theoretically could be changed by the tax agency — whose current leader is under fire from Capitol Hill. ...

Trump has not publicly discussed future leadership for the IRS, which is part of the Department of the Treasury. ... Current IRS Commissioner John Koskinen, serving a five-year term that's set to end in November 2017, has been under pressure from congressional Republicans angered by what they contend was the tax agency's politically motivated delays of applications for non-profit status submitted by conservative Tea Party organizations. They say Koskinen misled Congress and obstructed committees that investigated the issue, allegations he has denied. ...

House Republicans started the process of initiating impeachment proceedings against Koskinen with a Judiciary Committee hearing in September. But no votes were held during the session. If he leaves through impeachment or resignation after Trump takes office, Trump would nominate a successor, subject to Senate confirmation.

"I serve at the pleasure of the President and a new President can always ask me to step aside sooner," Koskinen said in part of a statement prepared for a House hearing in July.

IRS commissioners haven't always stepped down for a new White House administration. Shirley Peterson, appointed in 1992 by President George H.W. Bush, officially left as of January 1993, as Bill Clinton took office. But Charles Rossotti, appointed by Clinton in 1997, stayed on for the opening two years of President George W. Bush's first term following enactment of the law that established five-year terms for IRS commissioners.

In a move to guard against any interference with the IRS, a 1998 federal law makes it illegal for executive branch officials to ask the tax agency to initiate or terminate an audit or investigations, Leas said. Convicted violators are subject to a maximum $5,000 fine and five-year prison term.

Several tax law experts recently told Politico the statute wouldn't necessarily stop the appointment of a nominee who might seek easier or tougher treatment of certain audits.

However, Robert McKenzie, a tax expert at the Arnstein & Lehr law firm's Chicago office, theorized that "a conscientious IRS employee would come forward and report it if someone tried to influence him or her on an audit."

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November 30, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Tuesday, November 29, 2016

Will Nick Saban Sack The IRS In Tax Court?

SabanWall Street Journal, The Rise of Nick Saban Incorporated:

Over the past decade, Saban has created a modern football dynasty at Alabama, with four national titles in seven years and another possibly in the offing as it gears up for the annual showdown with archrival Auburn.

With considerably less fanfare, Saban has also built a business empire off the field, a collection of investments and projects that roughly traces the path of his 40-year career: A strip mall outside East Lansing, Mich. Apartment complexes around Houston, Texas. A pair of small apartment buildings in Baton Rouge, La. An upscale residential development in Tuscaloosa, Ala. And a growing collection of Mercedes-Benz dealerships. ... On a state disclosure form filed in May 2016, Saban listed 23 entities, some with names like Blitzmore LLC and First Down LLC, in which he or his wife, Terry—a licensed real estate professional—hold 5% or more of the stock, or serve as officers. ...

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November 29, 2016 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Tax Reform May Determine Fate Of Trump's Push For Carrier To Keep U.S. Plant Open

CarrierWall Street Journal, Deal for Carrier to Keep U.S. Plant Open May Hinge on Tax Overhaul:

President-elect Donald Trump’s campaign pledge to save jobs at a Carrier plant in Indiana was framed around free trade, but negotiations about corporate tax law changes could be just as important to any possible deal.

Representatives for the incoming administration, including Vice President-elect Mike Pence, have held wide-ranging policy talks with top-ranking executives at Carrier’s parent company, United Technologies Corp., said a person familiar with the discussions.

The discussions include the conglomerate’s plans to shift more than 2,000 jobs from Indiana to Mexico, but have covered other issues, including the company’s wishes for a tax overhaul that Mr. Trump and Republicans have promised to pursue early in his administration, this person said. ...

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November 29, 2016 in Tax | Permalink | Comments (1)