TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, August 14, 2018

Kamin: 'Reputation Or Skill' In The New Pass-Through Regulations

Following up on my previous post, NY Times: Who Gets a New 20% Tax Break? The Treasury Dept. Speaks:  David Kamin (NYU), “Reputation or Skill” in the New Pass-Through Regulations: Reading “Skill” (and “Principal Asset”) Out of the Law:

The proposed regulations governing the 20-percent pass-through deduction under Section 199A are rightly garnering attention, and there is already significant commentary focused on the fact that Treasury chose to interpret the “reputation and skill” catch-all narrowly. As I explained in my earlier post, I think that’s a mistake because of the wide-open door that leaves for many high-income service providers. Here, I discuss exactly how narrow the definition is — which seems to be extremely narrow, at least based on the examples given — and how the regulatory definition seems to conflict with the text and potentially purpose of the restriction.

Continue reading

August 14, 2018 in Tax | Permalink | Comments (0)

Mason: Implications Of Wayfair

Ruth Mason (Virginia), Implications of Wayfair:

This article describes Wayfair and provides some cautions about what it means for the U.S. states and the rest of the world, especially Europe. It concludes that the lesson is that we should be sure that we like our temporary solution to the digital tax problem, because temporary solutions have a way of sticking around long after everyone recognizes that they no longer work.

Continue reading

August 14, 2018 in Scholarship, Tax | Permalink | Comments (0)

Auerbach & Devereux: Cash Flow Taxes In An International Setting

Alan J. Auerbach (UC-Berkeley) & Michael P. Devereux (Oxford), Cash Flow Taxes in an International Setting, 10 Am. Econ. J. 69 (Aug. 2018):

We model the effects of cash-flow taxes, differing according to the location of the tax, on the behavior of a multinational producing and selling in two countries with three sources of economic rent: a fixed basic-production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In general, governments face trade-offs in choosing between alternative taxes.

Continue reading

August 14, 2018 in Scholarship, Tax | Permalink | Comments (0)

The Math: ESOPs Do Not Pay For Themselves

Andrew Stumpff Morrison (Michigan), Perpetual Motion Machines: ESOPS Don’t Pay for Themselves, 159 Tax Notes 1289 (May 28, 2018):

In this article, Stumpff addresses policy issues regarding employee stock ownership plans and demonstrates how some claims in support of ESOPS aren’t supported by the math.

Continue reading

August 14, 2018 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1921: Federal Judge Approves $3.5 Million Payout From IRS To >100 Tea Party Groups To Settle Targeting Claims

IRS Logo 2Washington Times, Tea Party Groups Get Revenge Against IRS as Judge Approves $3.5 Million Payout:

A judge late Wednesday signed off on the settlement between the IRS and hundreds of tea party groups, closing out the last major legal battle over what all sides now agree was unwarranted and illegal targeting for political purposes.

The IRS agreed to pay $3.5 million to groups that were wronged by the intrusive inspections, and insists it’s made changes so that political targeting can’t occur in the future.

A few issues are still being fought over in the courts — including whether former IRS senior executive Lois G. Lerner will be allowed to forever shield her deposition explaining her behavior from public view, and whether the IRS should pay attorney fees — but this week’s decision closes out five years of litigation over the targeting itself. ...

The $3.5 million closely approximates the fines the IRS would have had to pay in damages for each intrusive scrutiny of tea party groups, had the agency been found in violation of the law. The money will be split with half going to the lawyers who argued the case and the other half to more than 100 tea party groups, which will get a cut of about $17,000 each.

Judge Michael R. Barrett called the settlement “fair, reasonable and adequate.”

The settlement doesn’t actually include an admission of wrongdoing by the IRS.

Continue reading

August 14, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, August 13, 2018

EY (With 2,200 Lawyers) Seeks To Disrupt BigLaw With Acquisition Of Alternative Legal Services Tech Company—Tax Law Practices Are Most At Risk

EYRAmerican Lawyer, The Big Four’s Recent Acquisition in the Legal Market is a Big Deal:

There has been much talk in the past year that the Big Four were sniffing around the alternative legal services (ALSP) market looking for an acquisition. Many legal market watchers, including your (humble) analyst, publicly stated that they expected at least one Big Four-led acquisition into the ALSP space in 2018. That wait is now over. EY announced on August 7th that they will acquire Riverview Law, a UK based provider of both managed legal services and technology. ...

EY’s acquisition of Riverview Law has the potential of shaking up the ALSP market in two important ways. First, it may help facilitate increased acquisitions within the space. ...

There is a second, potentially more important, reason why the Riverview acquisition is important in this space. Managers of existing ALSPs now face the daunting task of competing with a Big Four player. EY will be a fierce competitor for several reasons. Its size — at $31bn in revenue and 250,000 employees worldwide — is certainly important. Its client base and strong capabilities in process management will also be key. But most important is their brand. Trust is incredibly important in the legal services market — even in the lower value areas in which ALPS compete. Law departments, as the leading purchasers of legal services, are fundamentally in the business of risk mitigation. While the cost of service is important, so is the credibility of the vendor, and this is particularly true for ALSPs. By hiring an “alternative” provider law departments are taking two risks — first, that this new “alternative” approach can work and second, that the ALSP in question is the right vendor in the space. EY’s strong brand equity and familiarity, coupled with existing relationships with clients make them much better placed to make this argument to corporate leaders than Axiom, Elevate, UnitedLex or any of the other leading ALSPs. The Big Four have the unique benefit of being seen as a “safe pair of hands”. This will be a key competitive advantage.

EY

Continue reading

August 13, 2018 in Legal Education, Tax | Permalink | Comments (0)

The Economist: Tax Overhaul For The 21st Century

EconomistThe Economist, Overhaul Tax for the 21st Century:

If you are a high earner in a rich country and you lack a good accountant, you probably spend about half the year working for the state. If you are an average earner, not even an accountant can spare you taxes on your payroll and spending.

Most of the fuss about taxation is over how much the government takes and how often it is wasted. Too little is about how taxes are raised. Today’s tax systems are not only marred by the bewildering complexity and loopholes that have always afflicted taxation; they are also outdated. That makes them less efficient, more unfair and more likely to conflict with a government’s priorities. The world needs to remake tax systems so that they are fit for the 21st century.

Jean-Baptiste Colbert, the finance minister of Louis XIV of France, famously compared the art of raising tax to “plucking the goose so as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”. Tax systems vary from one economy to another—Europe imposes value-added taxes, America does not. Yet in most countries three flaws show how the art of plucking has failed.

Continue reading

August 13, 2018 in Tax | Permalink | Comments (0)

Shanske: White Paper On Eliminating The Water’s Edge Election And Moving To Mandatory Worldwide Combined Reporting

Darien Shanske (UC-Davis), White Paper on Eliminating the Water’s Edge Election and Moving to Mandatory Worldwide Combined Reporting:

All forty-four states with corporate income taxes must consider how to respond to changes that the Tax Cuts and Jobs Act made to the federal corporate tax treatment of multinational corporations. In particular, the states must consider how to respond to two new anti-base erosion provisions at the federal level: GILTI and the BEAT. Here are a few of the options: 1) The states can choose not to conform to these provisions. 2) The states can choose to piggy-back on these provisions with little change. 3) The states can choose to piggy-back on these provisions, but do so strategically. That is, a state could choose to institute superior versions of these taxes. There is a lot of room for improvement. 4) The states can also choose to go back to the future and require mandatory worldwide combined reporting.

Continue reading

August 13, 2018 in Scholarship, Tax | Permalink | Comments (0)

Classic Lesson From The Tax Court: When Hornung Won The 'Vette

PaulHornung1961ToppsCardI'm back from vacation, but busy preparing for the start of classes, so I offer another Classic Lesson that I have been saving.  I hope you enjoy it.  I will return next week with a new Lesson based on a recent case.

I find tax more interesting than football.  But I know I am not like most people.  So I enjoy using the classic case of Hornung v. Commissioner, 47 T.C. 428 (1967), because it not only teaches students a bit about football history, it also helps them understand a really important tax concept: the doctrine of constructive receipt. As a bonus, it is also one of those fun cases where the taxpayer and the IRS take the opposite of their normal positions, with amusing consequences.

Paul Hornung was an outstanding football player in the 1960’s, winning a bunch of very well known awards: the Heisman Trophy, the NFL MVP award, and induction into both the professional and college football halls of fame.  Here's a Sports Illustrated tribute to him.

Hornung also won a Corvette on December 31, 1961, when his team (the Green Bay Packers) beat the New York Giants for the National Football League Championship. Remember, at that time the NFL was the main football league so this was, basically, the Super Bowl. The AFL was only just starting and it was several years before the first designated “Super Bowl” game occurred between the leagues.

Hornung was selected by Sport Magazine as the game’s most valuable player. That selection came with an award: a brand-spanking new 1962 Corvette. The award was announced in Green Bay at the conclusion of the game in the late afternoon of Sunday, December 31, 1961. The car was in Manhattan. Hornung picked up the car the next week at a lunch given in his honor by the magazine. He sold the car a few months later for just over $3,000.  He did not report any income from receiving the Corvette, either in 1961 or in 1962.  When the IRS audited his 1962 return, he claimed that if receipt of the Corvette was income, it was income in 1961, not 1962, under the doctrine of constructive receipt.  To see how that worked out for him, you will need to dive below the fold.

Continue reading

August 13, 2018 in Bryan Camp, Celebrity Tax Lore, Tax | Permalink | Comments (2)

TaxProf Blog Weekend Roundup

Sunday, August 12, 2018

The Myth Of American Income Inequality

WSJWall Street Journal op-ed:  The Myth of American Inequality, by Phil Gramm & John F. Early:

America is the world’s most prosperous large country, but critics often attempt to tarnish that title by claiming income is distributed less equally in the U.S. than in other developed countries. These critics point to data from the Organization for Economic Cooperation and Development, which ranks the U.S. as the least equal of the seven largest developed countries. American progressives often weaponize statistics like these to urge greater redistribution. But the OECD income-distribution comparison is biased because the U.S. underreports its income transfers in comparison to other nations. When the data are adjusted to account for all government programs that transfer income, the U.S. is shown to have an income distribution that aligns closely with its peers.

Continue reading

August 12, 2018 in Tax | Permalink | Comments (7)

IRS Grants Tax-Exempt Status To Lesbian ‘Pussy Church Of Modern Witchcraft' That Excudes Men, Transgender People

Pussy ChurchForbes, Lesbians Want A Church Of Their Own And IRS Approves:

Pussy Church of Modern Witchcraft might strike you as something you would find in the Onion, rather than here on a Forbes tax blog, but it is a real deal.  You can find it on Charity Navigator and Guidestar.  The IRS recognized it as a 501(c)(3)  organization and went the extra step of recognizing PCMW as a church, the most enviable of all tax statuses. exempt not only from income tax but also from the transparency that filing Form 990 creates.  A church does not have to apply for exempt status, but it is a prudent step particularly for an innovative organization like PCMW.  My source indicated that the approval process was reasonably quick and there was no push-back from the IRS. ...

From the website we get:

Why the Pussy Church?
We come together to form a congregation of adherents to our female born, lesbian-feminist-based religions beliefs and traditions. We intend to serve our adherents through worship, service, and sistership with our congregants. We intend to accomplish the growth and continued strengthening of our congregation. The beneficiaries of our accomplishments are the adherents to our religious beliefs – Women and Girls. We will achieve our purpose through regular worship and service with our congregants and with other Women and Girls who may wish to become congregants.

Why is the Pussy Church for women and girls only?
Women are oppressed globally on the basis of our biological sex. Gender is a mechanism of Women’s oppression globally. At Pussy Church (PCMW), we serve Women and Girls and our emotional and spiritual needs. We cannot serve these needs in the presence of Men, as Men as a class are the cause of the harm that women experience globally. All groups have the right to associate freely as they see fit. As a religious organization, Pussy Church is also protected under the First Amendment of the U.S. Constitution permitting free exercise of religion as well as the Maryland Declaration of Rights, which provides that all persons are equally entitled to protection in their religious liberty.

Continue reading

August 12, 2018 in Tax | Permalink | Comments (3)

Saturday, August 11, 2018

This Week's Ten Most Popular TaxProf Blog Posts

Grewal: Can Montana Force The IRS To Break the Law?

Andy Grewal (Iowa), Can Montana Force the IRS to Break the Law?:

The IRS recently changed the rules on how some tax-exempt organizations must report information related to their “substantial contributors” (that is, those who donate $5,000 or more in a year). This change has sparked a political controversy, fueled by concerns over “dark money” in politics and the Citizens United decision. One state (Montana) has already filed an APA-based challenge to the IRS’s action, and its lawsuit raises a novel question over whether the IRS must enforce regulations that may have been promulgated unlawfully. ...

Continue reading

August 11, 2018 in Scholarship, Tax | Permalink | Comments (2)

Why Every Good Economist Should Be A Feminist

ProMarket, Why Every Good Economist Should Be Feminist:

As every good economist knows, markets work best when they are competitive. Therefore, every good economist should also be a feminist, defending a level playing field for all genders.

[T]he academic world, and especially the economic and finance profession, can learn immensely from one sexual harassment case that did go to court: Ravina v. Columbia, decided last week in a federal court in New York. Enrichetta Ravina, then an assistant professor at Columbia Business School, alleged that Geert Bekaert, a full professor there, sexually propositioned her. Ravina stated that when she rejected him, Bekaert retaliated by badmouthing her in the academic community and stalling their joint research project, in which he had control of the data. The jury acquitted Bekaert for the sexual harassment charge, but found him liable of retaliation, forcing him and Columbia to pay $750,000 in compensatory damages, with Bekaert, alone, paying another $500,000 in punitive damages (for a more extensive coverage).

The first lesson to be learned from the trial is that sexual harassment cases are very hard to prove in a court of law, even when multiple women complain at the same time, as in this case. In the absence of corroborating evidence, sexual harassment cases often come down to her word against his and the relative credibility of each party. Litigation is too expensive (both monetarily and emotionally) and not enough. While we should encourage and support women to speak up, we also need to explore other ways to make academia an environment where women can thrive. We senior faculty (and we male senior faculty in particular) should make respectful behavior towards women an explicit factor in our promotion and hiring decisions, in the same way teaching and mentoring PhD students currently are. In addition we should require—as suggested by Paola Sapienza, a finance faculty at Northwestern and board member of the Academic Female Finance Committee—from outside hires, especially those who come with an offer of tenure, a self-declaration that they behaved according to the ethics codes of their previous institutions, making it more difficult for known harassers to recycle themselves.

Continue reading

August 11, 2018 in Legal Education, Tax | Permalink | Comments (1)

Friday, August 10, 2018

Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Weisbord's Postmortem Austerity And Entitlement Reform

This week, Ariel Jurow Kleiman (San Diego) reviews a new essay by Reid K. Weisbord (Rutgers), Postmortem Austerity and Entitlement Reform, 71 Stan. L. Rev. Online 132 (2018).

StevensonAs readers know well, Social Security and Medicare are on a path to eventual insolvency, and entitlement reform is inevitable. For the most part, reform proposals tend to exist within the familiar bounds of tax hikes or benefit cuts. In his new essay on the topic, Reid K. Weisbord offers a bold reform proposal that includes elements of both, but is somehow not exactly either.  

Weisbord starts by dismissing the possibility of a broad-based tax increase to fund entitlements. A tax increase is unlikely in the near future, he argues, because history has witnessed a long-term trend of steadily declining tax rates in the United States. In addition, he notes, U.S. citizens are tax averse, often failing to recognize the connection between tax payments and valued public services. Under such conditions, cutting benefits may be politically more palatable than raising taxes. However, cutting benefits harms individuals who relied on Social Security and Medicare in planning for old age. To solve this dilemma, Weisbord proposes a novel policy of “postmortem austerity.” 

Continue reading

August 10, 2018 in Ariel Stevenson, Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Ray Madoff Named To 2018 Non Profit Times Power & Influence Top 50

Top 50Ray Madoff (Boston College) has been named to The 2018 Non Profit Times Power & Influence Top 50:

Madoff has become the go-to person for the counter-point argument when it comes to donor-advised funds. Her ideas are starting to influence lawmakers who see a big pot of unreachable, often stagnant dollars. The tax benefit is instant for money that can sit untouched. Madoff wants the money put to work faster. She’s right.

August 10, 2018 in Legal Education, Tax, Tax Profs | Permalink | Comments (0)

Tax Panels Today At SEALS

SEALs Logo (2013)Tax panels today at the 2018 SEALS Annual Conference in Ft. Lauderdale:

Tax Reform in the Trump Era
Congress and the Trump administration are working hard to institute a series of tax reforms focused in a variety of different areas, ranging from changing the individual rate structure to altering the international tax regime. This discussion group considers a variety of issues raised in the tax reform arena. Members of the discussion group consider both reforms already enacted by Congress and alternative proposals that either may still be enacted or that should have been enacted.

  • Alice Abreu (Temple)
  • Jennifer Bird-Pollan (Kentucky ) (moderator)
  • Neil Buchanan (George Washington)
  • William Byrnes (Texas A&M)
  • Cliff Fleming (BYU)
  • David Gamage (Indiana)
  • Rebecca Morrow (Wake Forest)
  • Shu-Yi Oei (Boston College)
  • Bret Wells (Houston)

Tax Law and Statutory Interpretation
Participants in this panel consider a variety of issues related to the design of particular tax law provisions, and the way that the drafting of tax legislation affects how that law will be interpreted. Topics considered include the taxation of employment non-compete arrangements, state level wealth transfer tax provisions, tax-exemption provisions, and social justice as it applies to particular taxpayers affected by the system.

Continue reading

August 10, 2018 in Conferences, Scholarship, Tax | Permalink | Comments (1)

Kleinbard: The Law And Policy Of Donor-Advised Funds

Kleinbard (2015)Following up on my previous posts:

TaxProf Blog op-ed:  The Law and Policy of Donor-Advised Funds, by Edward Kleinbard (USC):

Daniel Hemel’s analysis of Donor-Advised Funds is erroneous on both law and policy grounds.

As to law: you must begin with the self-evidently true factual proposition that the independence of the DAF from the donor is a sham. The DAF charity does what it is told to do by the donor, and not one whit more, or less. The DAF is the donor’s agent, not an independent actor that happens to get along with the donor. Were I in better health today I would litigate this for the government on a contingent fee basis. Moreover, the DAF itself does not put a single dollar to work in eleemosynary activity. It’s a personal financial asset that compounds at tax-free rates, a point that I think didn’t get developed in Dan’s piece.

What follows from this is that the DAF result is inconsistent with our annual system of accounting, in which expenses must relate to the period incurred. A firm that irrevocably prepays five years of TV advertising cannot deduct all five years’ worth today – yet that is the result that the DAF achieves. It is a simple end run around either cash or accrual accounting methods.

Continue reading

August 10, 2018 in Tax | Permalink | Comments (4)

ABA Tax Section Publishes New Issue Of Tax Times

ABA Tax Times (2016)The ABA Tax Section has published 37 Tax Times No. 4 (August 2018):

FROM THE CHAIR
A Time to Reflect
By Karen L. Hawkins (Hawkins Law, Yachats, OR)
A year serving as Chair of this Section seemed like a long time in August of 2017. Now as I approach August of 2018, I feel there is so much I won’t have time to finish (or start). That’s why succession is so important. Building on the positive legacies of those who came before you ensures those coming behind you will do the same.

FROM THE CHAIR-ELECT
The Coming Year
By Eric Solomon (Ernst & Young, Washington, D.C.)
It is an honor for me to be the next Chair of the Tax Section, and a privilege to have the opportunity to serve our members, the tax community, and the public.

Continue reading

August 10, 2018 in ABA Tax Section, Tax | Permalink | Comments (0)

Thursday, August 9, 2018

NY Times: Who Gets a New 20% Tax Break? The Treasury Dept. Speaks

New York Times, Who Gets a New 20% Tax Break? The Treasury Dept. Speaks, and Trump May Save:

A new 20 percent tax break included in last year’s $1.5 trillion tax overhaul could wind up benefiting President Trump’s real estate empire given how the Treasury Department plans to implement the provision, several tax experts said.

On Wednesday, the Treasury Department issued a sprawling regulationoutlining the types of companies and professionals eligible to qualify as “pass-through” entities and get the 20 percent tax deduction. The widely anticipated rule has huge implications for law firms, real estate trusts, family farms and other companies that are structured so their profits are taxed as individual income for their owners.

The 184-page rule probably means a windfall for authors and small banks, who appear eligible for the 20 percent deduction, but a disappointment for dentists, who are not. It takes some steps meant to stop individuals and companies, such as law firms, from gaming the loophole to reduce their tax bills.

Continue reading

August 9, 2018 in Tax | Permalink | Comments (0)

 The IRS Has Rehired Hundreds of Fired Employees. Congress Should Step In.

Daily Signal, The IRS Has Rehired Hundreds of Fired Employees. Congress Should Step In.:

For one of the most punitive agencies in the federal government, the IRS sure is forgiving with its own employees.

Rep. Kristi Noem, R-S.D., has proposed a bill that would prevent the IRS from rehiring employees fired for misconduct or poor performance. The bill, titled the Ensuring Integrity in the IRS Workforce Act, follows a recent Treasury inspector general report that shows the IRS rehired more than 200 fired workers in a little over a year. A previous inspector general report proves this problem dates back to at least 2009.

According to the Treasury Department’s inspector general, the IRS did not provide officials responsible for hiring decisions with information about employment history, though that information is readily available.  ...

Continue reading

August 9, 2018 in IRS News, Tax | Permalink | Comments (1)

Dharmapala: The Consequences Of The TCJA's International Provisions — Lessons From Existing Research

Dhammika Dharmapala (Chicago), The Consequences of the TCJA's International Provisions: Lessons from Existing Research:

This paper discusses the potential consequences of the international tax provisions of the recent Tax Cut and Jobs Act (TCJA), drawing on existing research. The TCJA’s dividend exemption provision is expected to eliminate distortions to the amount and timing of dividend repatriations. However, the efficiency gains from increased repatriations — which are primarily expected to increase shareholder payout – are likely to be modest. The paper uses the observed behavior of firms during the repatriation tax holiday implemented in 2005 to infer the relative magnitudes of the burdens created by the repatriation tax under the old (pre-TCJA) regime and by the TCJA’s new “Global Intangible Low-Taxed Income” (GILTI). It concludes that the TCJA increases the tax burden on US residence for many, and perhaps most, US MNCs. The paper also argues that the GILTI and “Foreign-Derived Intangible Income” (FDII) provisions are likely to create substantial distortions to the ownership of assets, both in the US and around the world.

Continue reading

August 9, 2018 in Scholarship, Tax | Permalink | Comments (0)

Tax Panels Today At SEALS

SEALs Logo (2013)Tax panels today at the 2018 SEALS Annual Conference in Ft. Lauderdale:

Tax Compliance and Tax Privacy:
This panel will explore cutting-edge issues in tax compliance, domestic information reporting and international information sharing, and tax privacy. The topics include recent developments in the behavioral economics and psychology of tax compliance, the rapidly evolving use of technology and big data in tax enforcement and its impact on the privacy of taxpayers, tax information and the suppression of political rivals, and related issues.

  • William Byrnes (Texas A&M) (moderator)
  • Leandra Lederman (Indiana)
  • Francine Lipman (UNLV)
  • Bret Wells (Houston)

The Future of Tax Law
This panel considers a variety of matters related to tax law design. Among the topics to be considered are matters related to international tax law design, social justice in the application of tax law to individual low-income taxpayers, the taxation of marijuana, the taxation of robots, and public-private partnerships. In each instance, the elements of good tax law design will be considered and applied to the issue in question.

Continue reading

August 9, 2018 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Yin: Five Myths About Trump’s Income Tax Returns

Washington Post op-ed:  Five Myths About Trump’s Income Tax Returns, by George Yin (Virginia):

President Trump’s solicitous posture toward Russian President Vladimir Putin, in Helsinki and elsewhere, is helping to keep alive interest in his income tax returns: Does he have some hidden financial connection to the Kremlin? Unlike his waffling on policy positions and factual matters, he has consistently refused to release his returns, contrary to the practice of every president since Jimmy Carter. Still, this is a poorly understood area of the law. Here are five common misconceptions about the president’s tax returns and the public’s ability to review them.

Continue reading

August 9, 2018 in Tax | Permalink | Comments (2)

Wednesday, August 8, 2018

Hasen: Asset Basis In Acquisitive Asset Reorganizations

David Hasen (Florida), Asset Basis in Acquisitive Asset Reorganizations: General Utilities Hangover:

The rules that govern the tax basis and, by extension, the holding period of property received by an acquired corporation in an acquisitive reorganization are an unlovely patchwork that emerged from major changes to the tax law in 1986 and 1988. They not only fail to provide clarity but also do not reflect the fact that the acquired corporation, to the extent it engages in post-reorganization activity pursuant to the overall plan of reorganization, is in substance the agent of the acquiring corporation. Congress should amend the reorganization provisions to reflect this circumstance.

Continue reading

August 8, 2018 in Scholarship, Tax | Permalink | Comments (0)

Federal Judge Rules For NYU In First Of Many Lawsuits Alleging Major Universities Mismanage 403(b) Retirement Plans For Faculty And Staff

NYU (2016)Wall Street Journal, U.S. Judge Rules for NYU in $358 Million Retirement-Fees Case:

A judge on Tuesday ruled in favor of New York University, dismissing allegations that the university caused participants in its retirement-savings plans to pay excessive fees.

The opinion, issued by Judge Katherine Forrest of the U.S. District Court in the Southern District of New York, is the first to result from a trial of one of a wave of lawsuits filed two years ago against more than a dozen big-name universities alleging the retirement plans for their employees are too confusing and costly [including Columbia, Cornell, Duke, Johns Hopkins, MIT, Northwestern, Pennsylvania, Vanderbilt, USC, and Yale].

Continue reading

August 8, 2018 in Legal Education, Tax | Permalink | Comments (0)

The Extent And Efficacy Of State Charitable Contribution Income Tax Credits

Nicolas Duquette (USC), Alexandra Graddy-Reed (USC) & Mark Phillips (USC), The Extent and Efficacy of State Charitable Contribution Income Tax Credits:

State-level individual income tax credits for charitable giving are a common and often generous subsidy for donors but have not been examined holistically. This paper gathers novel panel data on each US state’s income tax credits for charitable contributions, identifying 46 credits in 23 states between 2000 and 2016. Generally, the credits target specific types of charitable giving and are more generous than federal and state charitable deductions, while not requiring taxpayers to itemize.

Continue reading

August 8, 2018 in Scholarship, Tax | Permalink | Comments (0)

9th Circuit Withdraws IRS's Victory In Altera 2-1 Decision Issued After Judge's Death

AlteraFollowing up on my previous post, 9th Circuit Reverses Tax Court In Altera, Revives Cost-Sharing Regs In Major Loss For Intel, Other Tech Companies:  in a surpising sequence of moves, the Ninth Circuit has  named Judge Susan Graber as a replacement judge for the late Judge Stephen Reinhard, who cast the deciding vote in the 2-1 case before his death, and has withdrawn its opinion in Altera “to allow time for the reconstituted panel to confer on this appeal,” even though no petition for rehearing has been filed.

Continue reading

August 8, 2018 in New Cases, Tax | Permalink | Comments (1)

Thorndike & Mehrotra: The Organized Tax Bar And The Dilemmas Of Professional Responsibility

Joseph J. Thorndike (Tax Analysts) & Ajay K. Mehrotra (American Bar Foundation), 'Who Speaks for Tax Equity and Tax Fairness?' The Emergence of the Organized Tax Bar and the Dilemmas of Professional Responsibility, 81 Law & Contemp. Probs. 203 (2018):

During the first six decades of the 20th century, lawyers in the United States grappled with their role in stewarding the nation’s tax system. As 19th century tariffs gave way to 20th century income taxes, legal professionals found themselves at the center of a complex and momentous transformation of the American state and its fiscal underpinnings. In the early 20th century, a subset of these legal professionals came to view themselves principally as “tax lawyers,” a previously unknown category within the legal profession. This process of self-identification also involved a certain amount of organizational creativity, and during the first four decades of the century, tax lawyers organized a series of ad hoc groups within the broader American Bar Association (ABA).

In 1939, the ABA grudgingly established a permanent Section of Taxation, recognizing belatedly the importance and durability of this legal specialty. One of the central challenges facing leaders of the Tax Section was difficult questions about the public role of the private tax bar. This article explores how the organized tax bar navigated the tensions between serving private clients and defending the integrity of the tax system. Stanley Surrey, one of those leaders, identified and scrutinized this professional dilemma with more clarity and conviction than nearly any other tax law professional. The problem, as Surrey understood it, was that tax lawyers had other responsibilities competing with their duty to the fisc.

The tension between a tax lawyer’s public and private responsibilities was not easily resolved. But the ABA Tax Section never stopped trying, and this paper explores those efforts during the first six decades of the 20th century. By the early 1960s, Tax Section leaders had begun to define an important, if circumscribed, public role for the private bar — one focused less on broad issues of political economy and more on “technical tax matters” where it was possible to “balance fairly the interests of the ‘Government’ and the ‘taxpayer.’”

August 8, 2018 in Scholarship, Tax | Permalink | Comments (0)

Tuesday, August 7, 2018

Cui: Taxation Without Information — The Institutional Foundations Of Modern Tax Collection

Wei Cui (University of British Columbia), Taxation Without Information: The Institutional Foundations of Modern Tax Collection, 20 U. Pa. J. Bus. L. 93 (2018) (reviewed here (Daniel Hemel (Chicago)) and here (Leandra Lederman (Indiana))):

A prominent strand of recent economic and legal scholarship hypothesizes that third-party information reporting (TPIR) is essential to modern tax collection. The slogan, “no taxation without information,” has captured researchers’ imagination and is even often presented as self-evident truth. This Article offers a fundamentally different perspective, arguing that the emphasis on TPIR is misplaced. TPIR is used largely in the collection of the personal income tax but not of many other types of modern taxes. Even for the personal income tax, TPIR also has close substitutes which do not involve information transmission to the government. Theoretically, appeals to TPIR are vitiated by the puzzle of payor compliance. And most purported empirical evidence for the effectiveness of TPIR fails to provide causal identification.

Continue reading

August 7, 2018 in Scholarship, Tax | Permalink | Comments (0)

ProPublica: The IRS’ Dark Money Decision May Be Less Dire Than It Seems

Pro PublicaProPublica, Why the IRS’ Recent Dark Money Decision May Be Less Dire Than It Seems:

Starting next year, the Internal Revenue Service will no longer collect the names of major donors to thousands of nonprofit organizations, from the National Rifle Association to the American Civil Liberties Union to the AARP. Democratic members of Congress and critics of money in politics blasted the move, announced last week by the Treasury Department, the IRS’ parent agency. The Democrats claim the new policy will expand the flow of so-called dark money — contributions from undisclosed donors used to fund election activities — in American politics. For their part, Republicans and conservative groups praised the decision as a much-needed step to avoid chilling the First Amendment rights of private citizens.

Continue reading

August 7, 2018 in IRS News, Tax | Permalink | Comments (2)

Thomas: The Standard Business Deduction

Kathleen DeLaney Thomas (North Carolina), The Standard Business Deduction:

This paper describes a proposal for a standard business deduction ("SBD") for small businesses. The SBD would work like the regular standard deduction. The latter is a fixed amount that is claimed in lieu of claiming itemized deductions below the line. The SBD would be a fixed amount that is claimed above the line in lieu of deducting actual business expenses. Taxpayers claiming the SBD would report their gross business earnings, subtract the SBD, and arrive at net business income. No Schedule C would be necessary. Like the regular standard deduction, claiming the SBD would be optional for the taxpayer. If a taxpayer’s actual business expenses exceeded the SBD, he could instead opt to claim those expenses.

Continue reading

August 7, 2018 in Scholarship, Tax | Permalink | Comments (0)

Partnering With Business: State & Local Tax Opportunities In Digital Sales

Peter Manda (Chicago), Partnering with Business: SALT Opportunities in Digital Sales, 88 State Tax Notes 425 (Apr. 30, 2018):

In this viewpoint, I evaluate the potential for state and local governments to raise revenue in a post-Quill world. I then examine dynamic sales and how they work, assess the state of current technology affecting online sales, and propose dynamically taxing electronic transactions (including retail sales) as the economy shifts toward a cashless society.

Continue reading

August 7, 2018 in New Cases, Scholarship, Tax | Permalink | Comments (0)

Monday, August 6, 2018

IRS Blocks Refund For Companies Overpaying Offshore Profits Tax

Bloomberg, IRS Blocks Refund for Companies Overpaying Offshore Profits Tax:

There’s bad news for companies that may have accidentally overpaid this year’s "repatriation" taxes on foreign profits: they won’t be getting a refund.

The Internal Revenue Service said in a legal memorandum dated Thursday that it won’t rebate any such overpayments or credit them toward tax bills not tied to repatriation, such as annual bills for corporate income.

“A lot of taxpayers” who had expected reimbursement “are going to be disappointed,” Robert Willens, an independent tax and accounting expert, wrote in a client note Friday. "No such refund will be forthcoming.”

Multinationals that likely overpaid include those in the pharmaceutical and technology sectors, such as Pfizer and Apple, because they have the largest stockpiles of foreign profits, Willens said. ...

Continue reading

August 6, 2018 in Tax | Permalink | Comments (0)

Hemel:  A Qualified Defense Of Donor Advised Funds

Following up on Saturday's post, NY Times: How Tech Billionaires Hack Their Taxes With Donor-Advised Funds:  Daniel Hemel (Chicago), A Qualified Defense of Donor Advised Funds:

The New York Times has published a very negative article on donor advised funds (DAFs) in today’s business section. The headline characterizes DAFs as a “philanthropic loophole” that “tech billionaires” use to “hack their taxes.” The article goes on to describe DAFs as “a sort of charitable checking account with serious tax benefits and little or no accountability.” The most withering criticism of DAFs comes from the University of Southern California’s Ed Kleinbard (with whom I agree on most other tax policy questions). DAFs are “a fraud on the American taxpayer,” the article quotes Kleinbard as saying. “They’re a way for the affluent to have their cake and eat it, too.”

The remarkable rise of DAFs poses a number of interesting policy questions. But I think these questions are a lot more complicated than the Times article lets on. DAFs can serve socially useful functions, such as facilitating stock contributions to smaller 501(c)(3)s, encouraging donors to be more reflective in their philanthropic decisions, and extending the tax incentive for charitable giving beyond the very rich. It’s worth thinking about those benefits before concluding that DAFs are a “fraud.” ...

Continue reading

August 6, 2018 in Tax | Permalink | Comments (1)

Classic Lesson From The Tax Court: The Ole December 31st Check Problem

Tax Court (2017)'m on vacation this week but I wrote up this Classic Lesson before I left so you could have something to chew on as you drink your morning beverage of choice.

Timing is at least as important in tax as it is in comedy. Although less common than it used to be before the age of direct deposit and mobile banking apps, the question sometimes arises about when must a taxpayer report as gross income a check received on December 31st but not cashed until January. The flip side is when may a taxpayer take a deduction for a check sent out on December 31st but not cashed until January.

Taxpayers tend to want to push off reporting income into a later year and tend to want to pull back deductions into the current year. Specifically taxpayers who receive a check on the last day of the year would like to say they don’t have income until they cash the check in January. But at the same time, taxpayers who write a check for a deductible expense on the last day of the year want to deduct that expense in that year and not the next.

Taxpayers cannot have it both ways. The good news is that the IRS has long allowed checks mailed on December 31st to be deductible in the year mailed, even when not cashed until January, so long as the taxpayer has truly parted control over the delivery of the check. See Treas.Reg. 1.170A-1(b).

The bad news is that taxpayers are also generally required to report checks received on December 31st as income. The rationale for that, however, is not entirely clear, as one sees in the classic case of Kahler v. Commissioner, 18 T.C. 31 (1952).

 

Continue reading

August 6, 2018 in Bryan Camp, New Cases, Tax | Permalink | Comments (4)

TaxProf Blog Weekend Roundup

Sunday, August 5, 2018

WSJ: How One Man Used The ‘Innocent Spouse’ Rule To Win Some Relief In Tax Court

WSJWall Street Journal Tax Report, So Your Wife Embezzled $500,000 and the IRS Wants to Tax You: How One Man Used the ‘Innocent Spouse’ Rule to Win Some Relief in Tax Court:

Rick Jacobsen’s wife embezzled nearly $500,000.

After her conviction, the Internal Revenue Service asked him to pay more than $100,000 of taxes due on her theft. Yes, embezzled funds are taxable, and Mr. Jacobsen and his wife had filed joint tax returns.

But Mr. Jacobsen fought back, arguing his own case before a Tax Court judge. He said he didn’t know about the embezzlement and shouldn’t be forced to pay because he was an “innocent spouse.” In an opinion released last month, he won relief from about $150,000 of tax, interest and penalties [Jacobsen v. Commissioner, T.C. Memo. 2018-115 (July 25, 2018)]. ...

Mr. Jacobsen’s odyssey through the tax system shows the perils of signing a joint return with a tax cheat. It also shows that innocent spouses can sometimes escape dire tax consequences with a lot of time and effort, even if they can’t afford a lawyer. ... 

Continue reading

August 5, 2018 in New Cases, Tax | Permalink | Comments (0)

The Top Five New Tax Papers

SSRN Logo (2018)There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #1:

  1. [450 Downloads]  The False Promise of Presidential Indexation, by Daniel Hemel (Chicago) & David Kamin (NYU)
  2. [357 Downloads]  Introduction to Tax Policy Theory, by Allison Christians (McGill) (reviewed here (Sloan Speck (Colorado))
  3. [299 Downloads]  The International Provisions of the TCJA: A Preliminary Summary and Assessment, by Reuven Avi-Yonah (Michigan)
  4. [204 Downloads]   Income-Based Effective Tax Rates and Choice-of-Entity Consideratins Under the 2017 Tax Act, by Bradley Borden (Brooklyn) (reviewed here by Mirit Eyal-Cohen (Alabama))
  5. [188 Downloads]  U.S. Tax Reform: Potential Impact on Europe and EU Corporations (Presentation Slides), by Reuven Avi-Yonah (Michigan)

August 5, 2018 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, August 4, 2018

This Week's Ten Most Popular TaxProf Blog Posts

NY Times: How Tech Billionaires Hack Their Taxes With Donor-Advised Funds

New York Times, How Tech Billionaires Hack Their Taxes With a Philanthropic Loophole:

Late in 2014, Nicholas Woodman, the founder and chief executive of GoPro, announced what appeared to be an extraordinary act of generosity.

Mr. Woodman, then 39, had just taken his camera company public, and was suddenly worth about $3 billion. Now he was giving away much of that wealth — some $500 million worth of GoPro stock — to the Silicon Valley Community Foundation, an organization based in Mountain View, Calif., that would house the assets of the newly formed Jill and Nicholas Woodman Foundation. ... The executive basked in prestige and gratitude. ...

But four years on, there is almost no trace of the Woodman Foundation, or that $500 million. The foundation has no website and has not listed its areas of focus, and it is not known what — if any — significant grants it has made to nonprofits. ...

If the benefit to the needy is difficult to see, the benefit to Mr. Woodman is clear. After GoPro’s initial public offering, he faced an enormous tax bill in 2014. But by donating via the Silicon Valley Community Foundation, he eased his tax burden in two ways. First, Mr. Woodman avoided paying capital gains taxes on that $500 million worth of stock, a figure that most likely would have been in the tens of millions of dollars. He was also able to claim a charitable deduction that most likely saved millions of dollars more, and probably reduced his personal tax bill for years to come.

Mr. Woodman achieved this enticing combination of tax efficiency and secrecy by using a donor-advised fund — a sort of charitable checking account with serious tax benefits and little or no accountability.

Donor-advised funds, or D.A.F.s, allow wealthy individuals like Mr. Woodman to give assets — usually cash and stock, but also real estate, art and cryptocurrencies — to a sponsoring organization like the Silicon Valley Community Foundation, Fidelity Charitable or Vanguard Charitable. But while donors part ways with their money, they don’t give up control. The sponsoring organizations make grants to hospitals, schools and the like only at a donor’s request. So while donors enjoy immediate tax benefits, charities can wait for funds indefinitely, and maybe forever.

Continue reading

August 4, 2018 in Tax | Permalink | Comments (5)

2018 Federal Tax Procedure Book & Supplements

Federal Tax Procedure is the book for originally prepared for a course on Tax Procedure taught by Adjunct Professor Townsend at the University of Houston School of Law (through the Fall of 2015). The book and related materials contain text discussion, relevant Code Sections, and certain cases designed to encourage students to think about the Tax Procedure process.

Continue reading

August 4, 2018 in Book Club, Scholarship, Tax | Permalink | Comments (1)

Friday, August 3, 2018

Weekly SSRN Tax Review And Roundup: Mazur Reviews Ordower's Taxing Others In The Age Of Trump

This week, Orly Mazur (SMU) reviews a new article by Henry Ordower (Saint Louis), Taxing Others in the Age of Trump: Foreigners (and the Politically Weak) as Tax Subjects, 62 St. Louis U. L.J. 157 (2018).

Mazur (2017-2)Throughout the Trump administration, we have witnessed significant tax cuts with additional potential tax cuts currently being considered. Given this anti-tax political climate, how can the government collect additional revenues to fund spending programs? Henry Ordower’s timely new work considers one way that this may be done by this administration: by imposing U.S. taxes either directly or incidentally on foreigners and other politically weak groups.

To demonstrate potential taxes imposed on foreign interests, the article first explores methods that this administration may use to tax foreigners, including the use of direct taxes and tributes, imposing tariffs or using border adjustments, and restricting investment incentives. However, as Ordower correctly notes, many of these methods of taxing foreigners would be difficult to enforce and are impractical. Even measures such as tariffs and renegotiating treaties to increase withholding taxes and modify other, existing investment incentives, are unadvisable given that they potentially also adversely affect U.S. interests. Ordower’s view is supported by many economists, who have criticized the tariffs recently announced by President Trump as hurting domestic interests by raising prices on consumers, destroying American jobs, and undermining global trade.

Continue reading

August 3, 2018 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Top Donors And The Rising Concentration Of Giving In The U.S., 1960–2012

Nicolas Duquette (USC), Top Donors and the Rising Concentration of Giving in the United States, 1960–2012:

This paper computes the share of all household giving accounted for by the American households donating the largest amounts over the 1960–2012 period. The share of donations accounted for by a minority of top donors has risen sharply over this period. This rising concentration is driven by both larger gifts at the top and reduced giving by the broad majority of households. Charities are increasingly dependent on major donors, and the share of donations flowing to the charities receiving the highest levels of donation revenue has risen. The 2017 Tax Cut and Jobs Act preserved or increased donation incentives for many top donors, and is likely to decrease aggregate charitable giving by less than is widely feared, while accelerating the concentration of giving among those who give the most.

Continue reading

August 3, 2018 in Scholarship, Tax | Permalink | Comments (0)

Ventry: The Failed Free File Program Should Be Reformed, Not Codified

Dennis J. Ventry (UC-Davis), The Failed Free File Program Should Be Reformed, Not Codified, 160 Tax Notes 317 (July 16, 2018):

This article details how the current IRS Free File program harms taxpayers and tax administration. It lays blame for the program’s harmful effects on the IRS’s private-sector partners, the Free File Alliance (FFA). Under the auspices of Free File, FFA companies up-sell paid products to Free File users, violate taxpayer privacy laws, strip taxpayers of legal rights in the event of disputes with FAA companies, and negligently expose users to cyber attacks.

Continue reading

August 3, 2018 in Scholarship, Tax | Permalink | Comments (1)

Should There Be Lower Taxes On Patent Income?

Fabian Gaessler (Max Planck), Bronwyn H. Hall (UC-Berkeley), & Dietmar Harhoff (Max Planck), Should There Be Lower Taxes on Patent Income?:

A “patent box” is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patent filings at the European Patent Office, including information on ownership transfers pre‐ and post‐grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected.

Continue reading

August 3, 2018 in Scholarship, Tax | Permalink | Comments (0)

Thursday, August 2, 2018

Shobe: Private Benefits In Public Offerings — Tax Receivable Agreements In IPOs

Gladriel Shobe (BYU), Private Benefits in Public Offerings: Tax Receivable Agreements in IPOs, 71 Vand. L. Rev. 889 (2018) (reviewed here):

Historically, an initial public offering was a process whereby a company sold all of its underlying assets to the public. A new tax innovation, the “tax receivable agreement” (TRA), creates private tax benefits in public offerings by allowing pre-IPO owners to effectively keep valuable tax assets for themselves while selling the rest of the company to the public.

Ten years ago, TRAs were almost never used in IPOs. Today they have become commonplace, changing the landscape of the IPO market in ways that are likely to become even more pronounced in the future. This Article traces the history of various iterations of TRAs and shows that a new generation of more aggressive TRAs has recently developed. Although TRAs were historically used only for a small subset of companies with a certain tax profile, the new generation of innovative and aggressive TRAs can be used by virtually any company conducting an IPO, making it likely that TRAs will continue to spread across the IPO market.

Continue reading

August 2, 2018 in Scholarship, Tax | Permalink | Comments (0)