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Friday, May 22, 2015

Fleischer: Yahoo's Tricky Plan for Tax-Free Spinoff of Alibaba Stock

NY Times Dealbook (2013)New York Times Deal Book:  Yahoo's Tricky Plan for Tax-Free Spinoff of Alibaba Stock, by Victor Fleischer (San Diego):

I bet Marissa Mayer wishes she had minored in corporate taxes.

Ms. Mayer, Yahoo’s chief executive, studied computer science at Stanford, specializing in artificial intelligence. If only there was an algorithm to devise a tax-efficient corporate restructuring. Machine learning cannot sort through an infinite number of strategic tax options and choose the best one. Nor can machines reliably predict how the human beings at the I.R.S. will apply uncertain law to a complex area like corporate tax.

And the tax code, not computer code, is what Yahoo’s shareholders care about.

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May 22, 2015 in Tax | Permalink | Comments (0)

Weekly Tax Roundup

Weekly SSRN Tax Roundup

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May 22, 2015 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Weekly Student Tax Note Roundup

Weekly RoundupConor Clarke (J.D. 2015, Yale) & Edward Fox (J.D. 2015, Yale), Note, Perceptions of Tax Expenditures and Direct Spending: A Survey Experiment, 124 Yale L.J. 1252 (2015):

This paper presents the results of an original survey experiment on whether the public prefers “tax expenditures” to “direct outlays” — that is, whether members of the public are more likely to support government spending that takes the form of a tax credit rather than a check or cash. Using a survey that spans a wide variety of policy areas — and with important variations in wording and information — we show that the public strongly prefers tax expenditures even when the “economic substance” of the proposed policies is identical. We also show that the public views tax expenditures as less costly than equivalent direct outlays. These results support a longstanding but largely unstudied hypothesis that tax expenditures “hide” the costs of government spending, and have implications for why tax expenditures have continued to grow in size and complexity.

May 22, 2015 in Scholarship, Tax, Weekly Student Tax Note Roundup | Permalink | Comments (0)

IRS To Give Loving Refunds

RTRPIRS, Registered Tax Return Preparer Test Fee Refunds (May 21, 2015):

The IRS is refunding the fees that return preparers paid for the Registered Tax Return Preparer test. Letters will be mailed to refund recipients on May 28 and checks will be mailed on June 2. Return preparers took the test between November 2011 and January 2013 and paid a fee of $116. About 89,000 tests were paid for and taken, with some preparers taking the test more than once.

The refunds are being made because the federal courts determined in Loving v. IRS [742 F.3d 1013 (D.C. Cir. 2014)] that the IRS lacked authority to mandate testing.

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May 22, 2015 in IRS News, Tax | Permalink | Comments (1)

Brennan & McDonald: Deconstructing the Taxation of Packaged Financial Strategies

Thomas Brennan (Harvard) & Robert McDonald (Northwestern), Deconstructing the Taxation of Packaged Financial Strategies:

Financial claims are often taxed according to the way in which they are nominally “packaged” rather than according to their economic characteristics. We deconstruct financial taxation by viewing any financial strategy as a dynamic portfolio of pure debt and pure equity. Given the taxation of these building blocks, there is a unique consistent equivalent tax treatment for any strategy, and this transparent tax is a benchmark against which burdens or subsidies due to packaging can be measured. We quantify tax effects in present value terms in the context of a partial equilibrium model. We apply our methodology to common hybrid securities, such as convertible bonds and reverse convertible bonds. We find tax-induced discrepancies of up to about up to about 6% of value (i.e., 20 basis points per year) for typical 30-year convertible bonds. With unfunded securities, such as puts and calls, the discrepancy becomes much larger in percentage terms. Because these unfunded positions are levered, however, investors do not buy as many of them, and the discrepancy in aggregate absolute terms is therefore likely not so much greater. In our framework, the discrepancy can be eliminated either by taxation based on an ongoing determination of building block equivalents or else by eliminating distinctions in taxation among the building blocks. In particular, this would require eliminating the tax distinction between debt and equity.

May 22, 2015 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 743

IRS Logo 2Government Executive, Advocacy Group: IRS' Problems 'Won't Be Cured by Removing Lois Lerner':

Following months of Freedom of Information Act requests, a team of conservative lawyers has sought to rewrite the narrative of the targeting controversy that has plagued the Internal Revenue Service for two years.

In a report leaked to National Review, the nonprofit legal group Cause of Action concluded that employees who mishandled applications for tax-exempt status were following the official agency manual as much as they were their allegedly politicized bosses. The unreleased 35-page report challenges the explanations for the mishandling of applications offered by the congressional Republicans, the White House and the Treasury Inspector General for Tax Administration. ...

Cause of Action’s 35-page report is said to conclude that the Internal Revenue Manual must be fundamentally reformed in order to prevent future targeting. “While there are certainly complex or new issues that would warrant or even require an employee to elevate the issue to a manager, the IRS’ desire to be portrayed in a positive light by the media is certainly not one of those issues.”

Reached by Government Executive, Cause of Action leader Daniel Epstein said his group’s “findings, to-date, indicate that the IRS has exercised discretion in ways that incentivize staff to engage in misinterpretations of the law and, in some cases, misconduct.  We believe congressional oversight is crucial on these and other IRS-related matters Cause of Action has examined and agree with the claims of many that a special counsel is appropriate.”

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May 22, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Thursday, May 21, 2015

NYU Symposium: Tax And Corporate Social Responsibility

NYUSymposium, Tax and Corporate Social Responsibility, 11 N.Y.U. J.L. & Bus. 1-189 (2014):

Articles

Proceedings

Panel 1:  Should Corporations Pay Tax?,  11 N.Y.U. J.L. & Bus. 125 (2014)

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May 21, 2015 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Todres: Tax Shelters And Tax Malpractice

Jacob L. Todres (St. John's), Bad Tax Shelters -- Accountability or the Lack Thereof: Ten Years of Tax Malpractice, 66 Baylor L. Rev. 602 (2014):

In the 1990’s and early 2000’s the tax landscape in the United States was overrun by an epidemic of tax shelters that was unprecedented. The shelters were designed and sold by seemingly reputable large accounting and law firms. The same shelters were sold to many taxpayers. They became generic, off-the-shelf, products. However, the tax shelters had no business substance. The shelters were eventually found to be invalid by the courts. In light of the invalidity of the shelters, the large fees paid for the shelters and the large damages caused by participating in the invalid shelters, there were predictions that many malpractice suits against the sellers of the shelters would ensue.

For this article I attempted to determine whether the predicted wave of tax malpractice suits occurred and what impact, if any, resulted in the area of tax malpractice litigation.

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May 21, 2015 in Scholarship, Tax | Permalink | Comments (0)

Sugin: Strengthening Charity Law With Advance Rulings

Linda Sugin (Fordham), Strengthening Charity Law: Replacing Media Oversight with Advance Rulings for Nonprofit Fiduciaries, 89 Tul. L. Rev. ___ (2015):

This Article considers three urgent challenges facing the charitable community and its state regulators: too little fiduciary duty law for nonprofits, the rise of media enforcement of wrongdoing in charities, and an inherent tension in the state’s dual role as enforcer and protector of the nonprofit sector. It analyzes whether the scarcity of law is really a problem by comparing nonprofit organizations with business organizations and concludes that charities lack the self-enforcement mechanisms of businesses and therefore need more government guidance. It evaluates whether the media has made governmental supervision obsolete and expresses skepticism about the press displacing state oversight. The solution presented, an advance-ruling procedure for fiduciary duty questions, proposes that states shift their focus from better enforcement against wrongdoers ex post to better charity governance ex ante by devoting more attention and resources to assisting well-meaning charity directors in carrying out their fiduciary obligations.

May 21, 2015 in Scholarship, Tax | Permalink | Comments (0)

Brunson: Will Supreme Court's Same-Sex Marriage Decision Cost BYU Its Tax Exemption?

BYU (2015)By Common Consent:  Obergefell and BYU’s Tax Exemption, by Samuel Brunson (Loyola-Chicago):

On April 28, the Supreme Court heard arguments in Obergefell v. Hodges, which challenged both the constitutionality of state bans on same-sex marriage and of states’ nonrecognition of same-sex marriages performed in other states.

By the end of June, the Justices will have decided and we’ll know the constitutional status of same-sex marriage bans in the United States. But that doesn’t mean all questions will be resolved; in fact, an exchange between Chief Justice Roberts, Justice Alito, and Solicitor General Verrilli piqued the interest of a lot of people, especially those invested in religious educational institutions. 

During the course of oral arguments, Chief Justice Roberts said to General Verrilli:

We have a concession from your friend that clergy will not be required to perform same-sex marriage, but there are going to be harder questions. Would a religious school that has married housing be required to afford such housing to same-sex couples?

A little later, Justice Alito followed up with this:

Well, in the Bob Jones case, the Court held that a college was not entitled to tax-exempt status if it opposed interracial marriage or interracial dating. So would the same apply to a university or a college if it opposed same-sex marriage?

General Verrilli responded,

You know, I—I don’t think I can answer that question without knowing more specifics, but it’s certainly going to be an issue. I—I don’t deny that. I don’t deny that, Justice Alito. It is—it is going to be an issue.

So is General Verrilli right? At least some corners of the media seem to think he is, that a ruling in favor of same-sex marriage will mark the end of religious schools’ tax exemption, if not of religious schools as we know them.

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May 21, 2015 in Tax | Permalink | Comments (2)

Brunson & Herzig: The NFL Should Not Be Able To Give Up Its Tax-Exempt Status Without Paying An Exit Tax

NFLForbes:  Penalty For Holding: Why The NFL Should Be Forced To Keep Its Tax Exemption, by Samuel Brunson (Loyola-Chicago) & David Herzig (Valparaiso):

Many people think there are too many tax-exempt entities.  Every time news breaks that there are tax-exemptions for fraternities, golf clubs, and social clubs there seems to be general outrage. So most people welcomed the National Football League’s announcement that it was giving up its tax-exempt status, seeing the announcement as the end of an unnecessary taxpayer subsidy. It turns out, though, that it is not that simple. Either the NFL was not providing a public good and should not have been granted the status in the first place, or if the NFL wants to be for profit, then the benefits of the tax exemption should be recaptured, e.g., with an exit tax.

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May 21, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

Grewal: Yet Another Example Of The IRS Disregarding The Plain Text of ObamaCare

Yale Journal on Regulation Blog:  More Unlawful ACA Premium Tax Credits, by Andy Grewal (Iowa):

I might be accused of picking at low-hanging fruit, but I’d nonetheless like to devote another blog post to more IRS regulations that expand and contradict Section 36B. My prior blog posts, which I’ve adapted into an essay upcoming in Bloomberg BNA, discuss regulations that improperly extend ACA premium tax credits to persons in the Medicare coverage gap and to some unlawful aliens. In this post, I want to highlight regulations that improperly penalize employers and that give credits to taxpayers already enrolled in employer-sponsored minimum essential coverage. ...

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May 21, 2015 in IRS News, Tax | Permalink | Comments (2)

The IRS Scandal, Day 742

IRS Logo 2American Center for Law and Justice, State Department Takes a Page from IRS Playbook on Clinton Emails:

Yesterday’s revelation that the State Department is processing (read: stonewalling) 50,000 emails from then-Secretary of State Hillary Clinton but that none of those emails will be ready for public consumption until sometime in January 2016 is unsurprising. Those emails cover everything from the Benghazi disaster to numerous foreign policy failures.

The State Department is taking a page directly from the IRS’s playbook.

First, you destroy incriminating emails, but don’t tell anyone.  Former Top IRS official Lois Lerner and the IRS perfected this as thousands of her emails mysteriously disappeared.  Clinton played that part well, destroying emails on her own private server instead of using the government server, while State Department staffers blocked attempts by the public to obtain public information.

Second, you wait years until the public discovers what you done.

Third, you deny anything happened to the emails.

Fourth, you cover up.

When that is no longer feasible, you delay, stonewall, obfuscate, and otherwise drag out the process of turning over said emails.

The IRS has been doing this for years, giving excuse after excuse for why it cannot turn over Lois Lerner’s and other’s emails to congressional investigators and public watchdog groups alike.

More than two years into the IRS scandal, we still don’t have all of Lois Lerner’s emails.

The State Department is attempting the same ridiculous tactics with Hillary Clinton’s emails. ... If past is prologue, the State Department will find a way to further delay or cherry pick which emails it releases, as the IRS has successfully done.

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May 21, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Wednesday, May 20, 2015

Chorvat Presents Expectations And Expatriations: A Long-Run Event Study Today at Oxford

Chorvat (Elizabeth) (2015)Elizabeth Chorvat (Illinois) presents Expectations and Expatriations: A Long-Run Event Study at the Oxford University Centre for Business Taxation today as part of its Research Seminar Series:

This paper represents the first event study of corporate expatriations since Desai and Hines (2002), and is the first study to link corporate expatriation behavior to intangibles. Utilizing a bootstrap methodology, the paper demonstrates that corporate expatriations – whether naked inversions or redomiciliations in the context of business combinations – generate statistically and economically significant excess returns on the order of 225% above market returns in the years following the inversion. Moreover, notwithstanding the public nature of the inversion announcement, which should be a signal of extraordinary future profits, there has historically been no price response to the signal. Because the tax cost of the inversion transaction is based on market price, their inability to send a credible signal of future profits provides corporate managers the opportunity to reorganize outside the U.S. at a reduced tax cost, if they believe that the benefits to expatriation outweigh the cost.

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May 20, 2015 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

London Conference on Tax Citizenship and Income Shifting

Max Planck Institute for Tax Law and Public Finance, Norwegian Center of Taxation, and University of Notre Dame host a two day multi-disciplinary international taxation conference on Tax Citizenship and Income Shifting at Notre Dame's London Global Gateway. Among the interesting tax papers are:

May 20, 2015 in Conferences, Tax | Permalink | Comments (0)

Shaviro: Recent International Tax Policy Developments

Daniel Shaviro (NYU), The Crossroads Versus the Seesaw: Getting a 'Fix' on Recent International Tax Policy Developments:

FixingU.S. international tax policy is at a crossroads, say those who urge the United States to adopt what common parlance would call a territorial system. They argue that one of the two ways forward they identify – trying to fortify the current U.S. system – would lead to ever-costlier outlier status for our tax system, and ever-declining competitiveness for U.S. multinationals. They therefore urge U.S. policymakers to embrace what they identify as the other way forward: conforming to global norms by adopting a territorial system.

An alternative metaphor to that of the crossroads, more likely to appeal to proponents of addressing stateless income than to pro-territorialists, is that of the seesaw. Under this view, while policymakers in OECD countries may long have deliberately tolerated profit-shifting by multinationals – perhaps as an informal way of lowering effective tax rates for these often highly mobile taxpayers – at some point they became convinced that it had gone too far. Thus, proponents of restricting stateless income want to tip the balance somewhat (but not too far) back in the other direction. For example, they may want to ensure that each increment of a multinational’s global income will be subject to tax somewhere – but just once, rather than either zero times or twice, under what has been called the “single tax principle.”

In my 2014 book Fixing U.S. International Taxation, I tried to offer a better analytical framework for international tax policy than either of the above. The concepts that I hoped to sideline or even banish included not only the single tax principle, along with the “worldwide versus territorial” framework – which I disparaged as conflating multiple margins, even leaving aside countries’ hybridity in practice – but also normative reliance on the whole rancid “alphabet soup” of single-margin neutrality benchmarks such as capital export neutrality (CEN), capital import neutrality (CIN), and capital ownership neutrality (CON).

A number of important things have happened in international tax policy since Fixing went to press. For example:

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May 20, 2015 in Book Club, Scholarship, Tax | Permalink | Comments (0)

Leff: Preventing Private Inurement In Tranched Social Enterprises

Benjamin M. Leff (American), Preventing Private Inurement in Tranched Social Enterprises, 41 Seton Hall L. Rev. 1 (2015):

Social Enterprises are organizations that are operated for the dual purpose of engaging in profit-making activity and furthering a social good. Because of their “hybrid” nature, social enterprises are perceived to be stymied by a legal system that is overly devoted to defining organizations as either businesses or nonprofits. Legal academics and legislatures have been hard at work trying to make room for social enterprises by experimenting with modifications the laws that constrain both businesses and nonprofits. One significant sector of this reform movement is devoted to making it easier for social enterprises to receive funding from both for-profit investors and charitable non-profits. They argue that social enterprises will not flourish until charitable non-profits are permitted make below-market investments in social enterprises for the purpose of subsidizing the return expected by for-profit investors. This combination of below-market charitable investments and market-rate for-profit investments is generally called a “tranched investment structure.” It is not impossible under current law, but reformers argue that it is unnecessarily difficult, primarily because of federal laws restricting nonprofit activities.

This article addresses the specific legal issues raised by a tranched investment structure. Previous scholarship (and legislative reform) has focused on specific rules that apply only to “private foundations,” a subcategory of § 501(c)(3) organizations, the general federal classification of charities. But, surprisingly, commentators have largely ignored the laws that apply to tranched investment structures involving any § 501(c)(3) organization. This article fills that gap.

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May 20, 2015 in Scholarship, Tax | Permalink | Comments (0)

Law School Entry-Level Faculty Hiring Down Only 4%

Sarah Lawsky (UC-Irvine), Spring Self-Reported Entry Level Hiring Report 2015:

Lawsky

For a list of the entry level tax hires, see here.

May 20, 2015 in Legal Education, Tax, Tax Prof Moves | Permalink | Comments (3)

IRS Rule Change May Doom Yahoo's Alibaba Stock Spinoff

Corporate Inversions Increase U.S. Tax Revenues

Rita Nevada (Northwestern) & Thomas Z. Lys (Northwestern), The Paradoxical Impact of Corporate Inversions on US Tax Revenue:

Do corporate inversions cost the US Treasury billions of dollars in tax revenue, justifying legislative responses and even strong-arming corporations from moving their tax domicile abroad? We show that corporate inversions not only do not appear to reduce, but, paradoxically, are even likely to increase tax collections by the US Treasury.

May 20, 2015 in Scholarship, Tax | Permalink | Comments (0)

WSJ: Anti-Inversion Rules Fail To Rein In Tax-Driven Takeovers

EndoWall Street Journal, Rules Fail To Rein In Tax-Driven Takeovers:

Endo International PLC agreed to buy rival drug maker Par Pharmaceutical Holdings Inc. for $8 billion, the latest in a string of cross-border mergers steering tax revenue away from the U.S., despite Washington’s efforts.

Endo, which relocated from Pennsylvania to Ireland last year, is one of several drug companies lately using their lower-tax foreign addresses as springboards for acquisitions in the U.S., which has one of the world’s highest corporate tax rates.

The deals come as the U.S. Treasury last year moved to curb tax-revenue-draining deals known as “inversions” in which U.S. companies buy foreign ones and then move their legal home elsewhere to help lower U.S. tax bills. In doing so, experts say, Washington effectively locked in an advantage for those companies that already had redomiciled overseas, which can now apply their lower tax rates to U.S. assets they buy.

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May 20, 2015 in Tax | Permalink | Comments (1)

The IRS Scandal, Day 741

IRS Logo 2National Review, Conservative Group Uncovers New Roots of IRS Scandal:

A group of lawyers who have been investigating the origins of the IRS scandal for the past year-and-a-half say they’ve uncovered the real roots of the IRS scandal — and they’ll surprise both liberals and conservatives alike. The group, Cause of Action, which has subpoenaed thousands of pages of documents from the agency and is still embroiled in litigation with it, says the targeting of conservative groups resulted as much from IRS personnel merely following the instructions laid out in their employee handbook, the Internal Revenue Manual, as from any political bias at the top.

When the scandal broke nearly two years ago, the IRS and the Obama administration pointed the finger at a few bad apples in the agency’s Cincinnati office. The agency’s inspector general blamed the inappropriate targeting of tea-party groups on the “ineffective management” of top bureaucrats. Many reporters, particularly on the right, including here at National Review, concluded that top D.C. official Lois Lerner and her colleagues in the IRS’s Exempt Organizations office had orchestrated events from the outset.

Dan Epstein, executive director of Cause of Action, is a former attorney and investigator for the House Oversight Committee. He and his team, a group of 13 attorneys funded by the Koch brothers’ sprawling network of donors, say none of these stories fully explain what happened at the IRS between 2010 and 2014 and that, in fact, the targeting was baked in the cake. That is, the Internal Revenue Manual, the handbook by which IRS employees are required to abide, mandates the sort of scrutiny that delayed the processing of the applications of hundreds of conservative nonprofit organizations. Cause of Action has laid out its case in a confidential, 35-page memo obtained by National Review. They concluded that many of the IRS officials involved in the scandal were just following the rules. ...

Epstein’s team at Cause of Action is adamant that most of the IRS personnel involved in the scandal executed their duties properly. “Clearly, Jack Koester, John Shafer, and Cindy Thomas executed their employee obligations precisely,” their report says. “Indeed, in the course of merely two business days, the employees in the Exempt Organizations group accurately elevated this Tea Party issue as ‘newsworthy’ or having the ‘potential to become newsworthy.’”

The team’s conclusion: The Internal Revenue Manual must be fundamentally reformed in order to prevent future targeting. “While there are certainly complex or new issues that would warrant or even require an employee to elevate the issue to a manager, the IRS’s desire to be portrayed in a positive light by the media is certainly not one of those issues,” they say.

Tax-law experts agree. Craig Engle, the founder of the bipartisan political-law group at the Washington law firm Arent Fox, says that allowing IRS personnel, ultimately at the national level, to determine what issues are newsworthy creates a sort of self-fulfilling prophecy. The Internal Revenue Manual as it stands now virtually “requires the national office to do something” about cases it deems newsworthy, Engle says. As a result, he says, the IRS “created a task for itself that it would be impossible to administer evenhandedly, let alone on a bipartisan basis. It’s no wonder they got caught.”

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May 20, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Tuesday, May 19, 2015

Mason Presents Citizenship Taxation Today At Oxford

Mason (2015)Ruth Mason (Virginia) presents Citizenship Taxation, 88 S. Cal. L. Rev. ___ (2015), at the Oxford University Centre for Business Taxation today as part of its Research Seminar Series:

The United States is the only country that taxes its citizens’ worldwide income, even when those citizens live indefinitely abroad. This Article critically evaluates the traditional equity, efficiency, and administrability arguments for taxing nonresident citizens. It also raises new arguments against citizenship taxation, including that it puts the United States at a disadvantage when competing with other countries for highly skilled migrants. 

Citizenship taxation was originally designed to punish “economic benedict Arnolds” who fled the United States during the Civil War to avoid Civil War taxes and the draft. In the modern era, migrating from the United States is not the disloyal act of a wealthy few. Our global economy and our increasingly interconnected world create professional and personal opportunities that Americans can only claim by moving abroad. Concerns about a few high-profile, rich tax defectors who can be sanctioned with targeted anti-abuse regimes should not drive tax policy governing seven million Americans who reside abroad.

May 19, 2015 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Supreme Court Denies Cert. In Case Challenging President's Authority To Remove A Tax Court Judge

Supreme Court (2014)Following up on my previous posts (links below):  the Supreme Court yesterday denied the taxpayers'  cert. petition arguing that the President’s authority under 26 U.S.C. §  7443(f) to remove Tax Court judges violates the Constitution’s separation of powers. Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014).

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May 19, 2015 in New Cases, Tax | Permalink | Comments (0)

Kwall & Wilbur: The Outer Limits of Realization

Florida Tax ReviewJeffrey L. Kwall (Loyola-Chicago) & Katie K. Wilbur (Varnum, Grand Rapids, MI), The Outer Limits of Realization: Weiss v. Stearn and Corporate Dilution, 17 Fla. Tax Rev. 47 (2015):

The Supreme Court’s 1924 Weiss v. Stearn decision involved a classic case of corporate dilution. In that case, a corporation (“Oldco”) transferred its business to a new corporation (“Newco”) in a transaction where the Oldco shareholders surrendered all their stock for 50% of the stock of Newco (and cash). The transaction diluted the proprietary interest of the Oldco shareholders from 100% to 50%. Because the Oldco shareholders surrendered control of the enterprise, the 50% interest they received in Newco was fundamentally different from the 100% interest they had owned in Oldco. Nevertheless, the Court held that the receipt of the Newco shares was not a taxable event (a “realization event”) to the Oldco shareholders. The Court reached this result by ignoring the dilution that occurred in the case.

In 1991, the Supreme Court resurrected the Weiss v. Stearn decision in the Cottage Savings case. There, the Court relied on Weiss v. Stearn to establish that the exchange of property triggers a realization event only if the property received is “materially different” from the property surrendered. Once again, the Court ignored the dilution that occurred in Weiss v. Stearn. As a result, Supreme Court jurisprudence sheds no light on the question of whether corporate dilution can trigger realization.

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May 19, 2015 in Scholarship, Tax | Permalink | Comments (0)

Rosenzweig: Defining A Country's 'Fair Share' Of Taxes

Adam H. Rosenzweig (Washington University), Defining a Country's 'Fair Share' of Taxes, 42 Fla. St. U. L. Rev. 373 (2015):

The international tax regime is facing a defining moment. As stories of multinational companies expatriating and shifting income around the world with seeming impunity continue to emerge, the question of how to divide the international tax base among the countries of the world increasingly draws attention from policy-makers and academics. To date, however, the debate has tended to devolve into one over the two traditional tools used to divide worldwide tax base — transfer pricing and formulary apportionment. This Article demonstrates that such focus is misplaced on the instruments of dividing the worldwide tax base rather than on first principles. Instead, this Article will adopt the first principle of maximizing the efficiency of the worldwide tax regime under two key, but realistic, assumptions: first, that the presence of multiple states in the world is efficient and, second, that there is a declining marginal utility to public goods. Under these assumptions, dividing worldwide tax base efficiently requires balancing the goals of maximizing the neutrality of tax laws and the provision of public goods across all countries.

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May 19, 2015 in Scholarship, Tax | Permalink | Comments (0)

Land Taxes And Inequality

ProgressSlate, The Land Taxers of Fairhope:

More than a century ago, Henry George proposed a property tax he hoped would remedy inequality. Here’s what happened to a town that tried it.

In 1879 the American political economist Henry George proposed a policy to address economic inequality: Tax land—not what’s built on top of it. Tax a parking lot, a seven-story building, and a skyscraper based solely on the value of their footprints. Tax landowners that way, George reasoned in Progress and Poverty, and they couldn’t afford not to develop their holdings. The “single tax” on land would create a strong incentive for bigger buildings, more offices, and more apartments, lowering costs for businesses, shops, and residential tenants. It would remedy the regressive advantage of the urban landowner, to whom George wrote: “[W]ithout doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich!"

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May 19, 2015 in Book Club, Tax | Permalink | Comments (1)

The IRS Scandal, Day 740

IRS Logo 2The Federalist, The 5 Biggest Lies, Myths, And Debunked Claims Of The IRS Scandal:

Remember the Lois Lerner emails the Internal Revenue Service said were lost? Thousands of them were just uncovered, and according to one investigator, they were “right where you would expect them to be.” It was just the latest iteration of a recurring trend in the IRS targeting scandal: investigators debunking attempts by the agency and its apologists to excuse, downplay, or cover up IRS’s abuse of conservative and tea-party groups.

Two years after it was first publicly exposed, here are the five biggest lies, myths, and debunked claims about the IRS scandal.

  1. There Is ‘Absolutely No Targeting’ Program
  2. Agents in Cincinnati Were to Blame
  3. The IRS’s Actions Were Politically Neutral
  4. The IRS Proposed New Rules to Solve the Problem
  5. The E-mails Were Lost

Either through ignorance or dishonesty, the IRS and its defenders have consistently misrepresented the facts of the scandal. Two years after the public was first outraged, it’s clearer than ever that the IRS cannot be trusted to play the role of speech cop.

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May 19, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Monday, May 18, 2015

5-4 Supreme Court Rules Against Maryland In Double Taxation Case (Comptroller v. Wynne)

Supreme Court (2014)A 5-4 Supreme Court ruled today that Maryland unconstitutionally failed to provide a full credit for  taxes paid to other states.  Comptroller v. Wynne, No. 13-485 (May 18, 2015).  Justice Aliton wrote the majority opinion, joined by Chief Justice Roberts and Justices Breyer, Kennedy, and Sotomayor.  There were three separate dissenting opinions:  Justice Ginsburg (joined by Justices Kagan and Scalia); Justice Scalia (joined in part by Justice Thomas); and Justice Thomas (joined in part by Justice Scalia).

The majority opinion cites the amicus brief filed by Tax Profs Michael Knoll (Pennsylvania) and Ruth Mason (Virginia), as well as Ruth Mason's article, Made in American for European Tax: The Internal Consistency Test, 49 B.C. L. Rev. 1277 (2008). 

For the Vanderbilt Law Review roundtable on the case, see here.  For press and blogosphere on today's decision, see:

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May 18, 2015 in New Cases, Tax | Permalink | Comments (0)

Bill Gates Scoffs At Suggestion That 35% Corporate Tax Rate Is Stifling Economic Growth

Bill GatesBloomberg, Gates, Richest Man, Says $40,000 Goes Further These Days:

Microsoft Corp. co-founder Bill Gates, the world’s richest person, said the U.S. economy is strong and that it’s “just nonsense” to suggest current tax rates restrain growth by discouraging innovation.

The world’s largest economy is struggling to gain momentum, and tepid wage growth continues even as the unemployment rate is at the lowest level since May 2008.

Gates, whose net worth is estimated at $86 billion, according to the the Bloomberg Billionaires Index, said a person making $40,000 a year is better off now than someone making an equivalent salary decades ago because inventions like the Internet boost the quality of life. ...

Gates scoffed at comparisons linking taxes and regulation to slower growth. “The idea that there’s some direct connection, that all these innovators are on strike because tax rates are at 35 percent on corporations, that’s just such nonsense.”

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May 18, 2015 in Tax | Permalink | Comments (3)

Desai & Dharmapala: Interest Deductions in a Multijurisdictional World

Mihir A. Desai (Harvard) & Dhammika Dharmapala (Chicago), Interest Deductions in a Multijurisdictional World:

This paper proposes and evaluates alternative methods for addressing the tax treatment of interest expenses in a multijurisdictional setting. The differential deductibility of debt entailed by various current tax law provisions leads to potential distortions in the patterns of asset ownership across MNCs and various proposed solutions have significant limitations. We suggest alternative regimes – a worldwide debt cap (WDC) and a net financing deduction (NFD) – to address the ownership distortions that we highlight along with other well-established problems of income-shifting through debt. These alternative regimes are extensions to a multinational setting of two general approaches to the neutral treatment of interest expenses – the CBIT (comprehensive business income tax) and ACC (allowance for corporate capital). While these regimes provide solutions to ownership distortions and to problems of “base erosion and profit shifting,” they have the potential disadvantage of restricting other policy parameters.

May 18, 2015 in Scholarship, Tax | Permalink | Comments (0)

U2 Hits Back At Criticism Over Tax Havens

Bono 2Sky News, U2 Hit Back At Criticism Over Tax Havens:

In an interview with Sky News, lead singer Bono insisted the band pays a fortune in tax and it was "sensible" to move some of their business to the Netherlands.

"It is just some smart people we have working for us trying to be sensible about the way we are taxed," he said.

"We pay a fortune in tax, a fortune, just so people know, and we're happy to pay a fortune in tax.

"Because you're good at philanthropy and because I am an activist people think you should be stupid in business and I don't run with that."

(Hat Tip: Mike Talbert.) Prior TaxProf Blog coverage:

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May 18, 2015 in Celebrity Tax Lore, Tax | Permalink | Comments (3)

The IRS Scandal, Day 739

IRS Logo 2Fox News, GOP Has Waited Two Years for Info on IRS Correspondence with Dem Senators:

Washington Republicans said this week that their requests to the IRS for correspondences between the agency and congressional Democrats remain unfulfilled after two years, raising questions about whether the Obama administration is trying to withhold information for a third-straight election cycle.

“Instead of holding the IRS accountable, Democrats are trying to cover-up their involvement in the IRS targeting scandal,” National Republican Senatorial Committee spokeswoman Andrea Bozek said Friday.

The group, which focuses on getting Republicans elected and reelected to the Senate, provided documents earlier this week showing 10 letters in which the IRS has asked for more time to respond to Freedom of Information Act requests since May 21, 2013.

"On January 14, 2015, I asked for more time to obtain the records you requested,” IRS tax law specialist Denise Higley wrote NRSC lawyer Megan Sowards on April 29. “I am still working on your request and need additional time.” Higley also said she would contact the NRSC by July 6 if she needs more time. ...

Republicans and others have also speculated about whether the administration is stalling on providing information until Obama retires from office after the November 2016 elections.

Thursday will mark the second anniversary of the requests.

The agency could not be reached Saturday for additional comment.

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May 18, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, May 17, 2015

The Top 5 Tax Paper Downloads

SSRN LogoThere 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 #5:

  1. [250 Downloads]  The Historical Origins of the Debt-Equity Distinction, by Camden Hutchison (Wisconsin)
  2. [231 Downloads]  Using the 'Smart Return' to Reduce Tax Evasion, by Joseph Bankman (Stanford), Clifford Nass (Stanford) & Joel Slemrod (Michigan)
  3. [186 Downloads]  Scholarship Against Desire, by Shari Motro (Richmond)
  4. [162 Downloads]  Tax Compliance as a Wicked System, by J. T. Manhire (U.S Treasury Department)
  5. [118 Downloads]  Believing in Life After Loving: IRS Regulation of Tax Preparers, by Alex H Levy (NYU)

May 17, 2015 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

The IRS Scandal, Day 738

IRS Logo 2Brookings Institution, Lois Lerner Shows the GOP Why It Should Invest in Government:

Republicans in Congress have held up Lois Lerner as the embodiment of everything they despise about government. As a member of the agency that administers the tax side of “tax and spend liberalism” GOP legislators have accused Lerner of politicizing IRS inquiries in order to target conservative political groups. Claims of partisan behavior followed by an array of missing emails made political waves that the GOP hoped would drown its most disliked federal agency in a sea of scandal.

But, a funny thing happened on the way to the political theater: congressional Republicans showed why it is important to spend money and invest in government. In fact, while the IRS scandal put the Treasury Department at the center of congressional criticism, it is another division of Treasury that has swooped in to save the day, and the GOP owes it a debt of gratitude. The foil in this political drama is a little known institution: the Treasury Inspector General for Tax Administration or TIGTA. ...

As the IRS scandal and the investigation around Lois Lerner’s behavior intensified, congressional efforts were ultimately stymied by an IRS claim that thousands of Lerner’s emails had been lost—and were unrecoverable. The lost emails frustrated congressional investigators and led to charges of “cover up” and “corruption.” And frankly, those accusations were not misplaced. Any party investigating the actions of the other, faced with the same set of facts and circumstances would have cried foul just as loudly.

Imagine for a moment if an investigation into political targeting in the Bush administration (a la its mid-2000s GSA scandal) resulted in a claim that emails were lost, but that those emails contained nothing incriminating anyways. Would Democratic leaders like Nancy Pelosi and Harry Reid have simply responded, “phew, glad that’s resolved”? Absolutely not. Such claims would have simply intensified Democrats’ resolve to get to find the truth.

Back to present day: the Lerner emails were lost; congressional investigators could not find them. The IRS, charged with looking into the matter, could not find the emails either. Enter TIGTA. As the IRS’ watchdog, fighting against mismanagement, waste, fraud, and abuse, it began an investigation of its own. As part of its investigation, TIGTA found the “lost” emails—thousands of them—and turned them over to both IRS officials and Congress to aid in the Lerner investigation. These emails that the IRS believed would be vindicating and Congress thought would be the smoking gun in a political scandal were found. And all of that came as a result of the hard work of an inspector general charged with overseeing IRS.  ...

As unpalatable as the Lerner case is to congressional Republicans, they should be delighted by the actions of TIGTA and other OIGs across government who perform their jobs in a highly effective, cost-saving way. Rather than cutting budgets in these offices, Congress should consider boosting inspectors’ general budgets in an effort to make government work better. As we noted in our paper, not only can cutting budgets raise deficits, but often leads to government becoming more dysfunctional. If Congress is serious about stopping future scandals like the one surrounding IRS, the solution is not to exact punishment on budgets of the Treasury Department. The solution might be to give Treasury a raise. 

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May 17, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Saturday, May 16, 2015

This Week's Ten Most Popular TaxProf Blog Posts

Tax Papers at Today's American Law & Economics Association Annual Meeting at Columbia

ALEATax papers at today's American Law & Economics Association Annual Meeting at Columbia:

Empirical Research in Taxation
Panel Chair:  Kyle Rozema (Cornell)

In addition, two Tax Profs are chairing other panels and presenting papers:

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May 16, 2015 in Conferences, Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 737

IRS Logo 2Wall Street Journal op-ed:  How Congress Botched the IRS Probe, by Cleta Mitchell (Foley & Lardner, Washington, D.C.):

Two years ago this week, a report by the Treasury Inspector General for Tax Information confirmed what hundreds of tea party, conservative, pro-life and pro-Israel organizations had long known: The Internal Revenue Service had stopped processing their applications for exempt status and subjected them to onerous, intrusive and discriminatory practices because of their political views.

Since the report, additional congressional investigations have revealed a lot about IRS dysfunction—and worse. But they’ve also revealed Congress’s inability to exercise its constitutional oversight responsibilities of this and other executive agencies. ...

Lying to Congress is a felony. But the Obama Justice Department has not lifted a finger to prosecute anyone responsible for the IRS scandal, including top brass who repeatedly gave false testimony to Congress.

Neither has Congress done much about being lied to by the IRS. Mr. Issa’s oversight committee first subpoenaed Lois Lerner’s emails in August 2013, then issued another subpoena in February 2014. The committee conducted a hearing on the subject in March 2014, during which Mr. Koskinen testified that, finally, the IRS would produce the Lerner emails. However, as he testified in June 2014, the agency didn’t even begin to look for her emails until February 2014. Why didn’t the House seek to enforce its first subpoena when the IRS failed to respond in the fall of 2013?

Congressional oversight has devolved into a series of show hearings after which nothing happens. No one gets fired for lying. No changes are made in the functioning of the agencies. No programs are defunded. Congress issues subpoenas that are ignored, contempt citations that aren't enforced, criminal referrals that go into Justice Department wastebaskets.

If it is to function as a coequal branch of government, Congress should establish—either through the rules of each House, or by legislation, that it has standing to independently enforce a congressional subpoena through the federal courts. Congress also should use its purse strings to change specific behavior in federal agencies. Rather than across-the-board reductions, Congress should zero out specific departments and programs as agency misconduct is uncovered. It is the only way to stop the executive branch from running roughshod over the American people.

This will be a difficult challenge as long as partisans in both houses of Congress see their role as political gatekeepers who must protect executive agencies when a president of their own party is in the White House. Congressional Democrats have done all in their power to thwart the IRS investigation, arguing with Republicans at hearings and engaging behind-the-scenes with the IRS to undermine the inquiry.

Yet it is a challenge that cannot be shirked. Congress needs to relearn how to flex serious legislative muscle to guard against future executive abuses like those from the IRS.

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May 16, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, May 15, 2015

Tax Papers at Today's American Law & Economics Association Annual Meeting at Columbia

ALEATax panels at today's American Law & Economics Association Annual Meeting at Columbia:

Topics in Tax Policy Design I 
Panel Chair:  Yehonatan Givati (Hebrew University of Jerusalem)

Topics in Tax Policy Design II
Panel Chair: Zachary Liscow (Yale)

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May 15, 2015 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Weekly Tax Roundup

Weekly SSRN Tax Roundup

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May 15, 2015 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Wolves Of The Revenue

WolvesPete Johnson (Lawyer, Southern California), Wolves of the Revenue:

When lawyer Pete Johnson's clients experienced harassment by the IRS, his response was unique: To pursue taxpayer vengeance in fiction.

Johnson's new novel, Wolves of the Revenue, is a riveting thriller that confronts the IRS about taxpayer abuse.

"In my experience the IRS fails to atone, or even officially apologize, for its wrongs when in error," Johnson said. "Unlike with the CIA and FBI, the Service is rarely a focal point in fiction."

"Wolves of the Revenue" relates the story of a taxpayer coping with two IRS agents' harassing audits, assessments and seizures.

To absolve himself and experience the satisfaction of vindication, this leads the protagonist down a path where betrayal, forbidden love and revenge awaits him.

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May 15, 2015 in Book Club, Tax | Permalink | Comments (0)

Bartlett: Is The Only Purpose Of A Corporation To Maximize Profit?

Bruce Bartlett, Is the Only Purpose of a Corporation to Maximize Profit?:

Historically, corporations were expected to serve some public purpose as justification for the benefits and privileges they receive from the state. But since the 1970s, the view has become widespread that corporations exist solely to maximize profits and for no other purpose. While the shareholder-first doctrine was supposed to solve the agency problem, in fact it has gotten worse as corporate executives enrich themselves at the expense of shareholders. Moreover, the obsession with current share prices as the only measure of corporate success may be destroying long-term value as companies cut back on investment to raise short-term profits. Tax policies designed to raise after-tax profits have done nothing to reverse these trends.

May 15, 2015 in Scholarship, Tax | Permalink | Comments (1)

The IRS Scandal, Day 736

IRS Logo 2Fox News, House Members Push for IRS Clinton Probe:

Rep. Marsha Blackburn, R-Tenn., is circulating a letter among her colleagues asking IRS Commissioner John Koskinen to review the tax-exempt status of the Clinton Foundation. In the letter, a draft of which was obtained by Chief Congressional Correspondent Mike Emanuel, Blackburn says, “recent media reports have revealed that the Foundation failed to report millions of dollars in grants from foreign governments that it accepted while Hillary Clinton was Secretary of State and that it facilitated private business transactions between foreign entities” and as such, “given the substantial public interest involved, we feel a prompt review of the Foundation’s tax-exempt status is appropriate to determine whether it is acting within the scope of its charitable mission.”

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May 15, 2015 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, May 14, 2015

Galle: Law and the Problem of Restricted-Spending Philanthropy

Brian Galle (Boston College), Pay It Forward? Law and the Problem of Restricted-Spending Philanthropy, 92 Wash. U.L. Rev. ___ (2016):

American foundations and other philanthropic giving entities hold about $1 trillion in investment assets, and that figure continues to grow every year. Even as urgent contemporary needs go unmet, philanthropic organizations spend only a tiny fraction of their wealth each year, mostly due to restrictive terms in contracts between donors and firms limiting the rate at which donations can be distributed. Law has played a critical role in underwriting and encouraging this build-up of philanthropic wealth. For instance, contributors can typically take a full tax deduction for the value of their contribution today, no matter when the foundation spends their money, and pay no tax on the investment earnings the organization reaps in the meantime.

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May 14, 2015 in Scholarship, Tax | Permalink | Comments (0)

Givati: Economic Theory And The Taxation of Fringe Benefits

Yehonatan Givati (Hebrew University of Jerusalem, Faculty of Law), Googling a Free Lunch: The Taxation of Fringe Benefits, 68 Tax L. Rev. ___ (2015):

How should fringe benefits be taxed? Though fringe benefits are covered in every basic law school course on federal income taxation, no widely accepted economic framework has developed for thinking about their taxation. As a result, policymakers lack a clear picture of the benefits and costs of alternative tax regimes, when faced with situations such as the free luxurious meals provided by Google and Facebook to their employees. This Article fills this gap in the literature, by developing an economic theory of the provision of fringe benefits.

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May 14, 2015 in Scholarship, Tax | Permalink | Comments (1)

Dan Halperin To Retire From Harvard Law School Faculty

HalperinHarvard Law Today:  Legacies of Selfless Scholarship: Undisguised Value, by Alvin C. Warren Jr. (Harvard):

Daniel I. Halperin ’61 will retire at the end of this academic year after more than a half-century as a tax lawyer, professor and government official. Unlike most law professors starting out today, Dan worked as a lawyer for a decade—at the firm Kaye Scholer and in the government—before entering law teaching. Serendipitously, he became Kaye Scholer’s expert in the new field of pension law in his second year, after the sudden departure of the only lawyer at the firm with any experience in the field.

In 1996, Dan was appointed the first Stanley S. Surrey Professor of Law at Harvard Law School. Over the past 19 years, he has continued to write about tax law and policy, and has taught a variety of tax-related courses, covering income taxation, tax policy, pension law, and nonprofit organizations.

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May 14, 2015 in Legal Education, Tax | Permalink | Comments (0)

Senator Hatch Blasts IRS For Retaining Law Firm To Go After Microsoft

Microsoft (2015)Wall Street Journal, Top Republican Sides With Microsoft in IRS Offshore-Profits Scuffle:

A top Republican lawmaker is siding with Microsoft Corp. in its legal scuffle with the Internal Revenue Service involving profits the firm has parked offshore.

In a letter on Wednesday, Finance Committee Chairman Orrin Hatch (R., Utah) questioned the IRS’s unusual decision last year to hire a private law firm to help it go after the high-tech giant.

“The IRS’s hiring of a private contractor to conduct an examination of a taxpayer raises concerns because the action: 1) appears to violate federal law and the express will of the Congress; 2) removes taxpayer protections … and 3) calls into question the IRS’s use of its limited resources,” Mr. Hatch wrote in the letter to IRS Commissioner John Koskinen.

The lawmaker asked the agency to stop using the contractor and also to explain its actions to the committee.

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May 14, 2015 in IRS News, Tax | Permalink | Comments (0)