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Tuesday, July 22, 2014

WaPo: 4 Pinocchios for Rocker’s Off-base Claims About Taxes and the ’1 Percent’

Washington Post:  4 Pinocchios for a Rocker’s Off-base Claims About Taxes and the ’1 Percent’:

Kiss“The 1 percent pays 80 percent of all taxes. Fifty percent of the population of the U.S. pays no taxes. The 1 percent provides all the jobs for everybody else. If the 1 percent didn’t exist, there would be chaos and the American economy would drop dead.”

–Kiss bassist Gene Simmons, in an interview with the San Diego Union-Tribune, published July 4

Kiss rocker Gene Simmons is not a politician, but here he echoes claims that are often made by politicians about who pays taxes in the United States.

There is certainly a history of rock stars being unhappy with taxes. George Harrison of the Beatles penned the iconic “Taxman” after discovering that he was liable for the 95 percent margin tax rate imposed on income at that time in the United Kingdom.

In the interview, Simmons is an unabashed fan of the “1 percent lifestyle,” calling it “fantastic” and noting, “I have been part of the 1 percent for the past 30 years.” We will assume his bold assertion that the 1 percent provides “all of the jobs for everybody else” reflects his enthusiasm rather than hard data. But do his tax claims add up? ...

Simmons may enjoy the 1 percent lifestyle, but he needs to get his facts straight. The top 1 percent certainly pays a large share of taxes (and has a large share of income) but his claims are wildly off-base, especially when talking about “all taxes.”

FOur

(Hat Tip: Bryan Camp.)

July 22, 2014 in Tax | Permalink | Comments (4)

Senate Holds Hearing Today on The Taxation of Income of U.S. Multinational Enterprises

Senate LogoThe Senate Finance Committee holds a hearing today on The U.S. Tax Code: Love It, Leave It or Reform It!:

  • Mihir Desai (Harvard University)
  • Peter Merrill (PricewaterhouseCoopers)
  • Leslie Robinson (Dartmouth College)
  • Pascal Saint-Amans (OECD)
  • Allan Sloan (Fortune)
  • Robert Stack (U.S. Treasury Department)

In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Related to Proposals to Reform the Taxation of Income of Multination Enterprises (JCX-90-14) (99 pages):

This document ...  includes a description of present law, background on recent global activity related to the taxation of cross-border income, and descriptions and a comparison of recent proposals to reform the U.S. international tax system. ...

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July 22, 2014 in Congressional News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 439

What Are The Chances? (An IRS Love Song):

(Hat Tip: Glenn Reynolds.)

Wall Street Journal, New Information Deepens the Mystery of the Missing IRS Emails:

The mystery of the missing IRS emails has deepened.

An IRS official told congressional investigators in an interview last week that — despite what agency leaders thought previously — some of the missing IRS emails might still exist on backup tapes.

Those tapes were thought to have been recycled several years ago, destroying the data.

Washington Post:  6 Questions About the IRS’s Missing Emails, From IT Experts:

Did the IRS intentionally lose e-mails to cover up potentially incriminating communications relating to the agency’s targeting controversy, or did the records go missing because of bad technology management?

As for the latter question, few organizations are in a better position to make an assessment of the situation than the International Association of Information Technology Asset Managers, which deals with these types of issues on a regular basis.

The group, which runs the only worldwide certification program for IT asset managers, released six questions on Monday that it thinks lawmakers and federal investigators should ask about the missing e-mails of former IRS official Lois Lerner, a central figure in the targeting affair.

  1. What happened to the IRS’s IT asset managers who appear to have disappeared at a key juncture?
  2. Where is the documentation to prove that the IRS wiped or destroyed Lois Lerner’s hard drive?
  3. Were the drives destroyed by an outside vendor or firm? If so, by who, and can they verify the destruction?
  4. What are the IRS’s specific policies and procedures on document retention when hard drives are damaged or destroyed?
  5. What is the IRS’s disaster-recovery policy?
  6. Where are Lois Lerner’s Blackberry e-mails?

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July 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Monday, July 21, 2014

Wealthier New Yorkers Are Not Fleeing the City for Tax Havens

New York Times:  Wealthier New Yorkers Aren’t Fleeing the City for Tax Havens, a Study Says, by Sam Roberts:

Sean Hannity, the Fox News prime-time host, threatened last month to leave New York for a tax haven down south. Tiger Woods transplanted himself from California to Florida for the same reason. The actor Gerard Depardieu decamped from France and sought citizenship in Russia after complaining that 85 percent of his income was consumed by taxes. ...

But a new analysis being released Monday undermines the frequent assertion that wealthy people reflexively flee New York City — where Mayor Bill de Blasio campaigned to raise taxes on those who make more than $500,000 — for low-tax states.

The study, by the city’s Independent Budget Office, found that the share of higher-income households that moved from the city in 2012, 1.8 percent, equaled the share of lower-income households that left.

Moreover, the budget office determined that 42 percent of households that made more than $500,000 and left the city in 2012 moved elsewhere in New York State. Another 22 percent departed for New Jersey, which is hardly considered a tax haven and where a so-called millionaire’s tax was imposed in 2004.

The third favorite destination among the wealthy, with 12 percent, was Connecticut, where the Tax Foundation, a nonpartisan research group, estimated that taxpayers typically did not earn enough until May 9, the latest of any state, to pay their total tax bill. Fourth on the list of top destinations was California, where 9 percent of the wealthy households went. That means that 86 percent of the households making $500,000 or more that left the city moved to four states with reputations for high taxes. Only 45 percent of the less wealthy households relocated to those states.

Despite the allure of tropical fishing, only 2 percent of the wealthier households bolted for Florida (compared with 10 percent of households that made less than $500,000, many of them retirees). Just over 4 percent of the wealthier households headed for Texas (as did exactly the same percentage of less wealthy households).

New York City Independent Budget Office, When New Yorkers Move Out of New York City Where Do They Go?:

NYC

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July 21, 2014 in Tax | Permalink | Comments (3)

Marian: The Function of Corporate Tax-Residence in Territorial Systems

Omri Y. Marian (Florida), The Function of Corporate Tax-Residence in Territorial Systems, 18 Chapman L. Rev. ___ (2014):

In this symposium Essay, I explore the instrumentality of corporate tax-residence determination in territorial tax systems. Using the United States as a case study, I show that tax-residence determination had a historic “positive functionality”. Namely, tax-residence positively pointed to the source of income earned, and distributed by, a corporation. However, in current economic environment the positive functionality is obsolete. Instead, the modern functionality of corporate tax residence is a “negative” one. That is, to assure that income is not sourced at a jurisdiction in which income could not have possibly been produced. Under such a view, corporate tax-residence should be constructed as an anti-income-shifting mechanism. One way to achieve such result is to base corporate tax-residence determination on formulary apportionment that takes into account the corporation's real economic attributes, as well as the proportional part of corporation’s contribution to the control-group earnings. The functionality of formulary apportionment in this a context is not to allocate tax jurisdiction (the traditional use of formulary apportionment), but rather to assure that a corporation is not resident where is has no economic existence. Current territorial reform proposals in the United States ignore the important function of tax-residence in supporting source-taxation. I therefore conclude with a call to incorporate a reform of corporate-tax residence determination in any territorial reform legislation.

July 21, 2014 in Scholarship, Tax | Permalink | Comments (0)

Johnston: California Job Growth Defies Predictions After Tax Increases

Sacramento Bee op-ed:  State’s Job Growth Defies Predictions After Tax Increases, by David Cay Johnston (Syracuse):

WelcomeDire predictions about jobs being destroyed spread across California in 2012 as voters debated whether to enact the sales and, for those near the top of the income ladder, stiff income tax increases in Proposition 30. Million-dollar-plus earners face a 3 percentage-point increase on each additional dollar.

So what happened after voters approved the tax increases, which took effect at the start of 2013?

Last year California added 410,418 jobs, an increase of 2.8 percent over 2012, significantly better than the 1.8 percent national increase in jobs. California is home to 12 percent of Americans, but last year it accounted for 17.5 percent of new jobs, Bureau of Labor Statistics data shows. ...

These results may surprise those who have heard that tax increases are job killers. Taxes can do that – if what is being taxed directly applies to job creation. For example, a 10 percent increase in payroll taxes (Social Security, Medicare and state disability) would probably hamper job growth, said David Neumark, chancellor’s professor of economics and director of the Center for Economics & Public Policy at the University of California, Irvine.

Neumark said he asks his students, “Does raising income tax rates reduce hiring?” “The answer is no. What firms care about when deciding how many workers to hire is the marginal product of workers and the marginal cost of those workers. So if you are an employer and your personal income tax rate is increased, that does not raise the marginal cost of your workers, but it may encourage you to work a little less hard,” Neumark noted, applying standard economic theory.

Some research into tax rates indicates that high rates have the opposite effect: People may work harder, trying to make more money to achieve a desired after-tax income and may slough off if tax rates are lowered. This is known to be the case for people who have a savings target for money to leave their children and are subject to estate taxes – they save more to leave the after-tax sum they prefer, but save less when the tax is lowered or no longer applies to them.

The empirical evidence also shows that the best-paying jobs tend to be clustered in states (and countries) with high taxes. The same tends to be true of wealth creators, including the most money-motivated among scientists, and existing wealth holders not actively engaged in business. ...

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July 21, 2014 in Tax | Permalink | Comments (6)

The IRS Scandal, Day 438

TaxProf Blog Weekend Roundup

Sunday, July 20, 2014

WSJ: Tax Dos and Don'ts for Hiring Your Child

Wall Street Journal Tax Report:  Tax Dos and Don'ts for Hiring Your Child, by Laura Saunders:

CHildDoes your child work in your family business? Here's a tip: don't pay the wages in pizza if you want to pass muster with the IRS.

This month, a Tax Court judge ruled that Patricia Diane Ross, a tax preparer in Washington who also runs an employment agency, had taken. The children worked in her business, Ross Professional Services, when they were ages 15, 11, and 8. According to the decision, the children together earned more than $15,000 during 2007 and 2008 for services such as stuffing envelopes and filing. Ms. Ross deducted their pay as business expenses, and the IRS disallowed it.

Employing your minor children is legal, as is deducting their pay as a business expense. But the judge found fault with Ms. Ross's method of paying her children, which was often not in cash. The decision says she used most of the children's wages to buy either meals, often of pizza, or tutoring services—the kind of support parents are expected to provide. Ms. Ross said her children told her to use the earnings in these ways. [Ross v. Commissioner, T.C. Summ. Op. 2014-68]...

Here are other tips for taxpayers who want to employ a child:

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July 20, 2014 in Tax | Permalink | Comments (0)

Top 5 Tax Paper Downloads

An Epic Weekend

Madison 1I am heading back to San Diego today after one of the great weekends of my life, helping my daughter Jayne get settled in Madison, Wisconsin before she starts her job at Epic Systems, a medical records software company recently profiled in the New York Times and Forbes, on September 2.

Jayne graduated from college last month and is spending the summer with us studying for the MCATs before beginning her job.  She will be joining her brother Reed, who started at Epic last summer following his college graduation.  I helped Jayne open a bank account, join a gym, and move into the apartment she will be sharing with her brother.  We took a break today to attend Epic's annual company picnic ("Epicnic") on its amazing campus (photos herehere, and here).

It was a memorable weekend, filled with warm reminisces about the past and excited speculation about the future.  Shopping with Jayne was a different experience than shopping with Reed last year.  She took the time to outfit her place with exactly the right items, including this spiffy shower curtain:

Madison 2

July 20, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (1)

The IRS Scandal, Day 437

Saturday, July 19, 2014

Applying Moneyball to Dating: Finding Undervalued Traits in a Future Spouse

NPR: The Science Of Settling: Calculate Your Mate With Moneyball:

Moneyball Ty[Ty Tashiro's] recent book, The Science of Happily Ever After, explores what "advances in relationship science" can teach us about the partners we choose. Almost 9 in 10 Americans believe they have a soul mate, says Tashiro, but only 3 in 10 find enduring partnerships that do not end in divorce, separation or chronic unhappiness. Clearly something is going wrong — and it starts with our expectations. ...

Our mate preferences have been shaped by natural selection's obsession with physical attractiveness and resources as well as the messages our friends, families and favorite shows transmit about sweethearts and soul mates. And it is at the start of relationships, when we need to make smart, long-term decisions, that we are least likely to do so because we're in the throes of lust, passion and romance. ...

Tashiro advocates a new approach to dating, one that is not so much about lowering standards as giving yourself better ones. Call it "Moneyballing" relationships (Tashiro does); it's all about finding undervalued traits and assets in the dating market. And, just like with baseball, it starts with trying to ignore the superficial indices of value — attractiveness, wealth — in favor of hidden attributes with a stronger correlation to long-term relationship success.

Citing research that finds no reliable link between income level or physical attractiveness and relationship satisfaction, Tashiro steers his readers toward traits such as agreeableness. With married couples, he points out, "liking declines at a rate of 3 percent a year, whereas lust declines at a rate of 8 percent per year," so the smarter, long-term investment is finding someone you genuinely like. Plus, he adds, studies also suggest that agreeable partners are in fact "better in bed" and less likely to cheat over the long haul.

July 19, 2014 in Legal Education, Tax | Permalink | Comments (1)

Blair-Stanek: Intellectual Property Law Solutions to Transfer Pricing Abuse

Tax Analysys Logo (2013)Andrew Blair-Stanek (Maryland), IP Law Solutions to Transfer Pricing Abuse, 143 Tax Notes 175 (June 30, 2014):

The article discusses a new way to attack transfer-pricing abuse: change intellectual property (IP) law.

July 19, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (0)

The IRS Scandal, Day 436

Friday, July 18, 2014

Weekly Tax Roundup

July 18, 2014 in Tax, Weekly Tax Roundup | Permalink | Comments (0)

Weekly SSRN Tax Roundup

July 18, 2014 in Scholarship, Tax | Permalink | Comments (0)

Weekly Student Tax Note Roundup

July 18, 2014 in Scholarship, Tax, Weekly Student Tax Note Roundup | Permalink | Comments (0)

Johnson: Reflections on Ridgely v. Lew

Johnson (Steve)TaxProf Blog op-ed:  Reflections on Ridgely v. Lew, by Steve R. Johnson (Florida State):

On July 16, the D.C. district court decided Ridgely v. Lew, Civ. No. 1:12-cv-00565 (CRC). It invalidated part of 31 C.F.R. sec. 10.27, restricting the ability of practitioners to charge contingent fees for services in connection with original returns, amended returns, and refund claims. The purported statutory authority for section 10.27 is 31 U.S.C. sec. 330(a), allowing Treasury to “regulate the practice of representatives of persons before the Department of the Treasury.”

In Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), a panel of the circuit invalidated regulations set out in 31 C.F.R. secs. 10.3 to 10.6 regulating return preparers. Affirming the Loving district court, the panel held that preparers are not “representatives” engaged in “practice” before the IRS, thus that Treasury lacked statutory authority to promulgate the regulations. The government chose not to seek Supreme Court review.

Loving, of course, has been quite controversial and has occasioned much commentary. My view, developed in Loving and Legitimacy: IRS Regulation of Tax Return Preparation forthcoming in the next issue of the Villanova Law Review, is that Loving was correctly decided. The “practice” rationale is not strong, but the “representative” rationale is sound, in my estimation. Cf. All Party Parliamentary Group on Extraordinary Rendition v. United States Dep’t of Defense, 2104 WL 2721381 (D.C. Cir. June 17, 2014) (FOIA case in which the court followed and applied Loving’s definition of “representative”).

The Ridgely plaintiff is a CPA. He brought suit under the Administrative Procedure Act and the Declaratory Judgment Act, arguing that the sec. 10.27 restrictions exceed Treasury’s statutory authority insofar as they apply to the preparation and filing of “Ordinary Refund Claims.” The Ridgely court followed Loving, finding that CPAs who advise as to and prepare Ordinary Refund Claims are not representatives practicing before the IRS. The result is not a big surprise. The government’s half-hearted attempts to distinguish Ridgely from Loving were easily brushed aside, and the district court obviously wasn’t going to disagree with its circuit court. If one believes Loving was correctly decided, then Ridgely too was correctly decided.

As to Ridgely’s aftermath, four thoughts.

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July 18, 2014 in Scholarship, Tax | Permalink | Comments (3)

University of Auckland Hosts Conference Today on Key Issues in the Design of Capital Gains Tax Regimes

AucklandThe University of Auckland Business School and the Faculty of Law host a conference today on Key Issues in the Design of Capital Gains Tax Regimes (speakerstopics):

The basic aim of this conference is to compare the ways in which selected jurisdictions tax capital gains, with a view to determining what might be learned from each jurisdiction’s experience as to the best approach to take.

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July 18, 2014 in Conferences, Tax | Permalink | Comments (0)

The IRS Scandal, Day 435

IRS Logo 2Forbes:  Despite Yearlong Investigation Of IRS, DOJ Just Learned Of Lost Emails From News Media, by Robert W. Wood:

For over a year now, the DOJ and FBI have been investigating the IRS targeting scandal. Yet a DOJ lawyer testified before a Congressional committee that even a year into its investigation, DOJ had no advance notice of the 2 years’ worth of emails the IRS says went missing years ago. ...

[T]his is astonishing. On June 13, 2014, the IRS admitted that it lost Lois Lerner’s emails from January 2009 through April 2011. DOJ says it learned of the missing emails after June 13, 2014 from the media! Oh, those two-years’ worth of emails to and from the key IRS figure who refused to testify to Congress about her job as a top IRS official? They covered the precise period of time when the alleged IRS targeting of Tea Party groups took place.

Republican Rep. Ron DeSantis asked Deputy Attorney General James Cole, “So you actually read about it in the press and nobody in the IRS ever went to the Justice Department to give you a heads-up, knowing you were conducting the investigation that some evidence may have been destroyed?”

“Not before the 13th of June,” Cole replied. “I think we learned about it after that, from press accounts,” Mr. Cole told House Oversight and Government Reform subcommittee chairman Rep. Jim Jordan. Rep. Jordan pressed Mr. Cole, “Is it a big deal to you Mr. Cole, a big deal to the Justice Department that the head of the Internal Revenue Service waited two months to tell the United States Congress, two months to tell the American people, and, most importantly, two months to tell the FBI and the Justice Department that they had lost Lois Lerner’s emails?”

Mr. Cole’s response seemed practically Presidential, “It depends on what the circumstances were behind,” Cole responded. The whole story may eventually come out, but the investigation has taken on a decidedly pale complection. Now there’s a new DOJ investigation underway into the IRS missing emails. One might wonder if it will ever turn up even a smidgen of corruption.

Meanwhile, a federal court may prove to be tougher. In a suit against the IRS brought by Judicial Watch, U.S. District Judge Emmet G. Sullivan ordered the IRS to explain what happened to Lois Lerner’s emails. The DOJ has done its best to avoid having to explain much of anything to anyone.

It is another seedy chapter that casts further doubt on the tax system. In 2013, the IRS targeting scandal was already brewing, and Ms. Lerner asked an IT specialist at the IRS if the IRS saved texts? They are not saved automatically, came the response, but since saving them was possible, be careful. “Perfect,” Ms. Lerner answered.

So the switch to texts was an even better way to adopt the IRS version of Moscow Rules. Even President Obama’s new IRS Commissioner Koskinen testified that he was completely unaware of the instant-messaging system. Still, he told a House committee he didn’t think Ms. Lerner’s response about the texts meant she was happy that IRS instant messages weren’t saved. ‘Perfect’ must mean different things to different people.

Forbes

Wall Street Journal:  Justice Department Learned of Lost IRS Emails From Press, Official Says:

Justice Department officials didn't learn until June that the Internal Revenue Service had lost two years' worth of emails that could shed light on the agency's treatment of conservative groups, a top Justice official said.

Deputy Attorney General James Cole told a congressional panel Thursday that the agency learned from press accounts in June that the IRS had lost the emails. The Justice Department announced more than a year earlier, in May 2013, that it was investigating the alleged IRS targeting of conservative groups, after an inspector general found tea-party groups faced unusual scrutiny and lengthy delays as they sought tax-exempt status.

Republicans said the disclosure supports their claim that the Justice Department hasn't been aggressive in pursuing its investigation of the matter.

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July 18, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, July 17, 2014

District Court Joins Loving, Holds IRS Lacks Statutory Authority to Regulate Tax Return Preparers

RTRPThe U.S. District Court for the District of Columbia yesterday followed Loving v IRS, 742 F.3d 1014 (D.C. Cir. 2014), and held that the IRS lacks statutory authority to regulate tax return perparers.  Ridgely v. Lew, 1:12-cv-00565 (D.D.C. July 16, 2014).

Prior TaxProf Blog coverage:

July 17, 2014 in IRS News, Scholarship, Tax | Permalink | Comments (0)

American Cities Couple Progressive Spending With Broad-based Taxes to Combat Inequality

Slate:  You Don’t Have to Move to Scandinavia:  American Towns Are Also Spending More on Social Programs as Inequality Rises, by Leah Platt Boustan (UCLA),  Hernan Winkler (World Bank) & Eric M. Zolt (UCLA):

The New York Times travel section, not known for its frugality, recently warned readers about the sticker shock of a Scandinavian vacation. “Prices do mean that unless money is no object, you’ll need to modify expectations,” the piece advised. In Norway, a burger and fries at a fast food joint will set you back $23. A six-pack of warm grocery-store beer is nearly $30. These hefty price tags are due, in part, to high wages for low-skilled service jobs. But high taxes play a role too. Most products have a 25 percent value-added tax, which means that $5.50 of the cost of that burger goes to fund Norway’s generous social programs.

As a visitor, you get little for the added price. But, as a resident, your daily spending helps to fund an expansive package of benefits, including health care, child care, high-quality education, pensions, and unemployment insurance. While many Americans admire European social safety net, what they may not appreciate is that these programs are typically paid for by a bundle of taxes that are much less progressive than taxes here. In large part, these benefits are not funded by high-income taxes on the rich. Instead, the beneficiaries of the public services also pay for them, kroner by kroner, through high consumption taxes.

Could this system work to combat income inequality in the United States? Usually, the assumption is no, even though the most popular social insurance program in the country, Social Security, fits this template. We’ve recently published research that adds surprising support for the argument that the European model of progressive spending funded by broad-based taxes could work more widely here—by showing that it’s already happening at the local level.  [The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence from U.S. Municipalities and School Districts, 1970-2000, 95 Rev. Econ. & Stat. 1291 (2013)]

July 17, 2014 in Tax | Permalink | Comments (0)

Death of the WSJ's Arden Dale

DaleWall Street Journal, Arden Dale, Dow Jones Writer, Dies:

Arden Dale, who covered taxes and estate planning at The Wall Street Journal, died Sunday at her home in Maplewood, N.J., after a battle with cancer. She was 54 years old.

She had a long and distinguished career with Dow Jones and the Journal. She was managing editor for energy coverage at Dow Jones Newswires in the early 2000s, and then a senior writer on personal-finance issues for Wealth Adviser.

"We are deeply saddened by Arden's death. She was a highly talented and widely respected journalist and colleague. Arden served Dow Jones, The Wall Street Journal and their readers well in important news management and reporting positions," said Neal Lipschutz, a deputy managing editor of the Journal.

I blogged Arden's final column, in May, Skirting the New Investment Tax: 'Active' Business Owners Can Escape the 3.8% Investment Tax—If They're Truly Active

July 17, 2014 in Obituaries, Tax | Permalink | Comments (1)

Federalist Society Hosts Teleforum Conference Call Today on Who Judges Who is a Judge?

The Federalist Society hosts a Teleforum Conference Call today at 1:00 p.m. EST on Who Judges Who is a Judge? with Kristin E. Hickman (Minnesota) and Tuan Samahon (Villanova):

FSAt bottom, in Kuretski v. Commissioner  presidential power is at stake. Judges of the U.S. Tax Court (26 USC 7443(f)), were arguably characterized by the U.S. Supreme Court, in Freytag v. Commissioner, as exercising a portion of the judicial power of the United States. Recently, however, the D.C. Circuit Court of Appeals disagreed when it found that the Tax Court exercises only executive power. What are the implications of the D.C. Circuit Court’s opinion on the president’s removal power? Has the D.C. Circuit misread Freytag, or faithfully applied it?

Prior TaxProf Blog op-eds on Kuretski:

July 17, 2014 in Legal Education, Tax | Permalink | Comments (0)

Gamage: Analyzing the Optimal Choice of Tax Instruments

David Gamage (UC-Berkeley), Analyzing the Optimal Choice of Tax Instruments: The Case for Levying (all of) Labor-Income Taxes, Value-Added Taxes, Capital-Income Taxes, and Wealth Taxes, 68 Tax L. Rev. ___ (2014):

Economic analyses of taxation have largely focused on the problems of labor-to-leisure and saving-to-spending distortions. Based on these analyses, the prior literature has generally treated labor-income and consumption taxes as being essentially equivalent, and has also treated capital-income and wealth taxes as being essentially equivalent. Further, based on these analyses, the dominant view in the prior literature has been that neither capital income nor wealth should be taxed.

This Article expands on these prior analyses by incorporating a variety of tax-gaming responses and also administrative and compliance costs. By doing so, this Article argues that it is probably optimal for governments to levy some version of (all of) labor-income taxes, value-added taxes, capital-income taxes, and wealth taxes.

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July 17, 2014 in Scholarship, Tax | Permalink | Comments (0)

Madison: The Futility of Tax Protester Arguments

Allen D. Madison (South Dakota), The Futility of Tax Protester Arguments,  36 T. Jefferson L. Rev. 253 (2014):

Tax protesters offer uncommonly silly arguments in support of their positions -- so silly, in fact, that courts commonly refuse to address them, lest those arguments be given any credence. Yet the wave of tax protestor arguments has not ebbed, and tax protestors continue to challenge, for example, the legal obligation to pay taxes, the constitutionality of the income tax, and the authority of the IRS to enforce the tax laws.

Maybe some education will help solve this problem. This Article provides a framework for analyzing tax protestor arguments through a civics discussion and explains why tax protestor arguments fail under our system of government.

July 17, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 434

IRS Logo 2Wall Street Journal:  Justice Dept. to Investigate Lost IRS Emails:

The Justice Department is conducting a criminal investigation into the loss of Internal Revenue Service emails that could shed light on the agency's treatment of conservative groups.

As part of its criminal probe into the IRS's treatment of politically active conservative groups, the Justice Department is "investigating the circumstances of the lost emails from [former IRS official Lois Lerner's] computer," according to prepared testimony by James Cole, the deputy attorney general. Mr. Cole is set to appear at a hearing scheduled for Thursday before a panel of the House Oversight and Government Reform Committee. The Wall Street Journal reviewed his prepared testimony on Wednesday. ...

Mr. Cole's comments underscore the potential seriousness of the email loss, which has roiled congressional probes of the matter and angered some top GOP lawmakers. The IRS has blamed the loss on a crash of Ms. Lerner's hard drive—a common occurrence at the agency, officials say. They add a backup tape also was routinely recycled after six months.

Some Republicans regard the timing of the email loss in 2011 as suspicious, however, noting that it came just days after Republicans began questioning the agency's treatment of politically active conservative donors and groups.

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July 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, July 16, 2014

National Taxpayer Advocate Releases Mid-Year Report to Congress

TASNational Taxpayer Advocate Nina Olson today released (IR-2014-78) her semi-annual report to Congress, FY 2015 Objectives Report to Congress:

[The report] identifies key issues, goals and activities TAS will focus on during the upcoming fiscal year. These include the implementation of the Taxpayer Bill of Rights, resolving refund delays for victims of return preparer fraud, and the need for minimum standards for tax return preparers. This year's report also includes a Volume II that outlines formal IRS responses to the 25 most serious taxpayer problems identified by the NTA in her 2013 Annual Report to Congress, as well as the NTA’s comments on those responses.

July 16, 2014 in IRS News, Tax | Permalink | Comments (1)

Bankruptcy’s Corporate Tax Loophole

Diane Lourdes Dick (Seattle), Bankruptcy’s Corporate Tax Loophole, 82 Fordham L. Rev. 2273 (2014):

Imagine you are a company with a failing business that is drowning in debt. On the bright side, you also possess a very valuable asset. This asset is unique because, unlike most assets, if you liquidate the business through a Chapter 7 bankruptcy, it will be extinguished and its value will not be realized by any shareholders or creditors. On the other hand, even if you substantially liquidate the business using Chapter 11, you can, thanks to an extraordinary ambiguity in the law, preserve this valuable asset. Even better, you can direct the value of this asset to your preferred stakeholders—whether they are shareholders or creditors—rather than have the asset’s value allocated among stakeholders according to bankruptcy’s absolute priority rule. You can do this because you have the most information about this valuable asset and because bankruptcy law and courts effectively ignore its existence, leaving you to allocate its value as you see fit. What is this unique asset? Valuable tax attributes, including net operating losses and credit carryovers. This scenario is not purely hypothetical; Solyndra and Washington Mutual, among others, have effectively used Chapter 11 to divert the value of tax losses and credits to a select group of shareholders and creditors in contravention of bankruptcy‘s distributional norms. This Article recommends statutory revisions to the tax and bankruptcy laws to remove the unintended tax advantage and thus neutralize the tax consequences of corporate restructuring decisions.

July 16, 2014 in Scholarship, Tax | Permalink | Comments (1)

SSRN Tax Professor Rankings

SSRN LogoSSRN has updated its monthly rankings of 750 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  Here is the new list (through July 1, 2014) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

 

 

All-Time

 

Recent

1

Reuven Avi-Yonah (Mich.)

39,386

Reuven Avi-Yonah (Mich.)

6823

2

Paul Caron (Pepperdine)

26,267

Paul Caron (Pepperdine)

2702

3

Louis Kaplow (Harvard)

22,744

Richard Ainsworth (BU)

2686

4

D. Dharmapala (Illinois)

19,997

D.Dharmapala (Illinois) 

2585

5

Vic Fleischer (San Diego)

19,867

Richard Kaplan (Illinois)

1930

6

James Hines (Michigan)

19,626

Bridget Crawford (Pace)

1900

7

Ted Seto (Loyola-L.A.)

19,004

Katie Pratt (Loyola-L.A.)

1893

8

Richard Kaplan (Illinois)

18,863

Ed Kleinbard (USC)

1825

9

Katie Pratt (Loyola-L.A.)

15,918

Omri Marian (Florida)

1787

10

Dennis Ventry (UC-Davis)

15,341

Louis Kaplow (Harvard)

1751

11

Carter Bishop (Suffolk)

14,896

Robert Sitkoff (Harvard)

1713

12

Jen Kowal (Loyola-L.A.)

14,185

Brad Borden (Brooklyn)

1705

13

David Weisbach (Chicago)

14,162

Jen Kowal (Loyola-L.A.)

1628

14

Chris Sanchirico (Penn)

14,136

James Hines (Michigan)

1466

15

David Walker (BU)

13,885

Dick Harvey (Villanova)

1442

16

Francinet Lipman (UNLV)

13,741

Jeff Kwall (Loyola-Chicago)

1442

17

Richard Ainsworth (BU)

13,692

Francine Lipman (UNLV)

1367

18

Bridget Crawford (Pace)

13,686

Ted Seto (Loyola-L.A.)

1362

19

Brad Borden (Brooklyn)

13,623

Dan Shaviro (NYU)

1350

20

Robert Sitkoff (Harvard)

13,535

Carter Bishop (Suffolk)

1268

21

Ed Kleinbard (USC)

12,846

David Gamage (UCBerkeley)

1237

22

Herwig Schlunk (Vanderbilt)

12,442

Vic Fleischer (San Diego)

1190

23

Dan Shaviro (NYU)

11,947

Brian Galle (BC)

1189

24

Ed McCaffery (USC)

11,692

Dan Simmons (UC-Davis)

1184

25

Wendy Gerzog (Baltimore)

11,682

Chris Sanchirico (Penn)

1169

Note that this ranking includes full-time tax professors with at least one tax paper on SSRN, and all papers (including non-tax papers) by these tax professors are included in the SSRN data.

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July 16, 2014 in Scholarship, Tax, Tax Prof Rankings | Permalink | Comments (0)

CPAs Sue IRS, Say its 'Voluntary' Regulation of Tax Preparers Lacks Authorization From Congress

RTRPFollowing up on my prior post, CPAs: IRS's 'Voluntary' Regulation of Tax Preparers Lacks Statutory Authorization From Congress, Contravenes D.C. Circuit Decision, and Violates Administrative Procedure Act:  the American Institute of CPAs yesterday sued the IRS in the U.S. District Court for the District of Columbia over its new "Voluntary" Tax Return Preparer Program:

July 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

The IRS Scandal, Day 433

IRS Logo 2Forbes:  Is the IRS Scandal Microsoft's Fault?, by Gene Marks:

Hmm….maybe Microsoft is to blame for this whole IRS-email thing.

Just last week, “…a second federal judge has now ordered the IRS to explain under oath how the agency lost emails from former division director Lois Lerner, the woman at the heart of the Tea Party targeting scandal. U.S. District Court Judge Reggie Walton told Obama administration lawyers on Friday he wants to see an affidavit explaining what happened with Lerner’s hard drive. The IRS claims her computer suffered a crash in 2011 that wiped her email records at the time clean.”

Ah-hah! It’s a brilliant ploy. Can’t provide emails requested by the courts? Then just blame the computer guys! The computers crashed. It was a blue screen of death. You know what’s it like with Windows, right? We’ve all had this happen to us before. Who hasn’t had their computer crash? Curse you, Microsoft! This must be your fault! You’ve foiled us again!

I don’t know if the IRS did anything wrong – that’s for the courts to decide. But I do know a little something about information technology. And this is an IT issue. Judges. Lawyers. IRS people. Congressmen. The Media. Everyone’s trying to get to the bottom of the lost emails. But there’s one group of people missing from the conversation: the tech people. I don’t mean the ones who work for the IRS. They’re scrambling, I’m sure. The ones who should be subpoenaed are the ones who work at IT firms, like mine, across the country. They will tell a different story. When we hear that emails were just “lost,” especially in 2011, we scratch our heads in amazement. Ask any IT firm, the clients they serve, or the IT people that work in corporate America: e-mails don’t get “lost.” And frankly, computers don’t really crash very often. That was a great excuse in…oh…1995. But not anymore.

In other words: you can’t blame Microsoft. Nice try. ...

[D]id Ms. Lerner’s computer really crash, wiping out all her data, including emails? That story’s really hard to believe for anyone with an IT background. It’s easy to blame Microsoft for our problems. That used to be a great excuse. But that excuse is getting harder and harder for anyone, even the IRS, to make.

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July 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, July 15, 2014

House Votes to Cut IRS Budget 13% (21% Below Obama's Request)

IRS Logo 2Bloomberg:  IRS Budget Sliced 13% as U.S. House Constrains Tax Agency:

The House of Representatives voted to cut the IRS’s budget by $1.14 billion in another blow to the tax agency.  ... The changes would leave the IRS with a budget of $9.8 billion for the fiscal year that starts Oct. 1, 13 percent below this year’s funding level and 21 percent below the administration’s request.

July 15, 2014 in IRS News, Tax | Permalink | Comments (0)

John Oliver on Income and Wealth Inequality

There is a great discussion of the estate tax beginning at 7:20.  (Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

(Hat Tip: Deborah Schenk.)

July 15, 2014 in Tax | Permalink | Comments (1)

More on the Tax-Driven Inversion Mania

Ault, Schoen & Shay: Base Erosion and Profit Shifting: A Roadmap for Reform

Hugh J. Ault (Boston College), Wolfgang Schoen (Max Planck) & Stephen E. Shay (Harvard), Base Erosion and Profit Shifting: A Roadmap for Reform, 68 Bull. Int'l Tax'n 275 (2014):

In this Editorial, the authors explain the context of this special issue of the Bulletin for International Taxation. The fundamental premise of the BEPS project is that a coordination of national responses to BEPS can both eliminate double non-taxation and protect against material unrelieved double taxation. The articles in this issue further a dialogue among tax policymakers, taxpayers, advisors and academics that is critical to achieve this objective.

July 15, 2014 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 432

IRS Logo 2The Weekly Standard:  More Than a Smidgen, by Stephen F. Hayes:

The facts are simple. The IRS systematically targeted conservative and Tea Party groups after their activism proved decisive in the 2010 midterm elections—Obama’s famous “shellacking.” The effects of this targeting were widespread. Some Tea Party groups were neutered in the months before the 2012 presidential election.

Few of the explanations or justifications of this targeting provided by IRS leaders and Obama administration officials have held up. IRS officials at first denied that any targeting had taken place. That was false. They later claimed that the targeting had involved only low-level employees in the Cincinnati office. That was false. They argued that conservative groups weren’t singled out, that progressive groups were subject to the same level of scrutiny. That was false. They argued that the IRS has complied with all requests for information from Congress. That was false.

Three years ago, on June 3, 2011, Representative Dave Camp, chairman of the House Ways and Means Committee, wrote to the IRS requesting all information—including emails and other communication—related to the alleged targeting of conservative groups. Ten days later, Lois Lerner, the woman at the center of the targeting, reported to the IT team at the IRSthat her hard drive had crashed. IRS leaders, questioned repeatedly about Lerner’s emails in subsequent congressional hearings, made no mention of the hard drive crash. Earlier this summer, IRS director John Koskinen disclosed that thousands of Lerner emails—including many of those sent to executive branch agencies—were missing because of the alleged computer problems. From her first appearance before a congressional committee, back in May 2013,Lerner has exercised her right against self-incrimination and refused to testify.

Last week brought a significant new revelation: an email in which Lerner seeks advice about keeping information from Congress. ... She knew that the IRS scandal was about to explode.

At the time Lerner sent the email, IRS officials had recently learned that the Treasury inspector general would be issuing a report the following month criticizing the agency for its targeting of conservative groups. And Lerner’s email came just before she planted a question in the audience at an American Bar Association conference on May 10 in an effort to get out in front of the controversy.

These facts lead to one conclusion: Lois Lerner and other top IRS officials were desperate to keep information on the targeting of conservative groups from Congress. 

It’s crucial to understand why. And that will require a special prosecutor.

Town Hall:  Reality of the IRS Scandal, by Bruce Bialosky (Founder, Republican Jewish Coalition):

People who are not distraught about Lois Lerner and the IRS must have never actually dealt with the organization. As someone who has for 36 years, it is clear that at best we are dealing with fabrications and at worst outright lies and criminal actions. The fact that any American --let alone the national press, Congressional Democrats, and the White House – might not be agitated is dangerous for our society.

First, let us be clear: despite billions of dollars of taxpayer money being spent on improving their computer system, it is still rank. Second, the Internal Revenue has gradually over my career asserted more and more control at higher levels leaving agents and revenue officers less flexibility. That means there is less opportunity for an agent in the field to make their own decisions about any matter.

If you ever sat in an IRS office or waited endlessly on the telephone, you would know that this entire scenario of lost emails is not remotely plausible.

Las Vegas Review-Journal editorial:  Lerner Must Testify Without Immunity in IRS Scandal:

Last week, an Arizona Republic editorial stated that the only way to move this investigation forward is to get Ms. Lerner to talk — via immunity from prosecution. Ms. Lerner needs to talk, all right, but in light of the past week’s news, she cannot possibly be given immunity. The IRS regularly operates with absolute ruthlessness and no mercy in its dealings with the public, and in this case, we’ve seen nothing but complete contempt from the highest-ranking agency officials, all as the administration looks the other way and President Barack Obama himself says there’s “not even a smidgen of corruption” within the IRS.

Remember, this isn’t about partisan sniping. This is about an executive branch agency working to influence the outcome of the 2012 election in favor of the party — and the president — in power.

It’s one thing to offer reduced sentences or penalties for cooperating, but full immunity must be off the table. Ms. Lerner and the IRS are long overdue for a heavy dose of karma.

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July 15, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (8)

Monday, July 14, 2014

Grewal: Mixing Management Fee Waivers with Mayo

Florida Tax ReviewAndy Grewal (Iowa), Mixing Management Fee Waivers with Mayo, 16 Fla. Tax Rev. 1 (2014):

This Article examines whether the management fee waiver strategy used by private equity firms to convert ordinary income into long-term capital gains actually works. Scholars have almost uniformly condemned the strategy, calling it "extremely aggressive," "profoundly piggish," or illegal. However, this Article shows that the critics substantially overstate their case (the provision of law most frequently cited by the critics doesn't even exist), especially in light of the changes in the tax-administrative law landscape wrought by Mayo v. United States.

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July 14, 2014 in Scholarship, Tax | Permalink | Comments (0)

Lurie: The ObamaCare 3.8% Tax on Investment Income: A Second Income Tax

BenefitsLink.com: Obama's Trojan Horse: A 3.8% Medicare Surtax? No. A Free-Standing Second Income Tax? Yes. A Well-Kept Secret? You Bet, by Alvin D. Lurie:

The parties have continued to wage this war over innumerable aspects of the Affordable Care Act, most especially the technical failures that occurred during the rollout of the federal insurance exchange at the end of 2013 and into the first quarter of the current year. Doubtless this will continue to be one of the principal themes trumpeted by the Republicans during the upcoming midterm elections in November 2014. What is surprising is that they have not, even at this writing -- over four years after enactment of the ACA, two national elections held since then, and another one barely six months away -- launched any attacks against inclusion in the ACA of a tax that is misnamed (misleadingly so) as a "Medicare contribution" levy, purportedly (again misleadingly) to provide the revenues to support the government expenses associated with administering the ACA. One would have thought that tax would have provided the Republicans with their best point of attack against the Affordable Care Act.

In truth, the tax, imposed specifically on "net investment income," is a new income tax, now actually a part of the Internal Revenue Code (numbered section 1411), operating exactly the same as the long-standing regular income tax, calculated on a new form created for it and the total now reportable on a line added to Form 1040. It is, in fact, much more challenging to calculate than most of the long-time familiar ordinary, alternative minimum and capital gains components of the regular income tax, because of many new technical rules and difficult factual determinations necessary for its proper application. High rates of miscalculation by taxpayers are a certainty because of the difficulties inherent in the process, and because the rules themselves will be in flux for a lengthy period, until the Treasury, IRS and ultimately the courts put their respective stamps on the statute.

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July 14, 2014 in Tax | Permalink | Comments (1)

Hariton: Should Share Repurchases Be Dividends to Remaining Holders?

Tax Analysys Logo (2013)David P. Hariton (Sullivan & Cromwell, New York), Should Share Repurchases Be Dividends to Remaining Holders?, 144 Tax Notes 175 (July 14, 2014):

Under current law, holders of common stock pay less tax than holders of debt, and arguably less tax than might be deemed desirable from a utilitarian perspective. The most frequently proposed solution is to require investors to mark publicly traded stocks to market and pay current tax on their associated gains. But there is a more modest alternative that might present fewer problems and better target the simple objective of ensuring that most shareholders pay at least some amount of tax.

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July 14, 2014 in Scholarship, Tax, Tax Analysts | Permalink | Comments (3)

ABA/NYLS 2014 Skills Training for Estate Planners

EPThe five-day 2014 Skills Training for Estate Planners hosted by the ABA Section of Real Property, Trust and Estate Law and New York Law School kicks off today:

The annual Skills Training for Estate Planners CLE program is for attorneys who practice, or plan to practice, estate planning law. This popular program has two courses of study:

The Fundamentals course is perfect for young or transitioning lawyers new to the practice and provides them with a strong educational experience focused on the “how to” of estate planning.

The Advanced Topics course focuses on current areas of interest and importance to lawyers experienced in estate planning and is an excellent opportunity to further expand their knowledge and skills.

This institute-type program provides a comprehensive CLE experience with coordinated sessions that build upon one another. It’s held annually at New York Law School in the Tribeca neighborhood of downtown Manhattan.

July 14, 2014 in Conferences, Tax | Permalink | Comments (0)

The IRS Scandal, Day 431

IRS Logo 2National Review:  The ‘Independent’ Counsel Mirage: Don’t Hand the IRS Investigation Over to a Special Prosecutor, by Andrew C. McCarthy:

I confess to being amazed that President Obama and his trusty attorney general, Eric Holder, have not mollified their detractors by appointing an “independent counsel” to investigate the IRS scandal.

“Why,” you ask, “would Obama sic a prosecutor with independence from Holder’s Justice Department on a component of the Obama administration?” The real question is: Why hasn’t he?

The disconnect here lies in the public’s perception — and, perhaps, the perception of some congressional Republicans who ought to know better — of what an “independent counsel” really is. Independence is a mirage: Obama’s critics crave an evenhanded investigation of executive lawlessness and, in the Washington fashion, they have convinced themselves that wishing can make it so. As it actually exists, however, an “independent counsel” would be tailor-made for letting the administration and the IRS dodge accountability. ...

You can have political accountability for abuses of power or you can have an “independent” counsel and “the process.” Political accountability is driven by congressional investigations and court cases brought by citizens whose rights have been trampled. It is messy, combative, and political, but the malfeasance it uncovers can result in the removal of corrupt officials from power.

By contrast, “the process,” under the steady hand of “independent” counsels, is neat, silent, and somnolent. In fact, once it starts, that may be the last you hear about it until President Obama pardons everyone on his way out the door.

Time:  After “Tea Party” Scandal, IRS to Rubber Stamp Tax-Exempt Status for Most Charities:

Amid ongoing controversy over its scrutiny of non-profits, the Internal Revenue Service has decided it will no longer screen approximately 80% of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other non-charitable groups from misusing the tax code.

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July 14, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

San Diego Tax Prof Dinner

Dinner 5

From left: Jordan Barry (San Diego, Francine Lipman (UNLV), Vic, Penelope and Miranda Fleischer (San Diego), Paul Caron (Pepperdine), and Richard Winchester (Thomas Jefferson).  Thanks to Francine for organizing the dinner and for surprising me with a cake celebrating TaxProf Blog's 10 Year Anniversary:

Dinner 2

July 14, 2014 in Legal Education, Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, July 13, 2014

The Tax Consequences of the Potato Salad Guy's Kickstarter Campaign

Kickstarter LogoTax Foundation: $21,000 Tax Bill Just for Some Potato Salad:

As of 2:30pm on July 9, 2014, Zack Danger Brown has amassed over $70,000 in pledges from donors using Kickstarter—a website that matches donors to projects—to make potato salad.

KS

Nearly 5,000 backers from across the world have chosen Brown’s potato salad project, and tens of thousands of dollars will be dished to Brown on August 2. But once these funds are given to Brown, they will constitute income that might mean a sizeable tax bill for Brown. Kickstarter explains how pledges are taxed:

In the U.S., funds raised on Kickstarter are considered income… A creator can offset the income from their Kickstarter project with deductible expenses that are related to the project and accounted for in the same tax year. For example, if a creator receives $1,000 in funding and spends $1,000 on their project in the same tax year, then their expenses could fully offset their Kickstarter funding for federal income tax purposes.

Kickstarter also notes creators “may be able to classify certain funds” as nontaxable gifts instead of income, so long as the funds were pledged with “detached and disinterested generosity,” but one look at Brown’s Kickstarter page shows that these funds probably won’t qualify.

Brown offers donor specific handouts, such as a recipe book with potato salad recipes from every donor country for pledges of $50 (so far 83 backers), potato salad themed hats for pledges of $25 (234 backers), and even a potato salad themed haiku for pledges of $20 (4 backers).

So, given that Brown’s funds will likely be considered income instead of non-taxable gifts, how much will he have to pay in federal, state, and local income taxes? ... In total, Brown’s federal, state, and local tax burden on his income of $65,912 is $21,167.49 for an effective tax rate of 32.11 percent, leaving him with take home pay of $44,744.51 less taxes and expenses.

Update (7/11/2014): Kickstarter has updated the funding totals (currently around $48,000 at 2:25pm). According to The Business Journals, the boost in total funds resulted from some fake pledges which have now been removed. Stay tuned, and we will update the final numbers once the remaining 21 days have expired.

Other commentators have pushed back on the Tax Foundation's analysis, arguing that the payments would constitute non-traxable gifts.

(Hat Tip: Eli Bortman, Allison Christians, Leandra Lederman.)

July 13, 2014 in Celebrity Tax Lore, Tax | Permalink | Comments (2)

Top 5 Tax Paper Downloads

The IRS Scandal, Day 430

IRS Logo 2Washington Post:  More IRS Smidgens Show Up. ‘Perfect.’, by Ed Rogers:

Anyone paying attention to the Internal Revenue Service scandal has been waiting for the next smidgen to drop. Well, two more hit pretty hard this week. At the president’s next encounter with the media, I will scream collusion if no one asks him for his exact definition of a “smidgen,” and if he thinks he has seen a smidgen of corruption yet. At this point, only the most gullible or culpable can continue to claim there is no compelling evidence in this case. Given the delays, lies and stonewalling, there is no viable argument against a special prosecutor.

In a stunning revelation this week, it was disclosed that former IRS official Lois Lerner told colleagues, “we need to be cautious about what we say in emails” and then proceeded to ask the IRS IT department, in an e-mail, “if [instant messaging] conversations were also searchable.”  When she was told they were not, she e-mailed back, “Perfect.” This is a smoking gun e-mail in that it makes plain she had a cover-up in mind. There is no other plausible explanation. ...

[A]s long as Lerner stays cool and the Obama Department of Justice has her back, the administration obviously thinks it can run out the clock on this scandal. But these revelations are definitely meaningful smidgens. At what point does a flock of smidgens become irrefutable evidence that deserves an independent examination?

Judicial Watch press release:

Judicial Watch announced today that on June 17, 2014, it filed a Freedom of Information Act (FOIA) lawsuit against the Department of Justice (DOJ) seeking the number of hours DOJ Attorney Barbara Bosserman expended in the investigation of the IRS targeting of conservative organizations seeking tax exempt status during the 2010 and 2012 elections cycles (Judicial Watch v. U.S. Department of Justice (No. 1:14-cv-01024)).

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July 13, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, July 12, 2014

Piketty's Failure to Account for Tax Law Changes Makes His Wealth Inequality Claims Worthless

CapitalWall Street Journal op-ed:  Why Piketty's Wealth Data Are Worthless, by Alan Reynolds (Cato Institute):

No book on economics in recent times has received such a glowing initial reception as Thomas Piketty's Capital in the Twenty-First Century (Harvard University Press, 2014). He remains a hero on the left, but the honeymoon may be drawing to a sour close as evidence mounts that his numbers don't add up.

Mr. Piketty's headline claim is that capitalism must result in wealth becoming increasingly concentrated in fewer hands to a "potentially terrifying" degree, on the grounds that the rate of return to capital exceeds the rate of economic growth. Is there any empirical evidence to back up this sweeping assertion? The data in his book—purporting to show a growing inequality of wealth in France, the U.K., Sweden and particularly the United States—have been challenged. And that's where the story gets interesting.

In late May, Financial Times economics editor Chris Giles published an essay that found numerous errors in Mr. Piketty's data. Mr. Piketty's online Response to FT was mostly about Europe, where the errors Mr. Giles caught seem minor. But what about the U.S.?

Mr. Piketty makes a startling statement: The data in his book should now be disregarded in favor of a March 2014 Power Point presentation, available online, by Mr. Piketty's protégé, Gabriel Zucman (at the London School of Economics) and his frequent co-author Emmanuel Saez (of the University of California, Berkeley). ...

Zucman-Saez concludes that there was a "large increase in the top 0.1% wealth share" since the 1986 Tax Reform, but "no increase below the top 0.1%." In other words, all of the increase in the wealth share of the top 1% is attributed to the top one-tenth of 1%—those with estimated wealth above $20 million. This is quite different from the graph in Mr. Piketty's book, which showed the wealth share of the top 1% (which begins at about $8 million, according to the Federal Reserve's Survey of Consumer Finances) in the U.S. falling from 31.4% in 1960 to 28.2% in 1970, then rising to about 33% since 1990.

In any event, the Zucman-Saez data are so misleading as to be worthless. They attempt to estimate top U.S. wealth shares on the basis of that portion of capital income reported on individual income tax returns—interest, dividends, rent and capital gains.

This won't work because federal tax laws in 1981, 1986, 1997 and 2003 momentously changed (1) the rules about which sorts of capital income have to be reported, (2) the tax incentives to report business income on individual rather than corporate tax forms, and (3) the tax incentives for high-income taxpayers to respond to lower tax rates on capital gains and dividends by realizing more capital gains and holding more dividend-paying stocks. ...

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July 12, 2014 in Book Club, Tax | Permalink | Comments (16)

The IRS Scandal, Day 429

IRS Logo 2Wall Street Journal editorial:  Judging the IRS: A Pair of Court Orders Seek Answers About the Vanishing Emails:

Congress has been working for more than a year to get to the bottom of the IRS political targeting scandal, and the Obama Administration has resisted across the board. So hurrah to the judicial branch, which this week stepped into the fray with orders that could force the IRS to start coughing up some answers.

U.S. District Judge Emmet G. Sullivan on Thursday ordered the IRS to provide for him, within a month, a sworn declaration explaining how the agency came to lose two years' worth of email belonging to former Director of Exempt Organizations Lois Lerner. Judge Sullivan also assigned a federal magistrate, John Facciola, to conduct his own query into whether Ms. Lerner's emails might be obtained by other means. The order suggested that Judge Sullivan was far from satisfied with the IRS's cursory explanations of crashed hard drives and irretrievable information.

On Friday a second federal judge, Reggie B. Walton, issued another order, demanding the IRS provide under oath an affidavit outlining what happened to Ms. Lerner's hard drive, the qualifications of anybody who attempted to retrieve her lost email, and the status of the IRS Inspector General's investigation into these issues. Judge Walton gave the IRS one week to respond.

Now we're getting somewhere. The IRS has slow-rolled document production for Congress and then it waited two months to tell its legislative overseers that Ms. Lerner's emails had vanished. The Justice Department and FBI, meanwhile, have leaked to the press that their probes have found nothing wrong.

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July 12, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)