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Tuesday, April 8, 2014

The Life of the Law Podcast: People and their Taxes


Life of the Law LogoThe Life of the Law Podcast:  People and their Taxes:

One of Life of the Law’s new advisors, Ajay Mehrotra, is tax historian and associate dean at the University of Indiana’s Maurer School of Law. Professor Mehrotra invited some of his fellow scholars to talk about taxation and citizenship. You’ll hear him speaking with Duke University law professor Lawrence Zelenak; Molly Michelmore, an associate professor of history at Washington and Lee University; and Beth Pearson, a PhD candidate at the University of California Berkeley who’s studying the evolution of state tax laws.

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

Toder & Viard: A Call for Structural Reform of the U.S. Corporate Income Tax

Eric Toder (Tax Policy Center) & Alan D. Viard (American Enterprise Institute), Major Surgery Needed: A Call for Structural Reform of the U.S. Corporate Income Tax:

Corporate tax system flaws are amplified by the high US statutory tax rate. Here are two ways to fix it:

  1. Eliminate corporate income tax, but tax US shareholders at ordinary income tax rates on their dividends and accrued capital gains.
  2. Seek international agreement on allocating income of multinational corporations among countries to determine tax obligation.

April 8, 2014 in Scholarship, Tax, Think Tank Reports | Permalink | Comments (0)

Osofsky: Unwinding the Ceiling Rule

Leigh Osofsky (Miami), Unwinding the Ceiling Rule, 33 Va. Tax Rev. ___ (2014):

As is widely known, the so-called “ceiling rule,” which applies under the traditional method for section 704(c) allocations, can create the wrong tax result. Specifically, the ceiling rule can result in misallocations of income, gain, loss, and deduction to both a partner contributing property and to the noncontributing partners. Notwithstanding these predictable misallocations, the Treasury Department still permits application of the ceiling rule under section 704(c). This Article challenges longstanding assumptions regarding the operation of the ceiling rule in the context of section 704(c). Historically, Congress and partnership tax experts assumed that the ceiling rule is perfectly unwound on liquidation or sale of a partnership interest. This assumption still operates to some extent today. The assumption glosses over a significantly more complicated reality. This Article closely examines the history of section 704(c) and the interaction between the ceiling rule and the rules regarding sales and liquidations of partnership interests. Doing so reveals that when and to what extent the perfect unwinding assumption holds depends (perhaps to a surprising degree) on (1) a variety of relatively arbitrary facts regarding the assets held by the partnership on liquidation or sale, and (2) the unintended interactions of inordinately complicated partnership tax rules. In reaching this conclusion, this Article displays that the ceiling rule, which has always been part of the section 704(c) regime, is even worse than it is commonly thought to be.

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April 8, 2014 in Scholarship, Tax | Permalink | Comments (0)

Leff & Hackney: Tax Planning for Marijuana Dealers

Iowa Law Review LogoBenjamin M. Leff (American), Tax Planning for Marijuana Dealers, 99 Iowa L. Rev. 523 (2014):

In recent years, many states have legalized marijuana while the federal government continues to consider all marijuana sales and use illegal. But marijuana industry insiders consider not federal criminal law but federal tax law to be the biggest impediment to the development of a legitimate marijuana industry. State-sanctioned marijuana sellers are required to pay federal income taxes pursuant to § 280E, a formerly largely symbolic provision that Congress enacted to punish drug dealers, but which now could potentially drive legitimate marijuana sellers underground.

This paper proposes a tax strategy that enables state-sanctioned marijuana sellers to avoid the impact of § 280E by qualifying as a tax-exempt organization. The IRS has already stated that a marijuana seller cannot be exempt under § 501(c)(3) because the so-called “public policy doctrine” does not permit a charity to have purposes that are contrary to law. This paper proposes that a state-sanctioned marijuana seller could qualify as tax-exempt under § 501(c)(4), since the public policy doctrine only applies to charities, and § 501(c)(4) organizations are not charities. The organization would have to be operated to improve the social and economic conditions of a neighborhood blighted by crime or poverty, by providing job training, employment opportunities, and improved business conditions for commercial development in the neighborhood, just like many existing community economic development corporations that run businesses.

This novel argument is more than just a clever strategy – a “tax loophole” so to speak – to avoid the impact of § 280E. Rather, IRS recognition of tax-exempt status for marijuana sellers could actually provide a mechanism to resolve the federalism issues raised by the conflict between state and federal marijuana laws. A federal policy that incentivizes marijuana sellers to be non-profit, neighborhood-based organizations whose primary purpose is improving the neighborhood in effect ties federal approval to local support. By following this policy, the IRS would promote state and local policy harmonization by permitting community-based nonprofits to sell marijuana, but only when local community groups favored it. This would surely be better for the IRS than its current role as a lightning rod of the conflict between state and federal policy objectives.

Philip T. Hackney (LSU), No 'Fagin' School of Pickpockets Allowed -- A Response to Professor Leff on Tax Planning for Marijuana Dealers, 99 Iowa L. Rev. Bull. 25 (2014):

Professor Benjamin Leff argues in a forthcoming article entitled Tax Planning for Marijuana Dealers that a tax-exempt social welfare organization described in § 501(c)(4) may sell medical marijuana without putting its exempt status in jeopardy. He argues that (1) the “public policy” doctrine applicable to charitable organizations under § 501(c)(3) does not apply to social welfare organizations, and (2) a social welfare organization may consider “community” law and ignore federal law in considering whether its activity meets the idea of social welfare. I argue that Leff is wrong and that the public policy doctrine applicable to charitable organizations applies to social welfare organizations equally. Tax-exempt organizations derive exempt status primarily by supplying significant public benefits. Violating federal, state or local law causes public harm; thus, any tax-exempt organization, including a social welfare organization, may not violate established public policy as a substantial purpose. Additionally, the “community” requirement for social welfare organizations is to ensure the organization is dedicated to a public purpose rather than a private one. Violating any law, including federal, is more likely to ensure an organization is operating for a private rather than public purpose. Contrary to Leff’s claim therefore, this article argues that a social welfare organization may not sell medical marijuana and maintain its exempt status.

April 8, 2014 in Scholarship, Tax | Permalink | Comments (0)

Cain & Herzig: Notice 2014-19 and the Application of Windsor to Qualified Retirement Plans

Cain HerzigPatricia A. Cain (Santa Clara) and David Herzig (Valparaiso) have written op-eds for TaxProf Blog on Notice 2014-19, Application of the Windsor Decision and Rev. Rul. 2013-17 to Qualified Retirement Plans:

The purpose of this notice is to provide guidance on the application (including the retroactive application) of the decision in United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013), and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201 (Sept. 16, 2013), to retirement plans qualified under section 401(a) of the Internal Revenue Code (Code).

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

Johnston: How to Cheat on Your Taxes

Newsweek:  How to Cheat on Your Taxes, by David Cay Johnston (Syracuse):

There's never been a better time to cheat on your taxes. Or a better way.

As millions of Americans rush to file their tax returns on time, trying to be ever-so-careful in hopes of avoiding an audit or, far worse, prosecution, they will find it instructive, and infuriating, to learn about Jerry Curnutt.

Curnutt can show people how to cheat on their taxes and not get caught. His trick won't work if you are a wage earner, but those rich enough to invest in real estate partnerships have escaped paying billions of dollars in the past decade by using this technique.

Now Curnutt's mission in life, at age 76, is to get states and the IRS to go after these cheats. ...

[T]he tax-cheat ploy Curnutt uncovered is remarkably easy. On Form 1065, the one partnerships file, just leave Line 10 on Schedule K blank, or report a smaller figure than the real one.

Why does that one line go unnoticed when the IRS selects tax returns for audit? IRS software scans only for what it is told to look for. (Think of those Star Trek episodes in which the Enterprise scans a planet for life, detects none and then discovers life forms the scanners were not tuned to notice.)

This week, news broke that the IRS effectively fails to audit massive partnerships, like hedge funds and private equity funds, even though corporations of the same size are under constant IRS audit. A short video, "Tax Analysts Video Examines Audit-Proof Businesses," explains how partnerships escape audits.

Curnutt knows this because he is a tax detective. He retired from the Internal Revenue Service in 2000 as one of its top snoops, overseeing all investment partnerships. Using his desktop computer, Curnutt discovered a simple way to cheat that no one at the IRS had noticed. Call it Curnutt cheating.

For his brilliant sleuthing, the IRS gave Curnutt commendations and multiple cash awards, each for about $1,000. It sent him around the country to conduct 64 training sessions so IRS auditors could learn how to efficiently spot these cheats. He also trained state tax auditors from California, Indiana, New Jersey and New York.

But the IRS never put Curnutt's insights into practice and never cracked down on the cheaters, allowing them to escape paying tens of billions of dollars in federal and state taxes.

The odds for taxpayers overall, according to IRS data analyzed by Syracuse University's Transactional Records Access Clearinghouse for 2013 and 1993, per million taxpayers:

2013

1993

 

13

20

Recommended for Prosecution as Tax Cheat

6

11

Indicted

4

8

Convicted

3

4

Sentenced to Prison

0

0

Caught for “Curnutt Cheating” in Real Estate Partnerships

Tax Analysts:  Why It Matters That the IRS Has Trouble Auditing Partnerships, by Amy S. Elliott

April 8, 2014 in Tax | Permalink | Comments (1)

The IRS Scandal, Day 334

IRS Logo 2House Committee on Oversight and Government Reform, Debunking the Myth that the IRS Targeted Progressives: How the IRS and Congressional Democrats Misled America about Disparate Treatment (Apr. 7, 2014) (141 pages):

The Committee’s investigation demonstrates that the IRS engaged in disparate treatment of conservative-oriented tax-exempt applicants. Documents produced to the Committee show that initial applications transferred from Cincinnati to Washington were filed by Tea Party groups. Other documents and testimony show that the initial criteria used to identify and hold Tea Party applications captured conservative organizations. After the criteria were broadened in July 2012 to be cosmetically neutral, material provided to the Committee indicates that the IRS still intended to target only conservative applications.

The IRS’s independent watchdog, the Treasury Inspector General for Tax Administration (TIGTA), confirms that the IRS treated conservative applicants differently from liberal groups. The inspector general, J. Russell George, wrote that while TIGTA found indications that the IRS had improperly identified Tea Party groups, it “did not find evidence that the criteria [Democrats] identified, labeled ‘Progressives,’ were used by the IRS to select potential political cases during the 2010 to 2012 timeframe we audited.” He concluded that TIGTA “found no indication in any of these other materials that ‘Progressives’ was a term used to refer cases for scrutiny for political campaign intervention.”

An analysis performed by the House Committee on Ways and Means buttresses the Committee’s findings of disparate treatment. The Ways and Means Committee’s review of the confidential tax-exempt applications proves that the IRS systematically targeted conservative organizations. Although a small number of progressive and liberal groups were caught up in the application backlog, the Ways and Means Committee’s review shows that the backlog was 83 percent conservative and only 10 percent were liberal-oriented.9 Moreover, the IRS approved 70 percent of the liberal-leaning groups and only 45 percent of the conservative groups. The IRS approved every group with the word “progressive” in its name.

In addition, other publicly available information supports the analysis of the Ways and Means Committee. In September 2013, USA Today published an independent analysis of a list of about 160 applications in the IRS backlog. This analysis showed that 80 percent of the applications in the backlog were filed by conservative groups while less than seven percent were filed by liberal groups. A separate assessment from USA Today in May 2013 showed that for 27 months beginning in February 2010, the IRS did not approve a single tax-exempt application filed by a Tea Party group. During that same period, the IRS approved “perhaps dozens of applications from similar liberal and progressive groups.” ...

For months, the Administration and congressional Democrats have attempted to downplay the IRS’s misconduct. First, the Administration sought to minimize the fallout by preemptively acknowledging the misconduct in response to a planted question at an obscure Friday morning tax-law conference. When that strategy failed, the Administration shifted to blaming “rogue agents” and “line-level” employees for the targeting. When those assertions proved false, congressional Democrats baselessly attacked the character and integrity of the inspector general. Their attempt to allege bipartisan targeting is just another effort to distract from the fact that the Obama IRS systematically targeted and delayed conservative tax-exempt applicants.

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April 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Monday, April 7, 2014

Fleischer Presents Innovation, Equity Compensation, and the New Inequality Today at Pepperdine

Fleischer Vic (2013)Victor Fleischer (San Diego) presents Sweat Equity: Innovation, Equity Compensation, and the New Inequality at Pepperdine today as part of its Tax Policy Colloquium Series hosted by Paul Caron:

How people get paid—not just how much—explains the rising income inequality in the United States. Company founders, corporate executives, real estate developers, venture capitalists, and private equity fund managers often get paid in “sweat equity.” In exchange for labor, they receive equity in a venture largely financed with other people’s money. Globalization, technological change, and other factors have created economic conditions such that when companies are successful, those with sweat equity can receive unprecedented increases in income and wealth, and these gains are increasingly concentrated among a select few. For the rest of us, wages have stagnated.

The culture of equity-based pay has proven highly successful as a solution to the fundamental problem of entrepreneurial economics: how to get people with financial capital to share it with those who have the talent, motivation, and ideas. From the oil fields of Texas to the garages of Silicon Valley and the trading desks and boardrooms of Wall Street, sweat equity aligns the incentives of managers and investors. It is the engine of American innovation and economic growth.

But sweat equity is also rocket fuel for economic inequality. Economic gains increasingly flow to a lucky and talented elite, the one percent of the one percent, leaving everyone else behind. Our tax code aggravates the inequality problem, leaving sweat equity lightly taxed while taxes on wages have increased dramatically. The common recommendation of the political left—raise taxes on the rich—misses the target by focusing on ordinary income rather than sweat equity.

Addressing the problem of inequality will require finding fair methods of redistribution that do not disrupt the complex economic, legal, institutional and cultural infrastructure that forms the foundation for American innovation and entrepreneurship. Possibilities include redesigning the capital gains tax, adopting a progressive consumption tax, redesigning the estate tax, and increasing incentives for charitable giving. We must achieve enough redistribution to ensure some social mobility and some equality of opportunity, but not so much that the next generation of founders finds the risk and reward of entrepreneurship unattractive.

Update:  Post-presentation lunch:

Photo

April 7, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

Gamage Presents Should Risk Adjustment Become the Heart of Obamacare? Today at Harvard

Gamage (2014)David Gamage (UC-Berkeley) presents The Evolution of Health Care Reform: Should Risk Adjustment Become the Heart of Obamacare? at Harvard today as part of its Health Law Policy, Biotechnology, and Bioethics Workshop Series:

This Essay explores how the regulatory framework of Obamacare might evolve over the coming years. The Essay analyzes the ways in which Obamacare’s risk-adjustment-related provisions are becoming increasingly central. This Essay further ponders whether an expanded approach to risk adjustment might be a better model for guiding further reforms to Obamacare’s framework, especially in light of political constraints. In particular, this Essay explains how an expanded approach to risk adjustment might replace the tax penalty of the individual mandate.

April 7, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (1)

Olson Presents Tax Politics v. Tax Policy Today at Minnesota

OlsonPamela F. Olson (PricewaterhouseCoopers LLP) presents Politics versus Policy at Minnesota today as part of its Perspectives in Taxation Lecture Series:

In the tax area, good policy and political reality are often at odds with one another. Such certainly seems to be the case today. Can the conflict between politics and policy be reconciled? What are the implications of the conflict between politics and policy for the enactment of sound tax and budget policy?

April 7, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

IRS Whistleblower Office Issues Annual Report to Congress

Retirement Accounts and the Hidden Law of Succession

Wall Street Journal:  When Your 401(k) Has a Bad Heir Day, by Jason Zweig:

Even where there is a will, there can be a won’t.

That is the hard lesson learned by the three adult children of a wealthy telemarketing executive who died suddenly last month. His will states that all his assets are to go to his children, according to Laura Mattia, a principal at Baron Financial Group, a financial-advisory firm in Fair Lawn, N.J., who was consulted after the executive’s death by his estate attorney.

However, much of his wealth was in his 401(k) retirement account, and the fate of those assets isn’t dictated by wills.

It is a little-understood situation: After a lifetime of saving, what ultimately happens to your individual retirement account, 401(k) and other retirement savings often hinges on what you scribbled down, decades earlier, as you filled out a form designating your beneficiaries.

If you haven’t updated that paperwork to reflect how your life has changed, you might not be able to leave your wealth to your heirs as you wish. Instead, you could bequeath them a bureaucratic nightmare.

The executive who died last month, Ms. Mattia says, should have asked his wife to sign a waiver and then named his children as the beneficiaries of his 401(k). Because he didn’t, his wife inherits it—although he married her only two months before he died. By neglecting to update his beneficiary form, the executive effectively disinherited his children.

No wonder Stewart Sterk and Melanie B. Leslie of the Benjamin N. Cardozo School of Law at Yeshiva University in New York call retirement accounts “substitute wills.” In a study they have just published on the problem [Accidental Inheritance: Retirement Accounts and the Hidden Law of Succession, 89 N.Y.U. L. Rev. 165 (2014)], the law professors point out that most Americans believe their retirement savings will be divided according to the instructions in their will—like their other assets. In fact, who inherits retirement money is usually determined by the language on beneficiary-designation forms that many people have long since forgotten or lost.

The assets at stake are staggering. Savers have amassed $5.9 trillion in 401(k) and other “defined contribution” plans, plus another $6.5 trillion in IRAs, according to the Investment Company Institute, a trade group. ...

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April 7, 2014 in Scholarship, Tax | Permalink | Comments (2)

The IRS Scandal, Day 333

Pinocchio_3Washington Post Fact Checker:  IRS Chief: No ‘Targeting’ of Tea Party Groups, Just ‘Inappropriate Criteria’:

The inspector general found inappropriate criteria were used to select organizations for further review — he did not refer to it as targeting.

Yes, inappropriate criteria were used. I don’t think I used the word target, but I do acknowledge that applications were delayed unnecessarily and for too long.”

I have never said there was targeting.

 – IRS Commissioner John Koskinen, congressional testimony before the House Oversight and Government Reform Committee, March 26, 2014

What’s in a phrase?

House Republicans who have investigated the IRS’s handling of applications of conservative groups’ seeking tax-exempt status have referred to the practice as “targeting.” So have news organizations, including The Washington Post.

This effort at spin control took an odd turn recently when, during a congressional hearing, IRS Commissioner John Koskinen denied that the Treasury inspector general had used the term “targeting.” At another point in the hearing, Koskinen said that he had “never” used the phrase either.

What did the IG say and when did he say it? ...

[W]hat happened when [Inspector General] George actually spoke before Congress about his report?  Here are two examples from his testimony on May 22, 2013:

The three allegations considered during our review were proven true. The IRS targeted specific groups applying for tax-exempt status. It delayed the processing of these groups’ applications, and requested unnecessary information, as well as subjected these groups to special scrutiny.

The inappropriate criteria discussed in this audit were the IRS’s targeting for review Tea Party and other organizations based on their names or policy positions, a practice started in 2012, and which was not fully corrected until May 2012. Actually the practice was started in 2010 and not fully corrected until May of 2012.

Note that George said the three allegations were “proven true.” The allegations all concerned “targeting.” And then he actually used the word. He even said that the “inappropriate criteria” were defined as the “IRS’s targeting.”

Moreover, Koskinen himself uttered “targeting” before he arrived at the IRS, during his confirmation hearings in December, even though he told Congress in March that he had never used the phrase. ...

We understand the public relations concern about acknowledging that the IRS engaged in targeting of conservative groups. But the cat’s out of the bag, given an official IRS report has used the phrase and both George and Koskinen have used it in public testimony.

The IG’s report was carefully written, but at this point, it is silly and counterproductive for Koskinen to fall back on bureaucratese — or even deny that the phrase “targeting” had been used. While perhaps technically correct in terms of the report, this is a slender reed to hide behind. After all, George publicly said that all three allegations of “targeting” were proven, and that using “inappropriate criteria” was the equivalent of “targeting.” That demonstrates that the term “inappropriate criteria” is simply a euphemism. Accept that means “targeting,” and move on.

Three Pinocchios.  Significant factual error and/or obvious contradictions.

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

TaxProf Blog Weekend Roundup

Sunday, April 6, 2014

The Next Offshore Tax Target: Cayman Islands

Wall Street Journal Tax Report:  The Next Offfshore Target, by Laura Saunders:

CaymanU.S. authorities are expanding their investigation of hidden overseas assets far beyond Switzerland. The latest focus: the Cayman Islands.

Undercover agents from the IRS conducted a yearlong probe that led to the arrests in Miami last month of three financial advisers based in the Caribbean territory.

This past week, an official at the Justice Department said the sting should serve as a warning about offshore accounts. "The Cayman case illustrates that we have ways of getting information that people don't know about," Assistant Attorney General Kathryn Keneally of the department's Tax Division said at a news conference in New York. "The days of waiting for a warning sign, such as a letter from a bank, are over."

Ms. Keneally said that the government receives account information from many sources, including whistleblowers hoping for monetary rewards. She declined to comment on whether U.S. officials have the names of Americans who hold accounts in the Caymans or elsewhere in the Caribbean as a result of this probe.

Taxpayers are ineligible to participate in the IRS's limited-amnesty program for undeclared offshore accounts if U.S. authorities already have their names. The program imposes steep penalties but offers protection against criminal prosecution.

Experts believe U.S. authorities do have names of account holders in the Caymans.

April 6, 2014 in Tax | Permalink | Comments (1)

Top 5 Tax Paper Downloads

SSRN LogoThere is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new #1 paper and a new paper debuting on the list at #5:

  1. [360 Downloads]  Submission to Finance Department on Implementation of FATCA in Canada, by Allison Christians (McGill) & Arthur J. Cockfield (Queen's)
  2. [293 Downloads]  As American as Apple Inc.: International Tax and Ownership Nationality, by Chris William Sanchirico (Pennsylvania)
  3. [287 Downloads]  2012 Developments in Connecticut Estate and Probate Law by Jeffrey A. Cooper (Quinnipiac) & John R. Ivimey (Reid & Riege, Hartford))
  4. [210 Downloads]  Deferral and Exemption of the Income of Foreign Subsidiaries: A Review of the Basic Analytics, by Alvin C. Warren (Harvard)
  5. [173 Downloads]  Exporting FATCA, by Joshua D. Blank (NYU) & Ruth Mason (Virginia)

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

Farewell, My Friend

Diet CokeAfter many years of nagging encouragement by my wife, I have reduced my Diet Coke consumption by 75%, and am well on the way toward my 100% goal.  I did not realize the full impact of my decision:

Wall Street Journal, The Diet Soda Business Is in Freefall:

A nearly decade-long decline in U.S. carbonated soft drink sales accelerated last year as more Americans turned their backs on artificially sweetened diet sodas, according to data published Monday.

The drop-off is a mounting problem for industry giants Coca-Cola, PepsiCo and Dr Pepper Snapple Group, which have long depended on zero-calorie sodas to make up the difference as Americans became increasingly concerned about the health effects of sugared drinks.

Overall soda volumes fell an estimated 3% in 2013, the ninth straight yearly contraction and more than double the 1.2% decline in 2012, according to Beverage Digest. ...

Sales volumes of full-calorie Coke, the top-selling U.S. soda, slipped 0.5% last year but Diet Coke plunged 6.8%, according to Beverage Digest. ... Coca-Cola Co., whose soda brands also include Sprite and Fanta, increased its market share of U.S. carbonated soft drinks to 42.4% from 42.0% in 2012, according to Beverage Digest. PepsiCo, which also counts Mountain Dew among its brands, slipped to 27.7% from 28.1%. Dr Pepper Snapple's share inched up to 16.9% from 16.8%.

Beverage giant Coke is far more exposed to soda than chief rival PepsiCo, which also has a huge snacks business. About 60% of Coke's U.S. revenue comes from soda, compared with roughly 25% at PepsiCo. The bulk of Dr Pepper's sales are also tied to soda.

Diet Coke 2

April 6, 2014 in Legal Education, Tax | Permalink | Comments (40)

The IRS Scandal, Day 332

Saturday, April 5, 2014

17th Annual Critical Tax Theory Conference Concludes Today at Baltimore

Baltimore Law School LogoThe  17th Annual Critical Tax Theory Conference concludes today at Baltimore:

Critical tax scholars ask why the tax laws are the way they are and what impact tax laws have on historically disempowered groups, such as people of color; women; lesbian, gay, bisexual, and transgendered individuals; low-income and poor individuals; the disabled; and nontraditional families. Critical tax scholarship shares the following goals: (1) to uncover bias in the tax laws; (2) to explore and expose how the tax laws both reflect and construct social meaning; and (3) to educate nontax scholars and lawyers about the interconnectedness of taxation, social justice, and progressive political movements. However, as articulated at the original conference in 1995 to the present, the content of the Critical Tax Theory Conference has not been narrow – the topics discussed have been wide-ranging and have included more conventional tax topics as well.

Session #5:

  • Steven Dean (Brooklyn), Space Madness: Subsidies and Economic Substance 
  • Henry Ordower (St. Louis), Income Imputation: Toward Equal Treatment of Renters and Owners

Session #6:

  • Nan Kaufman (St. Louis), Tax Ladies
  • Keeva Terry (Howard), Divorce Without Marriage? There's Nothing Sexy about Taxing Property Transfers between Unmarried Couples
  • Mildred Robinson (Virginia), Philanthropy in IRC Section 170?

Session #7:

  • Neil H. Buchanan (George Washington), Forced Labor and the Income Tax: The Full Implications of Taking Nozick’s (Now-Repudiated) Claim Seriously
  • Nancy Shurtz (Oregon), Long-Term Care and the Tax Code: A Feminist Perspective
  • Linda Sugin (Fordham), Payroll Taxes, Mythology and Fairness

Session #8:

  • Andrew Blair-Stanek (Maryland), Crisis-Proofing the Tax Code
  • Wendy Gerzog (Baltimore), Façade Easements: Façades of Equity (incubator) Anthony

Prior Critical Tax Theory Conferences:

April 5, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 331

IRS Logo 2PJ Media:  The Fascist Thugs Win One: Firefox CEO Steps Down (Update: IRS Role Exposed):

Brendan Eich committed a thoughtcrime. He supports the traditional definition of marriage. For that, he has now joined the ranks of the unemployed. ...

Update: Check this out. The IRS abuse scandal started the process that got Eich ousted.

Why, then, the ruckus? Amazingly enough, it is entirely due to the fact that Eich made a $1,000 donation to the campaign urging a ‘yes’ vote on California’s Proposition 8. When this fact first came to light in 2012, after the Internal Revenue Service leaked a copy of the National Organization for Marriage’s 2008 tax return to a gay-advocacy group, Eich, who was then CTO of Mozilla, published a post on his personal blog stating that his donation was not motivated by any sort of animosity towards gays or lesbians, and challenging those who did not believe this to cite any “incident where I displayed hatred, or ever treated someone less than respectfully because of group affinity or individual identity.”

To whom did the IRS leak NOM’s files? The Human Rights Campaign.

The HRC evidently engineered Eich’s ouster, in the name of equality and tolerance.

The IRS actions create a serious chilling effect. Your donations to any group can be leaked by a hostile operative within the government, to your enemies, for use against you — up to and now including costing you your job.

Reason:  No, the IRS Didn’t Leak Mozilla Ex-CEO’s Donation in Opposition to Gay Marriage:

Dear conservatives: Please don't make me have to write in defense of the Internal Revenue Service (IRS). I certainly don’t enjoy it.

As Nick Gillespie has noted, Brendan Eich stepped down yesterday as chief executive officer of Mozilla in the wake of the scandal that he donated $1,000 in support of California’s Proposition 8, the ballot initiative that forbid state recognition of same-sex marriage.

The outrage has now completely flipped to the opposite direction, with conservatives accusing those who railed against Mozilla of intolerance. Twitter has remained submerged beneath a sea of outrage and generalizations for the duration.

Two days ago, an anonymous tech industry worker wrote a piece about the outrage against Eich at First Things, a journal produced by nonprofit Institute on Religion and Public Life. The anonymous worker stated that Eich's donation came to light in 2012, "after the Internal Revenue Service leaked a copy of the National Organization for Marriage's 2008 tax return to a gay-advocacy group." This information is now being attached and included in coverage on other conservative blogs as well.

But it's not accurate. The names of donors in the Proposition 8 battle, for and against, have always been public information, even before the election. The Los Angeles Times has a searchable database here. Eich's name is on it (as is mine—I gave $100 in opposition and ultimately regretted it after seeing the horrible, useless ads they put together to fight Prop. 8). The information came from the California secretary of state's office, not some IRS leak. This database is not dated, but they were available and were online at some media outlets prior to the 2008 vote.

The possible IRS leak is a real thing, though. First Things didn't invent it, just misunderstood it. The IRS is accused of leaking the National Organization for Marriage's (NOM) tax records from 2008 to the Human Rights Campaign. The IRS has claimed the release of the records was "inadvertent." The records included names of donors to NOM, but while NOM was responsible for organizing and pushing forward Proposition 8, it's not the same list. Eich donated to Prop. 8, not to NOM. Eich's name and donation to Proposition 8 was always a public record and searchable even before the election. People were facing public criticism for their donations at their workplaces even at the time of the vote. Eich is not the first guy to deal with this sort of backlash, and it prompted debate over whether names of donors should be public.

We can blame a multitude of sins on the IRS and President Barack Obama, but the outrage over Eich is not one of them.

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April 5, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, April 4, 2014

17th Annual Critical Tax Theory Conference Kicks Off Today at Baltimore

Baltimore Law School LogoThe  17th Annual Critical Tax Theory Conference kicks off today at Baltimore:

Critical tax scholars ask why the tax laws are the way they are and what impact tax laws have on historically disempowered groups, such as people of color; women; lesbian, gay, bisexual, and transgendered individuals; low-income and poor individuals; the disabled; and nontraditional families. Critical tax scholarship shares the following goals: (1) to uncover bias in the tax laws; (2) to explore and expose how the tax laws both reflect and construct social meaning; and (3) to educate nontax scholars and lawyers about the interconnectedness of taxation, social justice, and progressive political movements. However, as articulated at the original conference in 1995 to the present, the content of the Critical Tax Theory Conference has not been narrow – the topics discussed have been wide-ranging and have included more conventional tax topics as well.

Session #1:

Session #2:

Session #3:

Session #4:

Prior Critical Tax Theory Conferences:

April 4, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Valparaiso Hosts Symposium Today on Money, Politics, and the IRS

Valpo LogoThe Valparaiso University Law Review hosts a symposium today Money in Politics: The Good, the Bad, and the Ugly, which includes a tax panel:

Snapshot of the Problem: A Taxing Analysis of the IRS Controversy:

  • Philip Hackney (LSU), Should the IRS Never “Target” Taxpayers? An Examination of the IRS Tea Party Affair
  • Lloyd H. Mayer (Notre Dame), Taxing Politics
  • Donald Tobin (Ohio State), The IRS, Politics, and the Crisis of Confidence  

April 4, 2014 in Conferences, Scholarship, Tax | Permalink | Comments (0)

Weekly Tax Roundup

Weekly SSRN Tax Roundup

Smith: Brand X, 3M, and Legal Restrictions on the Payment of Income

Tax Analysys Logo (2013)Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), Brand X, 3M, and Legal Restrictions on the Payment of Income, 142 Tax Notes 1349 (Mar. 24, 2014):

3M Co. has filed a Tax Court petition challenging the validity of provisions in the section 482 regulations that impose conditions on the circumstances in which the IRS will give effect to foreign legal restrictions on the payment of income between related parties. The principal legal issue in the case will be whether those provisions are invalid under Brand X, which addressed an agency’s authority to issue regulations at odds with a court’s earlier interpretation of the same statutory provision. The regulations challenged by 3M are arguably inconsistent with First Security Bank. Under the Brand X test, the regulations should be held invalid, because First Security Bank represented the Supreme Court’s view on the only permissible interpretation.

April 4, 2014 in Scholarship, Tax | Permalink | Comments (0)

NY Times: The Banality of Tax Avoidance

New York Times:  Switching Names to Save on Taxes, by Floyd Norris:

Call it the banality of tax avoidance.

What was most impressive about this week’s Senate hearing into the way Caterpillar ducked billions of dollars in United States income taxes was the simple strategy involved. There was no subsidiary that somehow qualified to be taxed nowhere, as at Apple. There was no “Double Irish With a Dutch Sandwich,” a strategy made famous by Google in its quest to avoid taxes.

Instead, back in 1999, Caterpillar, helped by its audit firm, PricewaterhouseCoopers, decided that to sharply reduce the American tax on profits from the sale of parts sent from the United States to customers around the world, it had to do little more than take the name of the American parent off the invoices and put in the name of a Swiss subsidiary.

So even though the parts might have never come within a thousand miles of Switzerland, the profits accrued to the Swiss subsidiary. And Caterpillar negotiated a deal to tax those profits well below Switzerland’s norm. Senator Carl Levin, the Michigan Democrat who is chairman of the Senate Permanent Subcommittee on Investigations, put the rate at 4 to 6 percent.

That cut the Caterpillar tax bill by $300 million a year.

Was that legal? Opinions differ. Professors called by the subcommittee said it was not. A professor retained by Caterpillar said it was, and company officials told the subcommittee they had complied with the law. Documents released by the subcommittee showed, however, that some at Caterpillar had been worried about the strategy and that the company took steps to reduce slightly the amount of profit being diverted, hoping that would make the strategy more likely to pass muster.

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April 4, 2014 in Tax | Permalink | Comments (1)

NYU Hosts 5th Annual Tax Movie Night: Tax and the City

NYU hosted its 5th Annual Tax Movie Night yesterday:   Tax and the City:

NYUAt this annual event, we will screen four classic television episodes, where characters encounter tax issues while living in New York City during the Mad Men era. The episodes featured are from The Dick Van Dyke Show (1965), Occasional Wife (1966), That Girl (1969) and The Odd Couple (1973). Professor Lawrence Zelenak from Duke Law School will join us as a special guest speaker and will lead a discussion following the screening. Refreshments, including popcorn, will be served.

April 4, 2014 in Tax | Permalink | Comments (0)

Thursday, April 3, 2014

Galle Presents How Do Nonprofit Firms Respond to Tax Policy? Today at San Diego

GalleBrian D. Galle (Boston College) presents How Do Nonprofit Firms Respond to Tax Policy? at San Diego today as part of its Tax Law Speaker Series:

We examine for the first time the elasticity of fundraising effort by nonprofit firms to changes in the tax-price of giving faced by their donors. Prior efforts to examine the effects of tax policy on charitable giving have focused on donor behavior, overlooking the possibility that fundraising efforts by firms may partially confound the observed effects. We employ data from a large panel of Form 990 tax returns filed by charitable organizations to study jointly the effect of tax changes on fundraising, donations, and other outcomes. Overall, we find an average elasticity of fundraising to the tax-price of giving of about -1.8, and an elasticity of charitable output to tax price of about -.73. We also find some evidence that charities facing lower subsidy rates substitute towards other sources of revenue. We argue that these results may imply that the charitable contribution deduction is effective for different reasons than prior research has suggested. For example, the negative elasticity of fundraising implies that a significant portion of each dollar in increased donations is used to pay for fundraising, not charity. The modest elasticity of real charitable output to tax price implies that tax subsidies may simply crowd out other revenue sources, such that the efficacy of the subsidy depends on the relative efficiency of these alternative sources.

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

Olson Presents Lessons From the Tax Reform Act of 1986 Today at Temple

OlsonPamela F. Olson (PricewaterhouseCoopers LLP) presents And Then Cnut Told Reagan . . . Lessons from the Tax Reform Act of 1896, 38 Ohio N.U. L. Rev. 1 (2011) (Woodworth Memorial Lecture), at Temple today as part of its Tax Policy & Administration Colloquium Series hosted by Alice Abreu and Andrea Monroe:

The fiscal challenge ahead will require education and a willingness to look beyond the next election. None of this will be popular with voters, to be sure, but our nation's fiscal situation is such that partisan politics must be put aside for the sake of the greater good and of future generations. It's time to go out there with all we've got and win one for the Gipper!

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

Bird-Pollan Presents Rawls, Equality of Opportunity, and Wealth Transfer Taxation Today at Indiana

Bird-PollanJennifer Bird-Pollan (Kentucky) presents Unseating Privilege: Rawls, Equality of Opportunity, and Wealth Transfer Taxation, 59 Wayne L. Rev. ___ (2014), at Indiana-Bloomington today as part of its Tax Policy Colloquium Series hosted by Leandra Lederman:

This Article is the second in a series that examines the estate tax from a particular philosophical position in order to demonstrate the relevance and importance of the wealth transfer taxes to that position. In this Article, I explore Rawlsian equality of opportunity, a philosophical position that is at the heart of much American thought. Equality of opportunity requires not only ensuring that sufficient opportunities are available to the least well-off members of society but also that opportunities are not available to other members merely because of their wealth or other arbitrary advantages. Therefore, an income tax alone, even one with high rates on the wealthy, would be insufficient to achieve these goals. While revenue raised via the income tax should be used to provide additional opportunities to low-income members of society, wealth transfer taxes provide the additional safeguard of preventing the heirs of wealthy individuals from inheriting wealth that would provide them with additional, unwarranted and unjust, opportunities. Given the importance of the wealth transfer taxes, this Article also examines the question of what form of tax is most consistent with Rawls’ position, ultimately determining that an inheritance or accessions tax best fits the role.

Update:  Post-colloquium get together:

Leandra 2

Margaret Ryznar (Indiana-Indianapolis), Leandra Lederman (Indiana-Bloomington), Stephanie McMahon (CIncinnati), and Jennifer Bird-Pollan (Kentucky)

April 3, 2014 in Colloquia, 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 March 1, 2014) of the Top 25 Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

 

 

All-Time Downloads

 

Recent Downloads

1

Reuven Avi-Yonah (Mich.)

37,153

Reuven Avi-Yonah (Mich.)

7204

2

Paul Caron (Pepperdine)

25,201

Paul Caron (Pepperdine)

3070

3

Louis Kaplow (Harvard)

22,166

Richard Ainsworth (BU)

2629

4

Vic Fleischer (San Diego)

19,320

Ed Kleinbard (USC) 

2562

5

James Hines (Michigan)

19,191

D. Dharmpala (Illinois)

2431

6

D. Dharmapala (Illinois)

19,109

Katie Pratt (Loyola-L.A.)

2427

7

Ted Seto (Loyola-L.A.)

18,534

Jen Kowal (Loyola-L.A.)

2121

8

Richard Kaplan (Illinois)

18,401

Richard Kaplan (Illinois)

2113

9

Katie Pratt (Loyola-L.A.)

15,288

Bridget Crawford (Pace)

2028

10

Dennis Ventry (UC-Davis)

15,091

Brad Borden (Brooklyn)

2018

11

Carter Bishop (Suffolk)

14,500

Robert Sitkoff (Harvard)

1933

12

David Weisbach (Chicago)

13,891

Richard Kaplan (Illinois)

1831

13

Jen Kowal (Loyola-L.A.)

13,661

Ted Seto (Loyola-L.A.)

1748

14

Chris Sanchirico (Penn)

13,640

James Hines (Michigan)

1735

15

David Walker (BU)

13,597

Vic Fleischer (San Diego)

1534

16

Bridget Crawford (Pace)

13,290

Carter Bishop (Suffolk)

1529

17

Brad Borden (Brooklyn)

13,164

Omri Marian (Florida)

1523

18

Francine Lipman (UNLV)

13,136

Jeff Kwall (Loyola-Chicago)

1429

19

Robert Sitkoff (Harvard)

13,010

Dick Harvey (Villanova)

1374

20

Richard Ainsworth (BU)

12,860

Susan Morse (Texas)

1373

21

Herwig Schlunk (Vand.)

12,338

Chris Sanchirico (Penn)

1297

22

Ed Kleinbard (USC)

12,093

David Gamage (UCBerkeley)

1290

23

Ed McCaffery (USC)

11,539

Dan Shaviro (NYU)

1277

24

Dan Shaviro (NYU)

11,474

David Weisbach (Chicago)

1242

25

Wendy Gerzog (Baltimore)

11,458

Gregg Polsky (N. Carolina)

1221

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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April 3, 2014 in Scholarship, Tax, Tax Prof Rankings | Permalink | Comments (0)

Texas Tech Seeks to Hire a Tax Prof

Texas Tech LogoTexas Tech University School of Law seeks to hire an entry level or lateral tax professor:

Applicants must possess a J.D. degree and have relevant experience such as teaching, legal practice, or a judicial clerkship. Entry-level candidates must show scholarly promise, as evidenced by publications in scholarly journals, scholarly works in progress, or a scholarly agenda. For any lateral applicant with tenure, a distinguished record of teaching and scholarship is required. Once hired, faculty members are evaluated and advancement is determined by contributions in teaching, research, and service.

April 3, 2014 in Tax, Tax Prof Jobs | Permalink | Comments (0)

Northwestern Football Players May Find Themselves Hoisted on Their Own Tax Petard

NUFollowing up on last week's post, Northwestern Athletes May Face Big Tax Hit From Unionization Victory:  USA Today, Clarity Sought as Northwestern Football's Labor Effort Evolves:

Ever since the National Labor Relations Board announcement last Wednesday that Northwestern's football players had been deemed employees by the regional director of the board's Chicago office, the phrase "unintended consequences" has been cited by many who question may lie ahead for college athletics.

What about taxes? What about Title IX? Won't this cost the players more money than it's worth?

Taxes: This is the biggest issue for many detractors, who say that because the players are now deemed employees, they must have to pay taxes.

"If you look at it the way the NLRB laid it out, that's the compensation for their work, it should be taxable," said David Murphy, a labor lawyer in California who previously practiced in Chicago.

The issue is with tuition, as players are already taxed for room and board. Additional stipends — such as the one proposed in 2011 by NCAA President Mark Emmert — could be taxed, but Huma said that is still a "net gain" for the players, because they're still receiving more money than at present.

Huma pointed to a provision in the tax code specifically about athletic scholarships that provides a worksheet for figuring out what is taxable. It notes that a scholarship for a "degree candidate" is not taxable. One could make the argument that the athletes are still degree candidates.

However, Paul L. Caron, a professor at the Pepperdine School of Law and editor of the TaxProf Blog, noted that a separate part of that section that says scholarships provided for services are taxable is more applicable to this case.

The tax decision won't be made by the NLRB, but in his decision, Ohr wrote, "The fact that the Employer does not treat these scholarships or stipends as taxable income is not dispositive of whether it is compensation." If a scholarship does not have to be taxable income to be compensation, then that essentially means that the tax status of the compensation is irrelevant in the eyes of the NLRB when it comes to employee status.

"The IRS itself would have to change its own tax code," Ohr said. "There's no reason to think the IRS is going to make any accommodations to change that."

However, Caron said the opposite would have to happen — the IRS would need to make an exclusion for this kind of service. That kind of exclusion could theoretically be designed from Ohr's interpretation.

"(Ohr is) exactly right that you can have various exclusions from the Internal Revenue code," Caron said. "I think he's certainly right that the IRS could interpret (the tax code) in the way he's suggesting. I don't think it's a slam dunk in any stretch of the imagination, though."

April 3, 2014 in Tax | Permalink | Comments (2)

The IRS Scandal, Day 329

IRS Logo 2IR-2014-42, Prepared Remarks of Commissioner of Internal Revenue Service John Koskinen Before the National Press Club:

In moving the IRS forward, one of the most important things we have to do is restore public trust in the agency, which was shaken by the management problems that came to light last year with regard to the determination process used for applicants to become tax exempt social welfare organizations under section 501(c)(4) of the IRS code. Organizations that have 501(c)(4) status can be everything from garden clubs to homeowners associations, but the focus for the last year has been on advocacy groups that spend part of their time and money on political campaigns.

As a result of the inappropriate use of an organization’s name alone as the criterion for setting its application aside for special treatment, doubt has been cast by some on the independence of the IRS. This is an important issue that deserves our attention.  But it is also important to put this issue into the proper perspective.  The IRS has about 800 employees in its Exempt Organizations Division, and only a small subset of those folks work on processing applications for tax-exempt status for social welfare organizations. Meanwhile, there about 89,000 other IRS employees in offices all across the country who are also doing critical work for our tax system and for the nation in other areas.

Nonetheless, taxpayers need to be confident that the IRS will treat them fairly. It doesn’t make any difference who they are, what organizations they belong to, or whom they voted for in the last election. None of that matters to us at the IRS. We will do about one million audits of individual taxpayers this year. Some who get audited may be Democrats, some may be Republicans, and others may be something else altogether. But they will all have one thing in common: They’re being contacted by us because there was something on their tax returns that needed follow up. Perhaps we just need a clarification. Maybe there was a mathematical error. Or there could be something seriously wrong with the return. But the return alone is the reason for our inquiry. And anyone else with the same issue would receive the same treatment from the IRS.

To make sure that this problem does not recur, we’ve done a number of things. We have accepted all nine of the recommendations from the Inspector General for Tax Administration. It was his report last May that found applications for 501(c)(4) status were being screened using inappropriate criteria in the determinations process. 

Since then, for the last several months the IRS has been cooperating with the investigations into this matter that were launched last summer. There are six ongoing investigations, four conducted by Congressional committees, one by the Department of Justice and one by the IG.

We were asked by members of Congress to quantify the work we’ve done and how much it has cost. The answer is that more than 250 IRS employees have spent over 100,000 hours working directly on complying with the investigations. This work has cost more than $14 million, which includes adding capacity for our computer systems to make sure we are protecting taxpayer information while processing and producing these materials.

In letters to Congressional Committees two weeks ago and in my testimony before the House Oversight and Government Reform Committee last week, I was pleased to report that we now have provided all the documents we have identified as being related to the determinations process – which was the focus of the IG’s report last May. We have provided the tax writing committees, our primary oversight committees, with almost 700,000 pages of documents.  We are still redacting taxpayer information from the last of those documents before they can be shared with the Committees that do not have authority to see taxpayer information.

As a result, my hope is that at least some of the six pending investigations will be concluded and reports issued in the near future. I have made it clear that we will respond appropriately to the facts and recommendations of those reports and move the agency forward.

Our production of materials has proceeded according to priorities set with all of the investigating committees and, as we have now completed our production of documents related to the determinations process, we are prepared to work with the committees on any new avenues they may want to pursue.

You may have noticed that, during my three-hour hearing last week before the House Oversight and Government Reform Committee, some members of the Committee expressed unhappiness with the rate at which we are producing redacted information for them. As I tried to make clear, we never indicated that we would not respond to the very broad subpoena for documents we received in mid-February. Indeed, we have produced documents responsive to each of the subpoena’s categories. In the private sector, a court would require these requests to be reduced to those relevant to the inquiry. Unfortunately, the subpoena contains no such limitations, so the volume of materials requested means we could be at this for a long time.

Another recommendation by the IG was that the Treasury Department and the IRS should provide clearer guidance on how to assess the permissibility of 501(c)(4) social welfare organizations’ activities. So last November, Treasury and the IRS issued proposed regulations that are designed to clarify the extent to which a 501(c)(4) organization can engage in political activity without endangering its tax-exempt status.

While I was not involved in the issuance of this draft proposal, because it happened before I was confirmed as Commissioner, I believe it is extremely important to make this area of regulation as clear as possible. Not only does that help the IRS properly enforce the law, but clearer regulations will also give a better roadmap to applicants, and will help those that already have 501(c)(4) status properly administer their organizations without unnecessary fears of losing their tax-exempt status.

During the comment period, which ended in February, we received more than 150,000 comments. That’s a record for an IRS rulemaking comment period. In fact, if you take all the comments on all Treasury and IRS draft proposals over the last seven years and double that number, you come close to the number of comments we are now beginning to review and analyze. It’s going to take us a while to sort through all those comments, hold a public hearing, possibly repropose a draft regulation and get more public comments. This means that it is unlikely we will be able to complete this process before the end of the year.

Before leaving this topic, I want to note one other thing. Last month, former IRS Commissioner Randolph Thrower passed away at the age of 100. Commissioner Thrower led the IRS from 1969 to 1971, during the early years of the Nixon Administration, which turned out to be a challenging time for the agency. Commissioner Thrower held firm against attempts being made at that time to politicize the agency. The White House eventually fired him for his principled stance.

I’m sure if Commissioner Thrower were here today, he would say he was only doing his job. But he was doing much more. His refusal to let politics compromise the IRS is an important reminder to all IRS Commissioners now and in the future of what our mission is. I intend to follow his example. I want to reassure everyone listening to me today that the IRS is an agency of career civil servants who are dedicated to serving the American taxpayer in a fair and impartial manner. That’s how it’s always been, and that’s how it will stay on my watch.

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April 3, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Wednesday, April 2, 2014

Grubert Presents Alternative International Tax Reform Proposals Today at Pennsylvania

GrubertHarry Grubert (Office of Tax Analysis, U.S. Treasury Department) presents Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax, 66 Nat'l Tax J. 671 (2013) (with Rosanne Altshuler (Rutgers)), at Pennsylvania today as part of its Center for Tax Law & Policy Seminar Series hosted by Michael Knoll, Chris Sanchirico, and Reed Shuldiner:

We evaluate proposals for U.S. international tax reform including dividend exemption, full current inclusion, dividend exemption with an effective tax rate test and active business exception, dividend exemption with a per-country or overall minimum tax, and repeal of check-the-box. As alternatives to active business tests, we consider minimum taxes that allow expensing for real investment abroad. We evaluate reforms along many dimensions including the lockout effect, income shifting, the choice of location, and complexity. Wefind a per-country minimum tax with expensing has many advantages with respect to these margins. The simpler overall minimum tax is a serious alternative.

April 2, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Thomas Presents The Psychic Cost of Tax Evasion Today at Duke

ThomasKathleen Delaney Thomas (North Carolina) presents The Psychic Cost of Tax Evasion at Duke today as part of its Tax Policy Seminar hosted by Lawrence Zelenak:

Tax evasion presents the government with a formidable task. We are losing hundreds of billions of dollars in tax revenue each year due to underreporting by individual taxpayers. According to deterrence theory, policymakers should be able to reduce evasion by making it more costly for taxpayers. This could be accomplished by raising the audit rate, increasing tax penalties, or some combination of both. However, budgetary limitations and political hurdles have made these strategies difficult for the government to employ.

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

Knoll Presents Tax Discrimination in the European Union and Beyond Today at Washington University

KnollMichael S. Knoll (Pennsylvania) presents Tax Discrimination in the European Union and Beyond (with Ruth Mason (Virginia)) at Washington University today as part of its International Tax Speakers Series hosted by Adam H. Rosenzweig:

The centerpiece of the 28-member European Union is the single market—a market free of internal barriers in which goods, capital, labor, and services move as easily between the member states as within them. The European Union’s highest judicial body, the Court of Justice of the European Union (CJEU), is charged with ensuring that the laws of the EU member states do not undercut the single market. The CJEU has interpreted various provisions contained in the foundational treaties of the European Union that create the single market to encompass a prohibition on tax discrimination. Over the last thirty years, the CJEU has concluded that numerous long-standing member state tax policies constitute prohibited tax discrimination. At the same time, the CJEU has failed to articulate a clear guiding principle in its tax discrimination cases. The combination of aggressive enforcement and the failure to provide clear guidance on the meaning of tax discrimination has attracted extensive critical commentary. Our goals in this essay and related work are to identify the guiding principle behind the CJEU’s interpretation of tax discrimination, to explain that principle in economic terms, to describe what strict adherence to that principle requires, to recommend to the CJEU how it should apply that principle in light of the legal and institutional constraints it faces, to apply our recommended approach to specific areas of the law, and to assess how closely the CJEU’s jurisprudence corresponds to our recommendations.

April 2, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Yin Delivers Lecture on Reforming (and Saving) the IRS by Respecting the Public’s Right to Know at Temple

YinGeorge K. Yin (Virginia) delivered the 2014 Fogel Lecture at Temple on Monday on Reforming (and Saving) the IRS by Respecting the Public’s Right to Know:

The current controversy involving possible political targeting by the IRS in administering the exempt organization (EO) tax laws is simply the latest in a long succession of similar allegations spanning at least five decades. This article proposes to address the problem through increased transparency of the IRS’s administrative actions involving EOs. Greater transparency responds directly to the public’s frustration in not being able to monitor the agency and gain confidence that the laws are being applied in an even-handed manner.

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April 2, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

We Should Slash Taxes on Parents by Jacking Them Up for Nonparents

CHildfreeSlate:  Tax the Childless: We Should Slash Taxes on Parents by Jacking Them Up for Nonparents, by Reihan Salam:

[A]s a childless professional in my mid-30s, I often reflect on the sacrifices working parents make to better the lives of their children. And I have come to the reluctant conclusion that I ought to pay much higher taxes so that working parents can pay much lower taxes. I believe this even though I also believe a not inconsiderable share of my tax dollars are essentially being set on fire by our frighteningly incompetent government. Leviathan is here to stay, whether I like it or not, and someone has to pay for it. That someone should be me, and people like me.

Giving working parents a meaningful tax break is going to cost quite a lot of money—so much money that raising taxes on the ultrarich alone won’t be enough. Recently Utah Sen. Mike Lee, a Tea Party Republican first elected in 2010, released a tax plan, the Family Fairness and Opportunity Tax Reform Act, that preserves the current $1,000 child credit, the personal exemption for children, and the earned income tax credit while adding a new $2,500 child credit. Unlike the current child credit, Lee’s new credit never phases out, so it can be of use to higher-income families. Under Lee’s plan, a middle-income family with two kids earning $70,000 could expect a $5,000 tax cut, which sounds about right.

The problem with Lee’s plan is that it would massively increase the deficit. The Tax Policy Center finds that it would reduce revenues over the next decade by $2.4 trillion relative to the current law baseline. Lee doesn’t propose this, but the most straightforward way to offset the lost tax revenue from parents would be to raise taxes on nonparents.

(Hat Tip:  Glenn Reynolds.)

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

Johnson: Reforming the § 183 Hobby Loss Rules

Tax Analysys Logo (2013)Calvin H. Johnson (Texas), Horse Losses and Other Pleasures, 142 Tax Notes 443 (Apr. 1, 2014):

Current law denies the deduction of losses from equestrian and other such activities if not undertaken for profit. The IRS wins almost all the contested cases, but the test is too indeterminate for the Service to enforce on a tax return.

The following proposal would defer the deduction of business losses until the claimed future income from the activity comes in. Loss deferral would apply automatically to activities specified by statute, including those associated with horses, dogs, airplanes, cars, and collectibles, and to activities from which significant participants derive recreation or pleasure. Deferral is limited to activities suppressed as a result of recreational value to encourage the general diversification of investments and to allow room for congressionally intended tax incentives.

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

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April 2, 2014 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Cauble: Safe Harbors in Tax Law

Emily Cauble (DePaul), Safe Harbors in Tax Law, 47 Conn. L. Rev. ___ (2015):

Safe harbors pervade tax law. Yet, the academic literature offers no comprehensive account of why they exist. This Article begins to fashion that account by developing a theoretical framework for understanding the functional purposes that safe harbors serve. In order to analyze safe harbors’ functional purposes, this Article compares and contrasts them with rules and standards.

Articulating the reasons for adopting safe harbors has important practical implications. For instance, analyzing the functions of safe harbors can shed light on the use of other rule-standard hybrids such as rebuttable or irrebuttable presumptions. In addition, this Article provides direction to lawmakers considering the enactment or redesign of a particular safe harbor. For example, recently commentators have advocated for additional clarity in the area of law governing tax-exempt organizations’ political campaign activities. The analysis in this Article has important implications for the manner in which lawmakers ought to provide any such additional clarity.

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

The IRS Scandal, Day 328

IRS Logo 2 The Heritage Foundation:  IRS Targeting: Is the Obama Administration Conducting a Serious Investigation?, by Hans A. von Spakovsky:

A Jan. 8 letter from the Committee to Attorney General Holder outlined the Justice Department’s refusal to provide any information or updates on the status of the Department’s investigation. The letter notes that the FBI offered to meet with Rep. Jordan to do exactly that but later “rescinded” the offer “after [Justice] Department officials apparently interfered.”

It is certainly true that the FBI cannot disclose sensitive information during an ongoing criminal investigation, but an active investigation does not prevent the FBI and the Justice Department from giving Congress basic information regarding the status of an investigation that does not compromise their work.  ...

Yet lawyers representing dozens of the targeted conservative groups have recently testified before this Committee and have said that their clients have not been contacted or interviewed by any FBI agents. 

I find that simply incredible – that nine months after the Attorney General announced he was opening an investigation, neither the FBI nor the Justice Department has conducted basic interviews with the victims to gather information about their dealings with the IRS officials and employees who may have been involved in wrongdoing.

In addition to the unjustified refusal of the Department to provide this Committee with any information about its investigation, there is the troubling selection of a Civil Rights Division lawyer, Barbara Bosserman, as the lead lawyer in the investigation. This scandal involves the possibility of public corruption – misbehavior by federal employees in the IRS.  It is the Public Integrity Section of the Criminal Division – not the Civil Rights Division – that has long been responsible for investigating and prosecuting this type of public corruption. 

Bosserman works in the most politicized division within the entire Justice Department. ... The Justice Department’s pick of Barbara Bosserman to lead or be involved in making decisions about this investigation raises the appearance of a conflict of interest because of her extensive political donations to President Barack Obama, who recently said there was “not even a smidge of corruption” in the IRS scandal – even though the  investigation is supposedly not complete.

When this first became public, Justice Department spokeswoman Dena Iverson claimed that Bosserman could not be removed from the investigation because “[i]t is contrary to department policy and a prohibited personnel practice under federal law to consider the political affiliation of career employees or other non-merit factors in making personnel decisions." The problem with this claim is that it is not true.

Taking a lawyer off a particular case because of a possible conflict of interest or the appearance of such a conflict is not a “prohibited personnel practice” like firing, terminating, or changing the pay of someone for political reasons. Indeed, Justice Department regulations clearly state that DOJ lawyers must avoid even “an appearance of a conflict of interest likely to affect the public perception of the integrity” of an investigation or prosecution.

No one questions the right of career employees to make political donations. This is allowed under the Hatch Act and applicable DOJ regulations, as explained by the Justice Department’s Ethics Office. But Bosserman’s considerable campaign contributions certainly raises the appearance of a possible conflict of interest in terms of the public’s perception of her ability to make unbiased, objective decisions in an investigation that could prove very embarrassing to the president she supports – a president who has already signaled through his public statements what he thinks the outcome of the investigation ought to be. ...

Given the allegations in the IRS case, especially the suspicion that conservative organizations were specifically targeted by IRS officials to help dampen public opposition to President Obama’s reelection, the Justice Department should make every effort to conduct a thorough investigation and avoid any questions about the objectivity of the attorneys and investigators involved in the investigation. ...

The involvement of the Civil Rights Division and the appearance of possible bias by one of the supervising, if not lead, lawyers in this investigation is a very serious issue. When combined with the refusal of the Justice Department and the FBI to provide even basic information about the status of the investigation, as well as the seemingly unjustifiable delays in talking to key witnesses in the conservative organizations targeted by the IRS, it raises substantial questions about whether or not a serious, objective, unbiased investigation is being conducted.

This Committee should continue to attempt to get more information about the integrity of the government’s investigation and should pursue its oversight function vigorously.  Otherwise, what happened at the IRS will happen again, and federal employees will believe that they can engage in wrongdoing by targeting the political opposition of the administration without fear of any consequences.

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April 2, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, April 1, 2014

Biggs Presents The Risk to State and Local Budgets Posed by Public Employee Pensions Today at NYU

BiggsAndrew Biggs (American Enterprise Institute) presents The Risk to State and Local Budgets Posed by Public Employee Pensions at NYU today as part of its Tax Policy Colloquium Series hosted by Daniel Shaviro and Alan Auerbach:

State and local government employee pension plans fund guaranteed retirement benefit using portfolios of risky assets. Plan sponsors value stable contribution rates and attempt to mitigate volatility of contribution rates using policies including smoothing of investment returns and long amortization periods for unfunded liabilities. These policies, combined with the assumption that investment returns stabilize over the long term, seemingly allow plans to offer generous, guaranteed benefits to participants funded by low, stable contributions from employers. But in many cases, plan stakeholders take this conclusion as an article of faith rather than the result of quantitative analysis. I employ a simple model of financing for a mature pension to analyze how market risk and stabilization policies interact to affect annual required contribution. The model shows that stabilization policies can reduce volatility of employer contributions over the short term. But long-term fluctuations in investment earnings ultimately express themselves in contribution rates that may vary significantly from a deterministic calculation based upon the assumption of constant returns. A plan employing typical smoothing policies has a very low probability of becoming insolvent, so long as it makes required contributions at all times. However, plans could expect that, at least once over a 100-year period, required contributions would exceed ten times the baseline rate. If a plan economically unable or politically unwilling to make any and all contributions as required, then insolvency of the fund becomes a possibility.

April 1, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Kahng Presents The Taxation of Intellectual Capital at Florida

KahngLily Kahng (Seattle) presented The Taxation of Intellectual Capital, 66 Fla. L. Rev. ___ (2014), at Florida on Friday as part of its Graduate Tax Colloquium Series:

Intellectual capital — broadly defined to include nonphysical sources of value such as patents and copyrights, computer software, organizational processes and know-how — has a long history of being undervalued and excluded from measures of economic productivity and wealth. In recent years, however, intellectual capital has finally gained wide recognition as a central driver of economic productivity and growth. Scholars in fields such as knowledge management, financial accounting and national accounting have produced a wealth of research that significantly advances our conceptual understanding of intellectual capital and introduces new methodologies for identifying and measuring its economic value.

This Article is the first to analyze and assess the taxation of intellectual capital within this broader interdisciplinary landscape. Informed by the recent research and reform efforts in knowledge management, financial accounting and national accounting, the Article finds that the tax law, which allows most investments in intellectual capital to be deducted, is fundamentally flawed. This results in the loss of hundreds of billions of dollars in tax revenues, costly misallocations of resources and a grave deviation from the accurate measure of income. The Article argues that, consistent with the prevailing view in other fields, investments in intellectual capital ought to be capitalized under the tax law. Drawing upon the work of reform proponents in other fields as well as their critics, the Article considers whether and to what extent the advances in other disciplines can be adapted to the tax system. Based on this analysis, it proposes the tax law be reformed to require businesses to capitalize and amortize over five years a broad array of intellectual capital investments including research and development, advertising, worker training and strategic planning.

April 1, 2014 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

McMahon: What Innocent Spouse Relief Says about Women and the Rest of Us

Stephanie Hunter McMahon (Cincinnati), What Innocent Spouse Relief Says about Women and the Rest of Us, 37 Harvard J.L. & Gender 141 (2014):

Every time spouses sign joint returns, they knowingly or not accept joint and several liability. Therefore, either spouse may be held liable for all of the tax due on the joint return. Joint and several liability’s more efficient tax collection procedure may conflict with a spouse’s equitable claims to have innocently signed the return while being lied to, abused, or manipulated. The question for Congress is how to balance these competing demands. Innocent spouse relief provides some tax relief for spouses Congress does not believe should be jointly and severally liable. Innocent spouse relief also offers an opportunity to explore how the government views married women, as wives have always composed the lion share of seekers and recipients of innocent spouse relief. The relief currently provided is both over- and under-inclusive by not offering relief to all spouses or former spouses who are unable to assess the validity of their returns but offering relief to some who both knew and helped orchestrate the tax evasion. This paper argues that, instead of existing innocent spouse relief, the IRS should respect joint filers’ agency when signing joint returns and grant relief only when a joint filer was unable to exercise that agency. In the event that a spouse is coerced into signing the return, relief needs to be speedier and less burdensome in application than under today’s law to increase the equity of the tax system and reduce the administrative costs on both the taxpayer and the government.

April 1, 2014 in Scholarship, Tax | Permalink | Comments (0)

Mankiw: The Growth of Pass-Through Entities

Greg Mankiw (Harvard), The Growth of Pass-Through Entities:

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don't know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

April 1, 2014 in Tax | Permalink | Comments (1)

Senate Holds Hearing Today on Caterpillar's Tax Reduction Strategies

CaterpillarThe Permanent Subcommittee on Investigations Subcommittee of the Senate Homeland Security and Governmental Affairs Committee holds a hearing today on Caterpillar's Offshore Tax Strategy (webcast):

Panel #1:

Panel #2:

  • Thomas F. Quinn (PricewaterhouseCoopers, Chicago)
  • Steven R. Williams (PricewaterhouseCoopers, McLean, VA)
  • James G. Bowers (PricewaterhouseCoopers, Dallas)

Panel #3:

  • Julie A. Lagacy (Finance Services Division, Caterpillar)
  • Robin D. Beran (Chief Tax Officer, Caterpillar)
  • Rodney Perkins (Former Senior International Tax Manager, Caterpillar)

Press and blogosphere:

April 1, 2014 in Congressional News, Tax | Permalink | Comments (0)

Fleischer: Curb Your Enthusiasm for Pigouvian Taxes

Victor Fleischer (San Diego), Curb Your Enthusiasm for Pigouvian Taxes:

Pigouvian (or "corrective") taxes have been proposed or enacted on dozens of products and activities that may be harmful in excess: carbon, gasoline, fat, sugar, guns, cigarettes, alcohol, traffic, zoning, executive pay, and financial transactions, among others. Academics of all political stripes are mystified by the public’s inability to see the merits of using Pigouvian taxes more frequently to address serious social harms.

This enthusiasm for Pigouvian taxes should be tempered. A Pigouvian tax is easy to design — as a uniform excise tax — if one assumes that each individual causes the same amount of harm with each incremental increase in activity on the margin. This assumption of uniform marginal social cost pairs well with the limited information and enforcement capacity of tax institutions. But when marginal social cost varies significantly, a Pigouvian tax will not lead to an optimal allocation of economic resources. Focusing on carbon emissions, where the assumption of uniform marginal social cost happens to be reasonable, obscures this common design flaw.

Broadly speaking, Pigouvian taxes should be employed only when (1) the harm is (or is properly analogized to) global pollution, and where the harm does not vary based on the source, or (2) the variation in marginal social cost is easily observed and categorized, as with traffic congestion charges.

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April 1, 2014 in Scholarship, Tax | Permalink | Comments (1)

Kleinbard: Stateless Income and Its Remedies

Edward Kleinbard (USC), Stateless Income and Its Remedies:

This outline presentation (I) quickly reviews the current status of business tax reform efforts in the United States, with particular attention to the international treatment of foreign direct investment, (II) summarizes the economic predicates required for territorial tax systems to advance economic efficiency, (III) explains why the phenomenon of stateless income means that those predicates are not met today, and are unlikely to be met in the future, and (IV) analyzes current U.S. legislative international tax proposals. In doing the last of these, the presentation points out how the legislative proposal advanced by Dave Camp, Chairman of the House Ways and Means Committee, might inadvertently operate to treat “good” operating income as subpart F income in a range of plausible cases.

April 1, 2014 in Scholarship, Tax | Permalink | Comments (0)