TaxProf Blog

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

Friday, May 11, 2018

Tax Policy In The Trump Administration

The IRS Scandal, Day 1826: The Five Year Anniversary

IRS Logo 2Wall Street Journal op-ed:  The Unresolved IRS Scandal, by Bradley Smith (Capital University Law School; former Chair, Federal Election Commission):

Imagine if liberal groups discovered that President Trump’s Internal Revenue Service was targeting them for heightened scrutiny or harassment. The media and Democrats would decry this assault on the First Amendment and declare the U.S. on the brink of autocracy. The scandal would dominate the midterms, and the legitimacy of the election would be called into question.

Strangely enough, the IRS did target organs of the opposition party during the last administration, but the episode has largely faded from public memory without resolution. May 10 marks the fifth anniversary of the revelation that President Obama’s IRS targeted conservative groups for more than two years prior to the 2012 presidential election.

While some of the faces at the IRS have changed, the law that enabled their misuse of power has not. Congress’s failure to address the problem leaves the U.S. democratic process vulnerable to further abuses. 

Lois Lerner, the career official at the center of the IRS scandal, retired on full pension after invoking her Fifth Amendment right against self-incrimination before Congress. John Koskinen, appointed IRS commissioner by Mr. Obama to lead the agency “in difficult times,” served his full term, spending the better part of four years stonewalling congressional requests for information. On his watch, the IRS destroyed evidence subject to subpoena.

The response from the political system showed early promise but quickly fizzled. ...

[M]any conservatives seem to think Washington has turned the page on IRS abuse. Meanwhile, too many Democrats seem to think that this could never happen to them. Both are wrong. The IRS scandal was not the result of a few rogue IRS employees; the problem is that the IRS is involved in regulating political activity. ...

The easy fix here would be for Congress simply to scrap restrictions on political activity by social-welfare organizations, thereby stripping the IRS of authority to decide which groups are “political committees” and which aren’t. In a democracy, political activity is part of social welfare. Such a change would not affect federal revenue, as contributions to social-welfare organizations are not tax-deductible. There would be no “subsidizing political activity.”

The Federal Election Commission—a bipartisan agency staffed by experts and created to oversee election-related activities—is the proper authority to determine whether an organization should be subject to regulation under campaign-finance laws. The IRS—an agency under control of the president, with no bipartisan checks, subject to congressional pressure, and tasked with collecting revenue—is not.

There is a long history of presidents from both parties using the IRS to harass political opponents. Democrats and Republicans alike should recognize that, fix the law, and get the IRS out of politics.

Update:  David Cay Johnston, Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal'

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May 11, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

The IRS Scandal, Days 1701-1800

Thursday, May 10, 2018

NY Times: When All Else Fails, Tax Incentives Probably Will, Too

New York Times:  When All Else Fails, Tax Incentives Probably Will, Too, by Eduardo Porter:

On its face, Wisconsin’s development policy looks somewhat unhinged. The $3 billion it offered to attract Foxconn’s $10 billion flat-screen-television plant to Racine, near the state’s southeastern tip, is an outrageous price tag.

New Jersey’s offer of $5 billion to lure Amazon to Newark — which comes out at $100,000 for each employee the online retailer would bring to town — is also pretty extravagant. Chicago’s $2 billion in incentives seems sensible only by comparison.

Giveaways like these are often a waste of public money. Research on a program of corporate tax breaks in Texas found that 85 to 90 percent of the projects benefiting from such incentives would have gone forward without them.

Even when tax breaks work and spawn new jobs, local residents gain little if anything.

Timothy J. Bartik, an economist at the Upjohn Institute for Employment Research in Kalamazoo, Mich., estimates that eight of every 10 new jobs will be filled by outsiders. While the new workers will pay taxes, most of the revenue will be spent on public services for a growing population. And the incentives themselves will blow a hole in state and local budgets, draining resources that would be better invested in, say, public education.

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May 10, 2018 in Tax | Permalink | Comments (0)

Efforts To Curb Tax Avoidance Offshore Paid Off, To A Degree

Efforts to Curb Tax Avoidance Offshore Paid Off, to a Degree:

In 2008, the United States government launched a number of enforcement initiatives to rein in its residents' use of secret offshore accounts to avoid their tax liabilities. Through several high-profile lawsuits, the U.S. forced a number of Swiss banks, including UBS, the largest Swiss banking institution, to share account information about U.S. customers. By threatening sanctions, the U.S. also compelled widely recognized tax haven countries — including Switzerland, Luxembourg, Liechtenstein, Malta, Monaco, and Panama — to accept information exchange agreements that allow the Internal Revenue Service (IRS) to request and receive account information about persons suspected of tax evasion. Finally, the IRS established several "voluntary disclosure" programs offering account holders a temporary window during which they could disclose their offshore accounts without risking criminal penalties.

Niels JohannesenPatrick LangetiegDaniel ReckMax Risch, and Joel Slemrod explore the effects of these enforcement initiatives in Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts (NBER Working Paper No. 24366).

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May 10, 2018 in Scholarship, Tax | Permalink | Comments (0)

Baseball (Final Offer) Arbitration To Resolve International Law Disputes

Florida Tax Review (2018)Joost Pauwelyn (Georgetown), Baseball Arbitration to Resolve International Law Disputes: Hit or Miss?, 22 Fla. Tax Rev. ___ (2018):

States and international tribunals are in a love-hate relationship. States routinely agree to third-party adjudication. But when international tribunals make decisions they often upset the losing party or are blamed for over-reach (“making law”). The existence of compulsory dispute settlement may also have a chilling effect on states positively settling their differences, or updating or negotiating new rules.

Fixes to this tension traditionally involve proposals to either (i) exit from international tribunals altogether or increase state control over tribunals (with the risk of undermining tribunal independence), or (ii) make international tribunals more like domestic courts with public law type guarantees in respect of appointment, transparency and consistency (with the risk of making tribunals even more powerful).

This paper assesses a concrete proposal that goes in a different direction. It preserves a crucial role for neutral, third-party adjudication but puts more responsibility on states to work out positive solutions themselves: baseball or final offer arbitration (FOA) where disputing parties each offer an answer to the dispute (their “final offer”) and the adjudicator’s task is strictly limited to picking one or the other answer (“hit or miss”).

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May 10, 2018 in Scholarship, Tax | Permalink | Comments (0)

Kornhauser: The 'Invisible Government' And Conservative Tax Lobbying

Marjorie E. Kornhauser (Tulane), The 'Invisible Government' and Conservative Tax Lobbying 1935 - 1936, 81 Law & Contemp. Probs. ___ (2018):

By the 1920s lobbying in the United States was so pervasive that many congressman and commentators feared that it was an “invisible government” unduly influencing legislation and distorting democracy. Of particular concern was a new style of lobbying that used recent psychological research and mass media to shape public opinion and motivate voters to pressure legislators to act in their favor. Many viewed “patriotic” societies as the most common — and most invidious — practitioners of these techniques. These groups, generally formed by small numbers of wealthy people, vociferously advocated for the American form of government which they defined as one with a very limited central government and strong states’ rights. Consistent with this view, they claimed that many federal programs and policies were unconstitutional and opposed the high taxes that funded them.

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May 10, 2018 in Scholarship, Tax | Permalink | Comments (0)

Wednesday, May 9, 2018

Cauble: Superficial Proxies For Simplicity In Tax Law

Emily Cauble (DePaul), Superficial Proxies for Simplicity in Tax Law:

Simplification of tax law is complicated. Yet, political rhetoric surrounding tax simplification often focuses on simplistic, superficial indicators of complexity in tax law such as word counts, page counts, number of regulations, and similar quantitative metrics. This preoccupation with the volume of enacted law often results in law that is more complex in a real sense. Achieving genuine simplification — a reduction in costs faced by taxpayers at various stages in the tax planning, tax compliance, and tax enforcement process — often requires enacting more law not less. In addition, conceptualizing simplicity in simplistic terms can leave the public vulnerable to policies advanced under the guise of simplification that have real aims that are less innocuous. A perennial example involves lawmakers proposing a reduction in the number of tax brackets under the heading of simplifying tax law. In reality, this change does very little, if anything, to simplify law in a meaningful sense, and its truer aim is to reduce progressivity in the tax code.

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May 9, 2018 in Scholarship, Tax | Permalink | Comments (2)

Ryznar: Tax Reform On Homeownership

Margaret Ryznar (Indiana-Indianapolis), Tax Reform on Homeownership, 72 U. Miami L. Rev. ___ (2018):

Homeownership is more than just an American dream. In reality, homeownership is a savings vehicle. However, the 2017 tax legislation reduced the tax support for homeownership. The tax reform targeting housing, such as curtailing the deductions for mortgage interest and state and local taxes, frustrates the American public policy of encouraging homeownership.

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May 9, 2018 in Scholarship, Tax | Permalink | Comments (1)

Rosenberg: Codification Of The Economic Substance Doctrine — Substantive Impact And Unintended Consequences

Rebecca Rosenberg (Ohio Northern), Codification of the Economic Substance Doctrine: Substantive Impact and Unintended Consequences, 14 Hastings Bus. L.J. ___ (2018):

Section 7701(o) of the Internal Revenue Code of 1986 (the “Code”) imports the judicial doctrine of economic substance into statutory language (i.e., it “codifies” the doctrine). The economic substance doctrine provides that certain tax benefits can be denied if they go beyond congressional intent, even if all of the literal requirements of the Code and its regulations are met. The doctrine is perpetually controversial and has been the subject of recent litigation.

This article argues that codification changed the economic substance doctrine (rather than just copying it into statutory form) and produced unintended consequences, many of which have gone unnoticed. The article analyzes the language and structure of Section 7701(o) in order to explain its actual legal consequences and its substantive differences from previous case law.

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

Tuesday, May 8, 2018

Sanchirico: The New U.S. Tax Preference For 'Foreign-Derived Intangible Income'

Chris William Sanchirico (Pennsylvania), The New US Tax Preference for 'Foreign-Derived Intangible Income':

The new US income tax deduction for “foreign-derived intangible income” effectively lowers the corporate tax rate — from 21% to around 13% — on export-generated income attributable to intangible assets. This paper considers the new provision both in relation to international trade and tax agreements and as a matter of national policy.

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

GOP Tax Law Could Reduce Corporate Tax Revenue By 40%

Baker InstituteRice University Baker Institute for Public Policy, Long-term Macroeconomic Effects of the 2017 Corporate Tax Cuts:

The Tax Cuts and Jobs Act of 2017 could lead to a total corporate tax revenue decline of about 40 percent, but nearly 20 percent of that decline will be recaptured through increased personal income tax revenue, according to an analysis by an expert at Rice University’s Baker Institute for Public Policy.

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May 8, 2018 in Tax, Think Tank Reports | Permalink | Comments (0)

Will The Trump Tax Cuts Accelerate Offshoring By U.S. Multinational Corporations?

Economic Policy Institute, Will the Trump Tax Cuts Accelerate Offshoring by U.S. Multinational Corporations?:

The Tax Cuts and Jobs Act (TCJA) profoundly changed the tax incentives facing multinational corporations. Join a distinguished panel of experts at an event hosted by the Economic Policy Institute to hear about how the TCJA will affect the offshoring of corporate profits and production. Kimberly Clausing (Reed College), Rebecca Kysar (Brooklyn), and Chye-Ching Huang (Center on Budget and Policy Priorities) will provide a detailed discussion of how various provisions in the law will shape international patterns of production and profit-shifting by multinationals. Rep. Rosa DeLauro (D-Conn.) will provide opening remarks, and Rep. Lloyd Doggett (D-Texas) will provide closing remarks.

 

May 8, 2018 in Conferences, Tax | Permalink | Comments (0)

Monday, May 7, 2018

Ring Presents Leak-Driven Law Today In Vienna

Ring (2017)Diane Ring (Boston College) presents Leak-Driven Law, 65 UCLA L. Rev. __ (2018) (with Shu-Yi Oei (Boston College)), at the Institute for Austrian and International Tax Law at Vienna University today as part of its PwC-WU-Seminar Series:

Over the past decade, a number of well-publicized data leaks have revealed the secret offshore holdings of high-net-worth individuals and multinational taxpayers, leading to a sea change in cross-border tax enforcement. Spurred by leaked data, tax authorities have prosecuted offshore tax cheats, attempted to recoup lost revenues, enacted new laws, and signed international agreements that promote “sunshine” and exchange of financial information between countries.

The conventional wisdom is that data leaks enable tax authorities to detect and punish offshore tax evasion more effectively, and that leaks are therefore socially beneficial from an economic welfare perspective. This Article argues, however, that the conventional wisdom is too simplistic.

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

WSJ: New Tax Law Fattens Corporate Profits (Highest Since 2011)

WSJWall Street Journal, New Tax Law Fattens Corporate Profits:

The largest U.S. companies found a new formula for success in the first quarter: larger pretax profits and smaller tax bills—mostly compliments of the federal tax overhaul.

More than half of the combined net-income growth reported by 200 large public companies for the first quarter stemmed from a decline in the companies’ effective tax rates, a Wall Street Journal analysis of quarterly financial data from Calcbench found.

At a third of the companies, tax expenses fell in dollar terms even as pretax income rose, boosted by strong revenue growth and the expanding economy. ...

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May 7, 2018 in Tax | Permalink | Comments (0)

Lesson From The Tax Court: The Role Of Equity

Tax Court (2017)For various reasons that legal historians can drone on about for hours, the United States legal system started out in 1789 as not one system of courts but two systems of courts. One was system was made up of courts of law, staffed by folks with titles like “Judge” or “Justice.”  The other system was made up of courts of equity, staffed by folks with titles like “Chancellor” or “Vice Chancellor.”  The basic idea was that each system had its own set of powers and you could only get to the equity courts if the law courts lacked the power to give you the relief you sought.

This was a really awkward relationship and a constant source of embarrassment and confusion.  The great legal historian F. W. Maitland put it this way in his 1910 Lectures On Equity:  “I do not think that any one has expounded or ever will expound equity as a single, consistent system, an articulate body of law.  It is a collection of appendixes between which there is no very close connection.”  (p. 19)  And in this 1913 law review article, Professor Wesley Newcomb Hohfeld discussed the difficulty of teaching equity as a system of rules separate from legal rules.

One awkwardness was that often the same individual would wear both hats.  For example, you might file an action at law and have proceedings before the “Judge” sitting as a court of law.  The Judge had power to award damages but did not have power to order depositions.  So you would need to file a completely separate proceeding in equity, seeking a “Bill of Discovery” from the Vice Chancellor because the Vice Chancellor had the power to order depositions (but had no power to award damages).  But you would file that in the same building and be heard by the same individual. So one day the “Judge” would say “I have no power to order discovery” but the next day the very same individual, sitting as “Vice Chancellor,” would suddenly have the power to grant your Bill.

I tell you all this because although the two systems have been merged in federal courts since 1938 (although some states, such as Delaware and Mississippi, keep the two systems separate) federal judges still tend to compartmentalize the two.  The Tax Court in particular has wrestled with the role of equity from its inception.  Two recent Tax Court cases teach useful lessons about the role of equity in Tax Court proceedings.  This week I will look at the innocent spouse case of the Connie L. Minton a.k.a. Connie L. Keeney v. Commissioner, T.C. Memo. 2018-15 (Feb. 5, 2018).  Next week I will discuss the very interesting case of Emery Celli Cuti Brinckerhoff & Abady, P.C. v. Commissioner, T.C. Memo 2018-55 (Apr. 24, 2018), a case that will introduce us to the doctrine of equitable recoupment.

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May 7, 2018 in Bryan Camp, New Cases, Tax, Tax Practice And Procedure | Permalink | Comments (0)

WSJ: KKR To Ditch Partnership Structure And Become C Corporation Due To New Tax Law

KKR 2Wall Street Journal, KKR to Ditch Partnership Structure and Become Corporation:

Private-equity firm KKR & Co. said Thursday it would convert to a corporation from a partnership, a significant shift to its structure that signifies how the new tax code is changing the contours of business in the U.S.

In the few months it has been in place, the tax law has catalyzed changes across business: Banks have reported big earnings boosts. Some companies have handed out employee bonuses tied to the extra cash they say they will have, and many have announced a flurry of stock buybacks. Firms large and small have contemplated changing their structures.

For private-equity firms, a conversion to a “C corporation” only became a realistic option with Congress’s passage late last year of the new tax law, which lowered the highest corporate rate to 21% from 35%. KKR’s chief financial officer, William Janetschek, said Thursday that changing the structure will raise the firm’s effective tax rate from roughly 7% to about 22%, a more palatable change than if a conversion had been done under old tax rules. 

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May 7, 2018 in Tax | Permalink | Comments (0)

TaxProf Blog Weekend Roundup

Sunday, May 6, 2018

Universal Basic Income Didn’t Fail In Finland. Finland Failed It.

BasicFollowing up on my previous post, Finland Ends Basic Income Experiment After Two Years:  New York Times op-ed:  Universal Basic Income Didn’t Fail in Finland. Finland Failed It., by Antti Jauhiainen & Joona-Hermanni Mäkinen:

“Thank goodness that this experiment is coming to an end,” the Fox News commentator Stuart Varney said recently, after the Finnish government decided to stop its trial run with universal basic income (U.B.I.) at the end of the year. “You want money, get out there and work for it, please.” ...

But the demise of the U.B.I. experiment in Finland can’t be said to mean that U.B.I. has failed here. Not only are preliminary official results not even expected until 2019, but the Finnish government’s U.B.I. pilot project never really was about U.B.I.

As we wrote last summer, Finland’s program was doomed as soon as it began in early 2017. Targeting just 2,000 randomly selected unemployed Finns to receive 560 euros a month (about $675) for only two years, it was too limited in both scale and duration. ...

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May 6, 2018 in Tax | Permalink | Comments (4)

Resistance To The New GOP Tax Law In California, New York, And Illinois

The Top Five New Tax Papers

SSRN LogoThis week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list, with some reshuffling of the order of the papers within the Top 5:

  1. [900 Downloads]  Evaluating the New US Pass-Through Rules, by Dan Shaviro (NYU)
  2. [377 Downloads]  The Impact of the 2017 Act's Tax Rate Changes on Choice of Entity, by Jim Repetti (Boston College)
  3. [367 Downloads]  Taxing Income Where Value Is Created, by Allison Christians (McGill) & Laurens van Apeldoorn (Leiden)
  4. [366 Downloads]  Taxation of Investments in Bitcoins and Other Virtual Currencies: International Trends and the Brazilian Approach, by Flavio Rubinstein (Fundação Getúlio Vargas) & Gustavo Gonçalves Vettori (University of São Paulo)
  5. [326 Downloads]  Explaining Choice-of-Entity Decisions by Silicon Valley Start-Ups, by Gregg Polsky (Georgia)

May 6, 2018 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, May 5, 2018

This Week's Ten Most Popular TaxProf Blog Posts

Li: Protecting The Tax Base In A Digital Economy

Jinyan Li (Osgoode Hall), Protecting the Tax Base in a Digital Economy:

This paper provides an overview of the main features of digital economy and why it poses challenges to existing framework and principles of international taxation. It explains the fiscal impact of these challenges in developing countries. Among the challenges is the “cyberization” of tax base because the existing jurisdictional nexus (such as permanent establishment) and profit attribution rules assume physical presence and actual activities, neither is particularly relevant in a digital business.

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May 5, 2018 in Scholarship, Tax | Permalink | Comments (0)

Friday, May 4, 2018

Weekly SSRN Tax Article Review And Roundup: Speck Reviews Luke's Captivating Deductions

This week, Sloan Speck (Colorado) reviews a new work by Charlene D. Luke (Florida), Captivating Deductions, 46 Hofstra L. Rev. __ (forthcoming 2018).

Speck (2017)Charlene Luke’s excellent article, Captivating Deductions, analyzes the tax treatment of captive insurance arrangements under current law and proposes reforms that would better align the treatment of such insurance arrangements with a normative Haig-Simons income tax base. Luke focuses on the treatment of insurance premiums from the insured’s perspective, rather than the special treatment afforded to insurance companies under the Code. For these insureds, captive insurance arrangements can convert non-deductible savings into deductible business expenses, with an added tax benefit if the insurance company can avoid current taxation on returns to any investments made with premiums received. Luke casts such (abusive) arrangements as “in substance, designer investment contracts,” and Luke’s reading of judicial and administrative guidance in this area as fundamentally misguided is undeniably correct.

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May 4, 2018 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Tax Policy In The Trump Administration

Field: Tax Implications Of The Dynamex Worker Classification Ruling

Following up on Paul Caron's previous post: California Supreme Court Deals Major Blow to Gig Economy Business Model, Treats Workers as Employees Rather than Independent Contractors: Heather Field (UC-Hastings) at Surly Subgroup: Tax Implications of the Recent Dynamex Worker Classification Ruling 

Greetings from San Francisco, the epicenter of the gig economy, where workers-rights advocates are celebrating Monday’s California Supreme Court decision in the Dynamex case. The ruling, which cites an article by my colleague Veena Dubal, is expected to make it harder for businesses in California to classify gig economy workers (and others) as independent contractors rather than employees. As a result, these workers are more likely to be protected by rules about minimum wage, overtime, rest breaks, and other working conditions, although there are open questions about exactly how these rules will apply to gig workers.

But what is good for workers for employment/labor law purposes may not be so good for workers for federal income tax purposes. As readers of this blog know, independent contractors can generally deduct their business expenses above-the-line and may be able to take the new Section 199A deduction equal to up to 20% of qualified business income (significantly reducing the effective tax rate). Employees, on the other hand, can do neither. Thus, the employment/labor law win for workers in the Dynamex case may come with some unexpected and unwanted tax losses for these same workers. This is especially true for workers with non-trivial amounts of unreimbursed business expenses (although the amount of a worker’s unreimbursed expenses may decline if the worker is classified as an employee because California Labor Code 2802 generally requires employers to reimburse significant business expenses of employees).

So, taking tax into account, is independent contractor status or employee status better for workers? This question involves complicated employment/labor law and tax law tradeoffs. For example, despite the tax disadvantages of employee classification mentioned above, employee status can benefit workers for employment tax and tax compliance purposes. Others (including Shuyi Oei here, Shuyi Oei and Diane Ring here, here and here, and Kathleen DeLaney Thomas here) have written extensively on worker classification/taxation topics, and at least some of them have additional articles forthcoming on these topics. I will defer to them for more details as I am not an expert (at least right now) on worker classification or its tax implications. But even I know that, when analyzing the implications of the Dynamex case, it will be important for commentators to consider the tax, not just employment/labor, consequences.

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May 4, 2018 in New Cases, Shuyi Oei, Tax, Tax Policy in the Trump Administration, Tax Profs | Permalink | Comments (0)

Third International Conference On Taxpayer Rights Concludes Today In The Netherlands

ThirdThe National Taxpayer Advocate hosts the Third International Conference on Taxpayer Rights today and tomorrow in The Netherlands hosted by the International Bureau of Fiscal Documentation. For a list of the panels and participants, see here.

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May 4, 2018 in Conferences, IRS News, Scholarship, Tax | Permalink | Comments (0)

2018 Tax Development Conference

Cal StateThe Bookstein Institute for Higher Education in Taxation at California State University, Northridge, in collaboration with the College of Business at Central Washington University, hosts The 2018 Tax Development Conference today at California State University, Northridge.  For a list of the papers and speakers, see here.  Among the papers are Hilary G. Escajeda (Denver), Sustainable Growth or Dead Cat Bounce? A Strategic Inflection Point Analysis of Legal and Professional Dducation:

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May 4, 2018 in Conferences, Tax | Permalink | Comments (0)

Thursday, May 3, 2018

Krugman: How’s That Tax Cut Working Out?

New York Times op-ed:  How’s That Tax Cut Working Out?, by Paul Krugman:

So far, Donald Trump and his allies in Congress have achieved one and only one major legislative victory: passing a large tax cut, mainly aimed at corporations and business owners. The tax cut’s proponents promised that it would lead to a dramatic acceleration of economic growth and produce big gains in wages; they hoped that it would also yield big political dividends for the midterm elections.

So how’s it going? Politically, the tax cut is a damp squib: Most voters saythey haven’t seen any boost to their paychecks, and Republicans are barely talking about the law in their political campaigns. But what about the economics?

You might be tempted to say that it’s too early to tell. After all, the law has been in effect for only a few months, and we got our first look at post-tax-cut economic growth only last week. But here’s the thing: To deliver on its backers’ promises, the tax cut would have to produce a huge surge in business investment — not in the long run, not five or 10 years from now, but more or less right away. And there’s no sign that anything like that is happening. ...

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May 3, 2018 in Tax | Permalink | Comments (2)

The Unconstitutionality Of The Tampon Tax

Victoria Hartman (J.D. 2018, Northwestern), Note, End the Bloody Taxation: Seeing Red on the Unconstitutional Tax on Tampons, 112 Nw. U. L. Rev. 313 (2017):

Why was there so much activism in the United States, and across the world, to end the tampon tax in 2016? This Note situates the movement to end the tampon tax within a broader history of feminist activism related to tampons and menstruation. It also analyzes the constitutional dimensions of the tax on feminine hygiene products and serves as a litigation guide for plaintiffs claiming that a state, city, or county sales tax on feminine hygiene products violates the Equal Protection Clause.

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May 3, 2018 in Scholarship, Tax | Permalink | Comments (2)

Call for Papers: New Voices In Tax Policy And Public Finance (2019 AALS Annual Meeting)

The AALS Tax Section committee is pleased to announce the following Call for Papers:

CALL FOR PAPERS:
AALS SECTION ON TAXATION WORKS-IN-PROGRESS SESSION
2019 ANNUAL MEETING, JANUARY 2-6, 2019, NEW ORLEANS, LA
NEW VOICES IN TAX POLICY AND PUBLIC FINANCE
(co-sponsored by the Section on Nonprofit and Philanthropy Law and Section on Employee Benefits and Executive Compensation)

The AALS Section on Taxation is pleased to announce the following Call for Papers. Selected papers will be presented at a works-in-progress session at the 2019 AALS Annual Meeting in New Orleans, LA from January 2-6, 2019. The works-in-progress session is tentatively scheduled for Saturday, January 5.

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May 3, 2018 in Conferences, Legal Education, Scholarship, Shuyi Oei, Tax, Tax Profs, Teaching | Permalink | Comments (0)

Rosenberg: Application Of The Economic Substance Doctrine To Foreign Tax Credits

Rebecca Rosenberg (Ohio Northern), Stars Wars: Application of the Economic Substance Doctrine to Foreign Tax Credits, and What the Future Holds, 42 U. Dayton L. Rev. 165 (2018):

The recent, controversial STARS (Structured Trust Advantaged Repackaged Securities) cases provide a backdrop for analyzing how the economic substance doctrine ideally should be applied to foreign tax credit cases. The economic substance doctrine is a judicial doctrine that allows courts to disregard the tax consequences of a transaction that violates the intent of the relevant statute. Its application to foreign tax credits has a long and contentious history, and the STARS cases have given new life to the government’s arguments.

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

Wednesday, May 2, 2018

NY Times: California Supreme Court Deals Major Blow To Gig Economy Business Model, Treats Workers As Employees Rather Than Independent Contractors

New York Times, Gig Economy Business Model Dealt a Blow in California Ruling:

In a ruling with potentially sweeping consequences for the so-called gig economy, the California Supreme Court on Monday made it much more difficult for companies to classify workers as independent contractors rather than employees.

The decision could eventually require companies like Uber, many of which are based in California, to follow minimum-wage and overtime laws and to pay workers’ compensation and unemployment insurance and payroll taxes, potentially upending their business models.

Industry executives have estimated that classifying drivers and other gig workers as employees tends to cost 20 to 30 percent more than classifying them as contractors. It also brings benefits that can offset these costs, though, like the ability to control schedules and the manner of work. ...

The court essentially scrapped the existing test for determining employee status, which was used to assess the degree of control over the worker. That test hinged on roughly 10 factors, like the amount of supervision and whether the worker could be fired without cause.

In its place, the court erected a much simpler “ABC” test that is applied in Massachusetts and New Jersey. Under that test, the worker is considered an employee if he or she performs a job that is part of the “usual course” of the company’s business.

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May 2, 2018 in Tax | Permalink | Comments (8)

Apple Plows Tax Cut Into $100 Billion Stock Buyback

NY Times: Anonymous Owner, LLC — Why It Has Become So Easy To Hide In The Housing Market?

New York Times, Anonymous Owner, L.L.C.: Why It Has Become So Easy to Hide in the Housing Market:

A way to protect property owners from personal liability has also turned out to be handy for enabling problematic behavior, like laundering money or being a bad landlord.

When Sean Hannity, the popular Fox News host, was revealed this month to be a property owner and landlord of considerable scale, it highlighted how opaque the housing market has become.

Owning real estate in limited liability companies, as The Guardian reported that Mr. Hannity does, is a perfectly legal and increasingly popular practice. But the whiff of secrecy — and the umbrage Mr. Hannity has taken after the secret got out — speaks to the growing role of L.L.C.s in the nation’s housing market.

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May 2, 2018 in Tax | Permalink | Comments (0)

Watson: Reforming Tax Incentives For Higher Education

Camilla E. Watson (Georgia), Reforming Tax Incentives for Higher Education, 36 Va. Tax Rev. 83 (2017):

Federal spending on higher education has long been controversial, primarily because it has grown exponentially since the 1950s but it has produced a system which many regard as too expensive and grossly inefficient. The soaring costs are placing higher education beyond the reach of many Americans, and of those who enter college, less than half complete their degrees. Particular criticism has been directed toward the education tax incentives, enacted mostly in the late 1990s, which shifted federal funding for higher education from direct benefits to students in the form of grants, loans and work-study programs to indirect benefits through the tax system. The crux of this criticism is that the tax incentives, in addition to being costly and highly complex, have had virtually no effect on college enrollment and retention. Congress has studied this problem for the past few years and has several bills currently on the table to reform these incentives. There are other proposals pending as well, such as those of President Obama and the Education Consortium from the private sector. This article critiques these various proposals and explains why they are not likely to achieve the desired result of increasing college enrollment and retention, particularly among lower-income individuals.

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

Are Law Review Articles A Waste Of Time?

LawProfBlawg (Anonymous Professor, Top 100 Law School), Are Law Review Articles A Waste Of Time?:

Recently, Professors Carrissa Hessick, Eric Segall, and others continued the debate that started out at LawProfBlawg’s Loyola University Chicago Symposium on the Future of Legal Scholarship.  ...

Professor Hessick lobbed the first volley on Profsblawg.  Hessick rejected the notion that law review articles are too long or that the investment in writing them could better be placed in alternative formats like blog posts.

Segall responded on Dorf on Law.  He criticized the notion that longer law review articles communicate more information than shorter ones given the obscene amount of footnoting.  He also called into question the hierarchical nature of law review placements.

On Twitter, Hessick responded to some of my own concerns by suggesting that professors are better able to position themselves as experts if they have written law review articles on the topic, or if they have serious practice experience.  ...

I think that there are some serious problems with law reviews, and they do not have to do with the size of the articles.  The problems with law reviews have to do with how articles are selected, the hierarchy’s meaning for people’s careers, and the true value of the scholarship endeavor.  So let me add a few ideas to this Scholarly Debate on Non-Scholarly Fora about the meaning of Scholarship.

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May 2, 2018 in Scholarship, Tax | Permalink | Comments (2)

Tuesday, May 1, 2018

NY Times: Investment Boom From Trump’s Tax Cut Has Yet to Appear

New York Times, Investment Boom From Trump’s Tax Cut Has Yet to Appear:

Republicans sold the 2017 tax law as “rocket fuel” for American investment and growth, saying that corporations — flush with cash from lower tax rates — would channel money back into the economy by building factories and offices and investing in equipment, which would help companies grow and provide winnings for workers.

Economists say that may happen as companies readjust their spending plans over the coming months to take advantage of the new law, and they note that it is too early to tell how much the tax law will spread into the broader economy.

But, so far, hard evidence of such an acceleration has yet to appear in economic data, which show more of a steady investment roll than a rapid escalation. And while there are pockets of the economy where investment is picking up — among large tech companies and in shale oil business, for example — corporate spending on buying back stock is increasing at a far faster clip, prompting a debate about whether the law is returning money to the overall economy or just rewarding a small segment of investors.

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May 1, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

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.  This ranking includes downloads from two 30- and 35-page papers by 12 tax professors on the new tax legislation that garnered a lot of media attention (including the New York Times and Washington Post) and generated a massive amount of downloads (the papers are the most downloaded papers over the past 12 months across all of SSRN and the most downloaded tax papers of all-time by over 200%).  See Brian Leiter (Chicago), 11 Tax Profs Blow Up The SSRN Download Rankings. (For some reason, Mitchell Kane (NYU) — the twelfth academic co-author of the two papers — is not included in the SSRN download rankings (although the downloads are included on his individual author page)).  Here is the new list (through  April 1, 2018) 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.)

162,345

Reuven Avi-Yonah (Mich.)

94,878

2

Dan Shaviro (NYU)

102,395

Daniel Hemel (Chicago)

89,272

3

David Gamage (Indiana)

97,539

David Gamage (Indiana)

86,498

4

Lily Batchelder (NYU)

97,493

Dan Shaviro (NYU)

85,438

5

Daniel Hemel (Chicago)

92,522

Manoj Viswanathan (Hastings)

84,622

6

Darien Shanske (UC-Davis)

91,692

Lily Batchelder (NYU)

84,594

7

Cliff Fleming (BYU)

89,424

Darien Shanske (UC-Davis)

84,544

8

David Kamin (NYU)

85,789

Cliff Fleming (BYU)

84,268

9

Rebecca Kysar (Brooklyn)

85,480

David Kamin (NYU)

83,610

10

Manoj Viswanathan (Hastings)

84,703

Ari Glogower (Ohio State)

83,605

11

Ari Glogower (Ohio State)

83,815

Rebecca Kysar (Brooklyn)

83,283

12

Michael Simkovic (USC)

39,415

Gladriel Shobe (BYU)

23,060

13

Paul Caron (Pepperdine)

34,293

D. Dharmapala (Chicago)

3,558

14

D. Dharmapala (Chicago)

33,970

Richard Ainsworth (BU)

3,467

15

Louis Kaplow (Harvard)

29,458

Michael Simkovic (USC)

3,465

16

Ed Kleinbard (USC)

24,557

Kyle Rozema (Chicago)

2,971

17

Vic Fleischer (San Diego)

24,519

Hugh Ault (Boston College)

2,529

18

Richard Ainsworth (BU)

23,857

Omri Marian (UC-Irvine)

2,414

19

Jim Hines (Michigan)

23,657

Stephen Shay (Harvard)

2,286

20

Gladriel Shobe (NYU)

23,578

Ed Kleinbard (USC)

2,158

21

Richard Kaplan (Illinois)

22,769

Sam Donaldson (Georgia St.)

2,117

22

Ted Seto (Loyola-L.A.)

22,648

Jacon Goldin (Stanford)

2,099

23

Katie Pratt (Loyola-L.A.)

21,101

Ruth Mason (Virginia)

1,966

24

David Weisbach (Chicago)

20,227

William Byrnes (Texas A&M)

1,815

25

Robert Sitkoff (Harvard)

20,061

Shu-Yi Oei (Boston College)

1,805

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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May 1, 2018 in Tax, Tax Prof Rankings | Permalink | Comments (1)

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May 1, 2018 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

WSJ: U.S. Tax Revamp Weakens Case For Companies To Shift Profit Overseas

WSJWall Street Journal, U.S. Tax Revamp Weakens Case for Companies to Shift Profit Overseas:

The U.S. tax law passed in December aimed to remove the features of the old tax system that gave American companies a strong incentive to put their profits, factories and headquarters overseas.

Under the old system, a 35% domestic corporate tax rate, highest among major countries, coupled with a tax on repatriated profits, drove corporate decisions. Microsoft Inc. accumulated $142 billion in profits outside the U.S. Apple Inc. sought low tax rates in Ireland for its non-U.S. profits and Johnson Controls International PLC took a foreign address through a merger.

The new tax law’s 21% corporate rate and revised system of rules for money earned at home and abroad were a message to American companies: Come invest at home.

Will it work? Yes, tax experts say—but with limitations and caveats.

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May 1, 2018 in Tax | Permalink | Comments (0)

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May 1, 2018 in About This Blog, Legal Education, Tax | Permalink | Comments (0)

Monday, April 30, 2018

Oh: Are Progressive Tax Rates Progressive Policy?

Jason Oh (UCLA), Are Progressive Tax Rates Progressive Policy?, 92 NYU L. Rev. 1909 (2017):

Why do income tax systems across the world consistently feature progressive marginal rates? The existing literature tells a political story focusing on the top of the rate schedule and the preferences of the poor and middle class. According to this standard view, higher rates at the top result from the poor and middle class using the political process to “soak the rich.” However, this explanation is inconsistent with research showing that public policy is generally more responsive to the preferences of the rich. Explaining marginal rate progressivity as a universal (and exceptional) triumph of the poor and middle class rings hollow.

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April 30, 2018 in Scholarship, Tax | Permalink | Comments (0)

Thomas: What Do Audits Teach Us About Tax Compliance?

Jotwell (Tax) (2016)Kathleen DeLaney Thomas (North Carolina), What Do Audits Teach Us About Tax Compliance? (JOTWELL) (reviewing Taxpayer Advocate Service Research Report, Audits, Identity Theft Investigations, and Taxpayer Attitudes: Evidence from a National Survey (2017)):

For those interested in understanding taxpayer compliance—including what motivates taxpayers to report honestly and how to reduce tax evasion – there is a robust body of empirical and legal literature. A number of economists and lawyers have examined the effect of traditional deterrence mechanisms like audits and penalties, as well as non-economic factors like social normsguilttaxpayer attitudes about how their tax money is spent, and other psychological factors. While this growing body of literature provides a rich description of the myriad of factors that influence tax compliance decisions, our understanding of taxpayer behavior is far from complete, and further study continues to be necessary. In expanding our understanding of taxpayer motivations, one revealing but possibly overlooked resource is the IRS Taxpayer Advocate Service(“TAS”), which each year publishes a number of empirical studies and other reports relevant to tax compliance. The authors of TAS studies are uniquely situated in that they have access to IRS tax return data, which should provide the best evidence of how taxpayers make decisions in the real world.

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April 30, 2018 in Scholarship, Tax | Permalink | Comments (0)

Lesson From The Tax Court: The Cohan Doctrine Cannot Always Save You

Tax Court (2017)One of the first clients I had after graduating from law school in 1987 was a fellow in the construction business. I forget what dispute brought him to us, but I will never forget the “records” he brought: a truckload of paper bags. Turns out that each year he would set a paper grocery bag on the floor and, as the year went by, he would dump anything he thought important into the grocery bag ... if he remembered to do so. You can guess who got to go through all his paper bags.

I am sure many of you have encountered clients with similar, if not more pathetic, record-keeping practices. Readers well know that taxpayers bear the burden of production to show why they are entitled to claimed deductions. To do that they need to keep good records.

If taxpayers don’t keep good records, however, they can sometimes get lucky under what is commonly called the Cohan doctrine. For those interested, my blog here explains the doctrine and its history.  Basically, the doctrine says that if the taxpayer can prove the fact of an expense, but not the exact amount of the expense, the Tax Court will make its own estimate of the amount, “bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making.” Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930).

Two weeks ago I blogged here about a taxpayer who got lucky when the Tax Court judge spotted an issue that both the taxpayer’s attorneys and the IRS attorneys had overlooked, saving the taxpayer some $42,000 in taxes.  This week we look at a case, Stanislav Antoniev Dimitrov v. Commissioner, T.C. Summary Opinion 2018-21, that teaches a lesson about the limits to getting lucky under the Cohan doctrine.

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April 30, 2018 in Bryan Camp, New Cases, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, April 29, 2018

5,000 Pastors Rally To Defend Housing Tax Break Ruled Unconstitutional

Christianity Today, 5,000 Pastors Rally to Defend Housing Tax Break Ruled Unconstitutional; Appeal: Exemptions Do More Than Just Save Pastors $800 Million a Year:

When a pastor responds to late-night prayer request or invites congregants to his home for Bible study, is he just doing his job or going beyond the call of duty?

The lawsuit over the longstanding benefit, launched by the Freedom from Religion Foundation (FFRF) seven years ago, has entered another round of appeals. The Christian defendants, represented by Becket, filed their written appeal in the Seventh Circuit Court of Appeals late last week.

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April 29, 2018 in IRS News, New Cases, Tax | Permalink | Comments (3)

Tax Implications Of President Trump's Deregulatory Agenda

Treasury Department Logo (2017)Following up on my previous post, Treasury Proposes Repeal Of 298 Tax Regulations:  Press Release, Treasury Releases Report Highlighting Regulatory Reform Accomplishments:

The U.S. Treasury Department today released a report detailing its accomplishments in support of the President’s regulatory reform agenda. ... The Department’s regulatory reform accomplishments include:

  • Eliminating, reducing, or proposing to eliminate more than 300 regulations in total, including ineffective, unnecessary, or out-of-date “deadwood” regulations;
  • Reducing Treasury’s regulatory agenda by approximately 100 items, year-over-year, from Fall 2016 to Fall 2017;
  • More than 250 specific Treasury recommendations to reform and reduce the burdens of regulation in the U.S. domestic financial system;
  • Introducing zero new significant regulatory actions under Executive Order 13771.

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April 29, 2018 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

The Top Five New Tax Papers

SSRN LogoThis week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list, with some reshuffling of the order of the papers within the Top 5:

  1. [858 Downloads]  Evaluating the New US Pass-Through Rules, by Dan Shaviro (NYU)
  2. [358 Downloads]  The Impact of the 2017 Act's Tax Rate Changes on Choice of Entity, by Jim Repetti (Boston College)
  3. [346 Downloads]  Taxing Income Where Value Is Created, by Allison Christians (McGill) & Laurens van Apeldoorn (Leiden)
  4. [326 Downloads]  Explaining Choice-of-Entity Decisions by Silicon Valley Start-Ups, by Gregg Polsky (Georgia)
  5. [323 Downloads]  Taxation of Investments in Bitcoins and Other Virtual Currencies: International Trends and the Brazilian Approach, by Flavio Rubinstein (Fundação Getúlio Vargas) & Gustavo Gonçalves Vettori (University of São Paulo)

April 29, 2018 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, April 28, 2018

This Week's Ten Most Popular TaxProf Blog Posts