TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Thursday, April 28, 2016

The Intersection Of EU State Aid And U.S. Tax Deferral

Florida Tax Review  (2015)Romero J.S. Tavares, Bret N. Bogenschneider & Marta Pankiv (Vienna University), The Intersection of EU State Aid and U.S. Tax Deferral: A Spectacle of Fireworks, Smoke, and Mirrors, 21 Fla. Tax Rev. ___ (2017):

The Advance Pricing Agreements or transfer pricing rulings granted to U.S. multinationals by Ireland, the Netherlands, and Luxembourg were principally designed to achieve U.S. tax deferral and not EU tax avoidance. Adverse BEPS effects within the European Union would be immaterial in comparison to the deferral of U.S. tax on residual IP related profits, and would have occurred primarily in countries other than those charged with the granting of unlawful State aid. The Irish, Dutch, and Luxembourgish treasuries have not foregone tax revenues in favor of the U.S. multinationals they allegedly aided, which is a requirement for a finding of prohibited State aid.

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April 28, 2016 in Scholarship, Tax | Permalink | Comments (0)

NY Times:  President Obama Weighs His Economic And Tax Legacy

New York Times Magazine:  President Obama Weighs His Economic Legacy, by Andrew Ross Sorkin:

Eight years after the financial crisis, unemployment is at 5 percent, deficits are down and G.D.P. is growing. Why do so many voters feel left behind? The president has a theory.

Two months ago, across an assembly-room table in a factory in Jacksonville, Fla., President Barack Obama was talking to me about the problem of political capital. His efforts to rebuild the U.S. economy from the 2008 financial crisis were being hit from left, right and center. And yet, by his own assessment, those efforts were vastly underappreciated. “I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform,” he said. “By that measure, we probably managed this better than any large economy on Earth in modern history.”

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April 28, 2016 in Tax | Permalink | Comments (0)

NY Times:  Fantasy Math Is Helping Companies Spin Losses Into Profits

New York Times:  Fantasy Math Is Helping Companies Spin Losses Into Profits, by Gretchen Morgenson:

Companies, if granted the leeway, will surely present their financial results in the best possible light. And of course they will try to persuade investors that the calculations they prefer, in which certain costs are excluded, best represent the reality in their operations.

Call it accentuating the positive, accounting-style.

What’s surprising, though, is how willing regulators have been to allow the proliferation of phony-baloney financial reports and how keenly investors have embraced them. As a result, major public companies reporting results that are not based on generally accepted accounting principles, or GAAP, has grown from a modest problem into a mammoth one.

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April 28, 2016 in Tax | Permalink | Comments (0)

Is Social Security Tilted Toward the Rich?

New York Times:  Rich People Are Living Longer. That’s Tilting Social Security in Their Favor, by Neil Irwin:

Social Security is designed to ensure that no workers go penniless in old age and also as an equalizer between rich and poor. It is structured to give more generous retirement benefits to low-income people, given the taxes they pay during their working years. ...

[A] large body of research shows that the rich live longer — and that the life span gap between rich and poor is growing. And that means that the progressive ideal built into the design of Social Security is, gradually, being thwarted. In some circumstances, the program can actually be regressive, offering richer benefits to those who are already affluent.

Daniel Hemel (Chicago), Is Social Security Tilted Toward the Rich?:

A fascinating column in the New York Times Sunday Business section claims that the growing life span gap between the rich and the poor is undermining the Social Security system’s redistributive design. ...

The Times’ analysis, if correct, is quite dispiriting for those of us who favor greater redistribution of wealth and considered Social Security to be a great progressive achievement. But is it correct? I’m doubtful. That’s because — as best I can tell — the Times’ analysis fails to account for the tax treatment of Social Security benefits. And once one accounts for the taxation of Social Security benefits, the system begins to look a lot more progressive than the Times’ analysis suggests. ...

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April 28, 2016 in Tax | Permalink | Comments (3)

Write A Blog Post, Get An 'A' In Your Tax Class

Forbes (2017)Forbes:  Get Published And Win An A In Tax Law, by Kelly Phillips Erb:

That’s right, I said, “Win an A in Tax Law.” My popular contest for law and paralegal students is back. So let’s get right to the good stuff…

Here’s how it works: simply write a guest post for consideration on the site about a hot tax policy issue. I don’t mean a news or legal summary. I want a policy post: tell me what the issue is and why it matters. In other words, pick a topic and take a position. ...

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April 28, 2016 in Tax | Permalink | Comments (0)

The IRS Scandal, Day 1085

IRS Logo 2American Thinker:  IRS Dereliction Aids California AG's Donor Privacy Violations, by Mark J. Fitzgibbons:

California's Democrat attorney general, Kamala Harris, was recently slapped down by a federal judge for violating the First Amendment in a donor privacy case brought by conservative nonprofit Americans for Prosperity Foundation. The Internal Revenue Service needs to shoulder a substantial part of the blame for that case, because the IRS could and should have prevented Harris's lawlessness.

AFPF was granted an injunction against Ms. Harris on April 21 prohibiting her from demanding the nonprofit organization's donor names and addresses listed on confidential federal tax return "Schedule B." At trial, AFPF presented "ample evidence" that its donors received "threats, harassment, intimidation, and retaliation" for their private association with the organization. The right of private association is constitutionally guaranteed as expressed in the 1958 landmark civil rights case NAACP v. Alabama.

General Harris is acquiring confidential Schedule B donor names using a dragnet registration method for charities that communicate with fundraising appeals to Californians. The injunction order noted that Harris's claims for needing Schedule B donor information for law enforcement purposes was not credible, given the lack of an enforcement track record and the availability of such information from other sources on a case-by-case basis.

Judge Manuel Real's order was blunt, noting that "the amount of careless mistakes by the Attorney General's registry is shocking," and "[t]he pervasive, recurring pattern of uncontained Schedule B disclosures [is] irreconcilable with the Attorney General's assurances and contentions as to the confidentiality of Schedule Bs collected by the Registry." ...

What hasn't been reported is how the IRS could have prevented this mess. The federal tax code gives the IRS control over the flow of confidential federal tax return to state officials, who may actually need it to enforce laws. By its own interpretations of the law, the IRS requires states to enter into confidentiality agreements and establish protocols to prevent precisely what California did in accessing and publicly disclosing Schedule Bs.

The IRS's failure to act to protect confidential donor information on Schedule Bs means it may be treated as an "indispensable party" in litigation brought by other charities. Also, Congress should investigate why the IRS was derelict in protecting the confidentiality of donors, and whether Ms. Harris is acting as an Obama IRS surrogate in hampering First Amendment rights of conservative organizations such as AFPF and others.

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April 28, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, April 27, 2016

Video Of Tom Bost's Last Class At Pepperdine

Following up on yesterday's post, Tom Bost's Last Class At Pepperdine:

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April 27, 2016 in Legal Education, Tax | Permalink | Comments (0)

Ventry:  Lawyers As Whistleblowers

Dennis J. Ventry, Jr. (UC-Davis), Stiches for Snitches: Lawyers as Whistleblowers, 50 U.C. Davis L. Rev. ___ (2017):

This Article challenges the prevailing wisdom that ethics rules forbid lawyers from blowing the whistle on a client’s illegal conduct. While a lawyer is not free to disclose confidential information in every jurisdiction for every legal violation, the ethics rules in all jurisdictions permit disclosure of confidential information pertaining to a client’s illegal activities under certain conditions. Proving the lie of the prevailing wisdom, this Article examines a high profile case in the state of New York that ruled a lawyer whistleblower violated the state’s ethics rules by revealing confidential information to stop his employer-client from engaging in a tax fraud of epic proportions. The Article argues that the court undertook a deficient analysis of New York ethics rules pertaining to permissive disclosure of confidential client information. Even if the whistleblower had violated his ethical obligations, the New York False Claims Act (the statute under which he brought his action) expressly protects disclosure of confidential employer information made in furtherance of the statute. In addition to New York’s statutory shield, federal courts across the country have developed a public policy exception safeguarding whistleblowers for disclosing confidential information that detects and exposes an employer’s illegal conduct.

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April 27, 2016 in Scholarship, Tax | Permalink | Comments (0)

Call For Papers:  AALS Program On Philanthrocapitalism

AALS (2017)Call for Papers:  Joint Program of the AALS Sections on Agency, Partnerships LLCs, and Unincorporated Associations & Nonprofit and Philanthropy on LLCs, New Charitable Forms, and the Rise of Philanthrocapitalism:

In December 2015, Facebook founder Mark Zuckerberg and his wife, Dr. Priscilla Chan, pledged their personal fortune—then valued at $45 billion—to the Chan-Zuckerberg Initiative (CZI), a philanthropic effort aimed at “advancing human potential and promoting equality.” But instead of organizing CZI using a traditional charitable structure, the couple organized CZI as a for-profit Delaware LLC. CZI is perhaps the most notable example, but not the only example, of Silicon Valley billionaires exploiting the LLC form to advance philanthropic efforts. But are LLCs and other for-profit business structures compatible with philanthropy? What are the tax, governance, and other policy implications of this new tool of philanthrocapitalism? What happens when LLCs, rather than traditional charitable forms, are used for “philanthropic” purposes?

From the heart of Silicon Valley, the AALS Section on Agency, Partnerships LLCs, and Unincorporated Associations and Section on Nonprofit and Philanthropy Law will host a joint program tackling these timely issues. In addition to featuring invited speakers, we seek speakers (and papers) selected from this call.

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April 27, 2016 in Conferences, Scholarship, Tax | Permalink | Comments (0)

America Changes, But All the Presidential Candidates Want To Keep the Tax Code the Same

Final 5The Daily Beast:  America Changes, But All the Presidential Candidates Want To Keep the Tax Code the Same, by David Cay Johnston:

The tax reform plans of the five remaining presidential candidates tell us a lot about our outdated federal tax system, which was designed for the industrial economy of the last century. All five candidates promise reform, but their plans just tinker around the edges. None of the five addresses the major reasons the federal tax system imposes far more economic pain than necessary on most Americans.

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April 27, 2016 in Political News, Tax | Permalink | Comments (6)

May 1 Deadline For Call For Papers For NTA 109th Annual Conference On Taxation

NTA LogoThe National Tax Association has issued a Call for Papers for its 109th Annual Conference on Taxation to be held Nov. 10-12, 2016 in Baltimore:

The 109th Annual Conference on Taxation will cover a broad range of topics including, but not limited to, taxation and tax policies; expenditure policies; government budgeting; intergovernmental fiscal relations; and subnational, national, and international public finance. The conference will focus, as always, on policy-relevant research bearing on taxation and government spending.

You are invited to submit a paper or a complete session. May 1, 2016 is the deadline for submitting papers or sessions. Decisions concerning the inclusion of papers and sessions will be announced in July 2016. Authors of accepted papers will be offered the opportunity to include them in the Proceedings. All presenters will be required to register and pay a conference registration fee.

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April 27, 2016 in Conferences, Scholarship, Tax | Permalink | Comments (0)

The Hillary Speech Issue No One Is Talking About: Assignment Of Income

Hillary 2016Forbes:  The Hillary Speech Issue No One Is Talking About, by Robert W. Wood:

There are long lists of Hillary Clinton scandals, but the vortex of issues surrounding her speeches remains a major one. The speech issue is multi-faceted, raising questions about what she said to whom and at what price. In this sense, Hillary may be her own worst enemy. She has stalled endlessly, and has still failed to release the transcripts. That kind of stonewalling fuels more speculation, and it is hardly in her favor.

For example, you can read an amusing imagined text of Hillary’s speech to Goldman Sachs. We presumably will never see the real one, though it can hardly be worse than an imagined version. Arguably, though, just as major an issue is the money trail from Hillary’s speeches. The data has had to be teased out. However, the connections between a former President and Secretary of State hobnobbing with foreign government and corporate chieftains over U.S. policy issues remains of interest. The money was big for Bill and Hillary, with even some for Chelsea.

And just think of the tax treatment.

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April 27, 2016 in Political News, Tax | Permalink | Comments (7)

ABA Teleconference Today On The Tax Code And Income Inequality

LogoThe ABA Section of Civil Rights and Social Justice and the ABA Tax Section are offering a free teleconference today at 3:30 - 5:00 EST on The Tax Code and Income Inequality: Limitations and Political Opportunities:

“Welfare” has become “workfare,” delivered through the Tax Code, e.g., the Earned Income Tax Credit and Child Tax Credit. How well is that really working for low and middle income Americans, much less those in poverty? At the same time, tax deductions, credits—and avoidance/evasion schemes—are increasingly benefitting wealthy individuals and big corporations, which increasingly pay a smaller portion of federal tax revenue—revenue that could fund government programs, bolster economic growth and benefit the bottom 99% by providing jobs and increase skills of lower income American. Panelists will discuss how changes to the Tax Code can address income inequality in the U.S. and political opportunities for reform.

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April 27, 2016 in ABA Tax Section, Conferences, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1084

IRS Logo 2Forbes:  Should IRS Pay Employee Bonuses? Recall Lois Lerner's $129,300 On Top Of Salary, by Robert W. Wood:

Should IRS employees receive bonuses, and based on what? The topic is controversial–again–although perhaps not as vitriolic as it was during the Lois Lerner targeting episode. Recall that the face of IRS targeting, Lois Lerner–who took the Fifth and refused to testify about it–received big cash bonuses. So did the fired Acting IRS Commissioner Miller who was also caught up in the targeting scandal. (Yes, it is tempting to ask, ‘bonuses for what?’)

These bonuses were not small pats on the back. In fact, Lois Lerner received $129,300 in bonuses between 2010 and 2013. As head of the IRS tax-exempt division at the  heart of the targeting scandal, she received a 25% bonus each year—averaging $43,000 a year—on top of her regular salary. As you read about bonuses, you might recall other reports saying that 61% of IRS employees caught willfully violating the tax law aren’t fired, but may get promoted. Many of the bonuses can be traced to IRS Commissioner Koskinen, who took the helm of the IRS in December 2013.

His tenure hasn’t been smooth. Most of the IRS bonuses were paid in February and March 2014, with 238 awards totaling $976,387. No further awards were recorded until November and January 2015, with 218 awards totaling $1,000,108. In all, the IRS paid 1,269 bonuses, totaling $5.97 million from January 1, 2010 to February 2, 2015. The average was $4,483, but totals ranged from $250 to $285,688. There is considerable detail on the bonuses here.

And with this kind of track record in the face of scandal, perhaps it is no wonder that there is a House Bill, H.R. 4890, called the IRS Bonuses Tied to Measurable Metrics Act. Sponsored by Rep. Pat Meehan, R-Pa., it would prohibit the IRS from paying bonuses to employees until the Treasury Secretary develops and implements a comprehensive customer service strategy that puts taxpayers first. The House Ways and Means Committee passed four IRS bills recently, and the House voted to approve several. Yet Rep. Sander Levin, D-Mich., the ranking Democrat on the House Ways and Means Committee, objected to tying IRS employee bonuses to the development of a customer service strategy. ...

There are plenty of hard-working and honest employees at the IRS. They do a terribly important job under tough circumstances, and it is usually a thankless job. Maybe they do deserve bonuses. Perhaps there might be agreement on this, especially if they could hang up a big ’Under New Management’ sign.

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April 27, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Tuesday, April 26, 2016

Tom Bost's Last Class At Pepperdine

Today was a day of transitions at Pepperdine, as legendary Tax Prof Tom Bost retired after 16 years on the faculty, following an illustrious 31 year career as a tax associate and then partner at Latham & Watkins in Los Angeles.  Tom served for many years as member and chair of Pepperdine's Board of Regent and was Interim Dean when Pepperdine hired me (the only black mark on his otherwise distinguished career).  Like everyone at Pepperdine, I have enormous respect and affection for Tom, and will miss his daily presence in our lives.

We shamelessly stole the idea from Michigan and organized a moving "clap-off" send-off for Tom's last class today, as the faculty and staff joined with Tom's students in sending him out of a Pepperdine classroom for the last time to thunderous applause (and not a few tears). Pepperdine will forever more be a profoundly different place because of this extraordinary man.

Tom 4

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April 26, 2016 in Legal Education, Tax | Permalink | Comments (0)

Zelenak Presents Tax-Free Basis Step-Up At Death And The Charitable Deduction Of Unrealized Appreciation Today At Georgetown

Zelenak (2016)Lawrence Zelenak (Duke) presents The Tax-Free Basis Step-Up at Death, the Charitable Deduction of Unrealized Appreciation, and the Persistence of Error at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Itai Grinberg:

This article recounts, as a study in the remarkable persistence of early error even when the error is promptly recognized and addressed, the legislative and administrative histories of the taxfree basis step-up at death and the charitable deduction for unrealized appreciation. Part I describes the early development of the basis rules for property transferred by gift or bequest, and Part II covers the early history of the charitable deduction for appreciated property. Parts III and IV are concerned with less ancient events. Part III recounts the short unhappy life of the 1976 carryover basis reform, and Part IV does the same for the 1986 AMT reform. Part V briefly concludes.

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April 26, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (3)

Gravelle Presents Policy Options To Address Corporate Profit Shifting: Carrots Or Sticks? Today At NYU

GravelleJane Gravelle (Congressional Research Service) presents Policy Options to Address Corporate Profit Shifting: Carrots or Sticks? at NYU today as part of its Tax Policy Colloquium Series hosted by Daniel Shaviro and Chris Sanchirico:

Issues surrounding the U.S. tax treatment of foreign source income, focused in large part in the past on real investment, may, to some degree, have given way to concern about tax minimization strategies that allow firms to shift profits into low and no tax countries. Firms can benefit from profit shifting because, although the United States has a worldwide income tax system with a credit for foreign taxes paid, income earned by U.S. multinationals’ foreign subsidiaries is not subject to tax until it is repatriated, that is, paid to the parent firm as a dividend. (Current law requires some income easily subject to abuse, called Subpart F income, to be taxed currently). In addition, firms can shield repatriated profits from low tax countries from U.S. tax if they have excess foreign tax credits from operations in high tax countries. Profit shifting is largely a problem of lost revenue rather than inefficient location of investment, although widespread manipulation of the tax rules to avoid taxes also may undermine voluntary compliance with the tax system by others.

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April 26, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Prince Died Without A Will, According To Court Documents

PrinceNew York Times, Prince Died Without a Will, According to Court Documents:

Prince died without a will, according to court documents filed by his sister, which may cause complications for his financial estate and musical legacy.

In probate documents filed on Tuesday with the court in Carver County, Minn., Tyka Nelson, 55, Prince’s sister, said that her brother died without a spouse, children or surviving parents, and that “I do not know of the existence of a will.” ...

In addition to Ms. Nelson, the document lists five half-siblings of Prince as interested parties: his half-brothers John Nelson, Alfred Jackson and Omar Baker, and his half-sisters Norrine and Sharon Nelson. According to Minnesota law, surviving half-siblings are treated the same as full siblings. ..

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April 26, 2016 in Celebrity Tax Lore, IRS News, Tax | Permalink | Comments (0)

Ex-Sprint Heads Blame IRS For Tax Shelter Woes 13 Years Ago

Sprint 3Bloomberg, Ex-Sprint Heads Blame IRS for Tax Shelter Woes 13 Years Ago:

The two top Sprint Corp. executives who were caught up in a tax-shelter scandal in 2003 now blame the Internal Revenue Service for losing their jobs.

Former Chairman and Chief Executive Officer William T. Esrey and Ronald T. LeMay, a former president and chief operating officer, sued the U.S. government Friday over claims they were unfairly forced out of the company after disclosing they were being audited over the use of shelters that deferred taxes from stock option profits. The two men are seeking almost $160 million in combined damages in a complaint filed in Manhattan federal court.

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April 26, 2016 in IRS News, Tax | Permalink | Comments (0)

Hillary Clinton And Donald Trump Share A Delaware Tax Loophole Address

Gawker, Hillary Clinton and Donald Trump Share a Delaware Tax Loophole Address:

Thanks to Delaware’s strict corporate secrecy laws, more than 285,000 companies are registered, for tax reasons, at a two-story building in Wilmington—more than any other address in the world. Among them are holding companies belonging to Hillary Clinton and Donald Trump.

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April 26, 2016 in Political News, Tax | Permalink | Comments (2)

Interest In Negative Income Tax Spreads: 'Freeing The World Of Bullshit Jobs'

538FiveThirtyEight, What Would Happen If We Just Gave People Money?:

Daniel Straub remembers the night he got hooked on basic income. He had invited Götz Werner, a billionaire owner of a German drugstore chain, to give an independent talk in Zurich, where Straub was working as a project manager for a think tank. He had read an article about the radical proposal to unconditionally guarantee citizens an income and spent a few years casually researching the idea. Straub had heard Werner was a good speaker on the topic, and that night in 2009 he was indeed excellent at connecting with the audience, a sold-out house of 200. “It was a very intense evening; people were paying attention,” Straub recalled.

Werner posed a pair of simple questions to the crowd: What do you really want to do with your life? Are you doing what you really want to do? Whatever the answers, he suggested basic income was the means to achieve those goals. The idea is as simple as it is radical: Rather than concern itself with managing myriad social welfare and unemployment insurance programs, the government would instead regularly cut a no-strings-attached check to each citizen. No conditions. No questions. Everyone, rich or poor, employed or out of work would get the same amount of money. This arrangement would provide a path toward a new way of living: If people no longer had to worry about making ends meet, they could pursue the lives they want to live. ...

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April 26, 2016 in Tax | Permalink | Comments (3)

Senate Holds Hearing Today On Navigating Business Tax Reform

Senate LogoThe Senate Finance Committee holds a hearing today on Navigating Business Tax Reform:

  • Thomas A. Barthold (Chief of Staff, Joint Committee on Taxation)
  • James R. Hines, Jr. (Professor, University of Michigan)
  • Sanford E. Zinman (Owner, Sanford E. Zinman, CPA, Tarrytown , NY)
  • Gayle Goschie (Vice President, Goschie Farms, Silverton, OR)
  • Eric Toder (Co-director, Tax Policy Center)

In connection with the hearing, the Joint Committee on Taxation has released Background On Business Tax Reform (JCX-35-16):

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April 26, 2016 in Congressional News, Tax | Permalink | Comments (1)

Corporate Integration:  An Important Component Of Tax Reform

Tax Foundation logoScott Greenberg (Tax Foundation), Corporate Integration: An Important Component of Tax Reform:

Corporate integration would not fix all, or even most of the problems with the U.S. business tax system. The United States has one of the highest statutory corporate tax rates in the world, a counter-productive set of rules regarding overseas income, and a cumbersome system of depreciation and cost recovery. Corporate integration would not solve any of these issues.

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April 26, 2016 in Tax, Think Tank Reports | Permalink | Comments (1)

The IRS Scandal, Day 1083

IRS Logo 2National Review, A Victory for Free Speech — and Democracy:

The Americans for Prosperity Foundation, a conservative-oriented nonprofit, has won a victory in its lawsuit against California attorney general Kamala Harris, who is attempting to do with her investigatory powers what Lois Lerner did with the IRS’s: weaponize them for political purposes.

Wall Street Journal editorial, Free Speech 1, Kamala Harris 0: A Federal Judge Blocks an Attempt to Disclose Conservative Donors:

Kamala Harris has been a hero of the left’s campaign to use donor disclosure as a tool of political intimidation. Since 2013 the California Attorney General has been demanding that nonprofits provide unredacted donor names if they want to solicit donations in the state. On Thursday a federal court declared her disclosure requirement an unconstitutional burden on First Amendment rights.

Federal Judge Manuel Real granted a permanent injunction against Ms. Harris in a lawsuit brought by the Americans For Prosperity Foundation. The group, which is affiliated with free-market supporters Charles and David Koch, has argued that as a 501(c)(3) nonprofit, it should not be forced to supply the Attorney General with the organization’s IRS Form 990 Schedule B, which contains its donor names.

In his 12-page decision, Judge Real notes that while Attorney General Harris argued that she needed donor disclosure to identify lawbreaking like “self-dealing” or “improper loans,” that was a stretch. “[O]ver the course of trial, the Attorney General was hard pressed to find a single witness who could corroborate the necessity of Schedule B forms in conjunction with their office’s investigations,” the judge wrote.

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April 26, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Monday, April 25, 2016

Kahng Presents Who Owns Human Capital? Today At Pepperdine

Kahng (2017)Lily Kahng (Seattle) presents Who Owns Human Capital?, 93 Wash. U. L. Rev. ___ (2017), at Pepperdine today as part of our Tax Policy Workshop Series funded in part by a generous gift from Scott Racine:

This Article analyzes the tax law’s capital income preference through the lens of intellectual capital, an increasingly important driver of economic productivity whose value derives primarily from workers’ knowledge, experience and skills. The Article discusses how business owners increasingly are able to “propertize” labor into intellectual capital — to control their workers and appropriate the returns on their labor through the expansive use of intellectual property laws, contract and employment laws, and other legal mechanisms. The Article then shows how the tax law provides significant subsidies to the process of propertization and thereby contributes to the inequitable distribution of returns between business owners and workers. The Article’s analysis further reveals the tax law’s fundamental capital-labor distinction to be questionable, perhaps even illusory, an insight which has profound implications for the tax law.

Update:  Post-presentation lunch:

Lunch

April 25, 2016 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

2016 Outstanding Women In Tax

Tax Notes LogoTax Notes, 2016 Outstanding Women in Tax:

Several months ago, we decided to honor some of today's outstanding women in tax. We asked Tax Notes readers and other Tax Analysts stakeholders to nominate women from the public and private sectors who have had a significant impact on tax practice and policy.

We expected dozens of nominations; we received more than 300.

We should have expected such a large response. There are many noteworthy women in the tax world. We're fortunate to be working closely with some of them, including Tax Notes contributing editor Lee A. Sheppard and Tax Analysts board members Pamela Olson and Deborah Schenck (all of whom were nominated multiple times but who were ineligible because of their affiliation with Tax Analysts).

Selecting only 10 out of such a distinguished list was a daunting task. So we assembled a committee of editors, reporters, and executives who reviewed and carefully examined each of the more than 300 nominees before coming to the difficult decision.

This year's honorees include government trailblazers, rising stars, and women who have been the distinguished standard-bearers in the tax field for years. Those being recognized include the leader of a key congressional tax committee, a distinguished jurist, an IRS official, scholars from around the world, and accomplished partners in major accounting and law firms.

Individually and collectively they influence tax administration and policy globally every day. They inspire, educate, and empower people in their areas of tax.

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April 25, 2016 in Tax, Tax Analysts | Permalink | Comments (0)

Shaviro:  The Mapmaker's Dilemma In Evaluating High-End Inequality

Daniel Shaviro (NYU), The Mapmaker's Dilemma in Evaluating High-End Inequality:

The last thirty years have witnessed rising income and wealth concentration among the top 0.1 percent of the population, leading to intense political debate regarding how, if at all, policymakers should respond. Often, this debate emphasizes the tools of public economics, and in particular optimal income taxation. However, while these tools can help us in evaluating the issues raised by high-end inequality, their extreme reductionism – which, in other settings, often offers significant analytic payoffs – here proves to have serious drawbacks. This paper addresses what we do and don’t learn from the optimal income tax literature regarding high-end inequality, and what other inputs might be needed to help one evaluate the relevant issues.

April 25, 2016 in Scholarship, Tax | Permalink | Comments (1)

Ecuador President To Use Emergency Powers To Impose Wealth Tax on Millionaires To Fund Earthquake Reconstruction

EcuadorFinancial Times, Ecuador President Promises ‘Millionaire Tax’ to Fund Quake Recovery:

Rafael Correa, president of Ecuador, has promised new measures to raise the billions of dollars needed to rebuild a country left reeling by its worst earthquake in decades, including a one-off tax on millionaires.

As Opec’s smallest member struggles to cope with the impact of Saturday’s tremor, which killed 570 people and devastated communities along its Pacific coast, the leftwing leader said a 0.9 per cent levy would be imposed on Ecuadoreans whose wealth exceeded $1m.

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April 25, 2016 in Tax | Permalink | Comments (0)

The IRS Scandal, Day 1082

IRS Logo 2Linda Beale (Wayne State), Defending the IRS Against Right-Wing Attacks:

[T]he New York Times on Friday reported on the havoc that the right's attacks on the IRS's budget and its employees' morale has wrought. ...

As certain as death and taxes, tax season political attacks on the I.R.S. go back decades. But in recent years, the intensity has grown and the agency’s funding in turn shrank more than any other time in memory. The campaign gained strength in 2013, when Republicans seized on management failures to allege that I.R.S. employees had singled out conservative groups for greater scrutiny and delays in reviewing their applications for tax-exempt status as “social welfare” organizations, though liberal-leaning groups were examined as well, investigations showed. ...

Clearly, the IRS is a centrally important agency that cannot be eliminated.  We need to collect taxes, and we need an agency with the expertise to advise Congress about tax law and policy as well as to interpret the laws in a way that makes it possible to implement them.  (Congress has a tendency to leave anything really difficult to the IRS to figure out, by authorizing or ordering the Secretary of the Treasury to promulgate regulations carrying out the intent of specific provisions.)  We need to have sufficient IRS staffing to enforce the law through tough audits, especially of the wealthy and corporate enterprises.  We need to have sufficient funding to maintain updated technology--one of the problems with the cuts in funding to the IRS is that the computer systems are more easily hacked than they should be.  That fault lies with Congress, which expects managerial miracles from an agency with constant battering from the right-wing to try to demoralize its employees and constant resource cuts that make budget planning and regular maintenance of systems practically impossible.  When Congress adds additional functions to the agency (whether in the form of additional tax systems to oversee, such as the penalty provisions in the Affordable Care Act,  or additional tax expenditures operating as a subsidy to one or another of Congress's favored groups, such as the section 199 "manufacturing" deduction) but fails to add funding to cover the additional responsibility, it means that the IRS's ability to carry out its task well will be jeopardized, and service to taxpayers will decline. ...

The fact is, the IRS makes money when Congress gives it funding to ensure tax compliance:  as the article states (and many studies support), "the agency collects at least $4 for every $1 it spends for tax compliance."  Former IRS commissioners--during Republican and Democratic administrations--therefore joined together to urge Congress to undo the perverse results of underfunding the IRS.

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April 25, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, April 24, 2016

Today Is Tax Freedom Day — Earlier In MS, TN & LA, Later In CT, NJ & NY

Tax Foundation logoTax Foundation, Tax Freedom Day 2016 is April 24:

  • This year, Tax Freedom Day falls on April 24, or 114 days into the year (excluding Leap Day).
  • Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total bill of almost $5.0 trillion, or 31 percent of the nation’s income.
  • Tax Freedom Day is one day earlier than last year, due to slightly lower federal tax collections as a proportion of the economy.
  • Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.
  • If you include annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur 16 days later, on May 10.
  • Tax Freedom Day is a significant date for taxpayers and lawmakers because it represents how long Americans as a whole have to work in order to pay the nation’s tax burden.

Tax Freedom Day

Center on Budget and Policy Priorities, Tax Foundation Figures Do Not Represent Typical Households’ Tax Burdens; Figures May Mislead Policymakers, Journalists, and the Public:

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April 24, 2016 in Tax, Think Tank Reports | Permalink | Comments (2)

The Top 5 Tax Paper Downloads

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

  1. [746 Downloads]  Lexisnexis® Guide to FATCA Compliance: Chapter 1, by Willliam Byrnes (Texas A&M) & Robert J. Munro (Texas A&M)
  2. [309 Downloads]  Ownership of the Means of Production, by E. Glen Weyl (Chicago) & Anthony Lee Zhang (Stanford)
  3. [281 Downloads]  The Law of the Platform, by Orly Lobel (San Diego)
  4. [259 Downloads]  Taxing Wealth Seriously, by Edward J. McCaffery (USC)
  5. [170 Downloads]  The Panama Papers and Tax Morality, by Usman W. Chohan (University of New South Wales)

April 24, 2016 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

The IRS Scandal, Day 1081

IRS Logo 2Patheos:  President Obama Isn’t Interested in Improving the IRS and His Veto Threat Proves It, by Mark Meckler:

President Obama made it abundantly clear this week that he has no interest in improving the integrity of the IRS by promising to veto at least one of four Republican bills aimed at holding the tax giant to the highest standards.

Here is what the president is so opposed to:

  • Executive bonuses curbed until measurable improvements in taxpayer services are proven
  • Banning the hire of persons with tax debt or other tax-related delinquencies
  • Stopping the IRS from rehiring previous employees who were fired for misconduct
  • Curbing the use of fees to fund extra programs

These sensible components that could help revamp a severely broken and biased system are apparently contrary to the big government goals of this administration. The Office of Management issued a Statement of Administration Policy on Monday that outlined the objections to three of the bills they deem as “unnecessary.”

It seems as though the White House — the same one that promised to be the most transparent in history — is more interested in doing things behind closed doors and continue on targeting its political opposition through the IRS vehicle. President Obama continuously asks for sensible legislation from Republicans and when he gets it and sees that it undermines his agenda, he pulls out the veto threat. It’s not hard to see what he’s after and we must continue the fight to resist becoming his targets.

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April 24, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Saturday, April 23, 2016

This Week's Ten Most Popular TaxProf Blog Posts

NY Times:  Sun Capital Ruling On Pension Fund Debt Could Shake Up Private Equity Industry

NY Times Dealbook (2013)Following up on my previous posts on the Sun Capital case (links below):  New York Times Dealbook:  Ruling on Pension Fund Debt Could Shake Up Private Equity Industry, by Libby Lewis:

It did not receive much notice, but a decision by a federal judge in Massachusetts has reverberated loudly through the private equity industry. Late last month, Judge Douglas P. Woodlock of the United States District Court in Massachusetts found that two private equity funds were jointly liable for the pension fund debt of one of the companies they acquired.

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April 23, 2016 in Tax | Permalink | Comments (0)

The IRS Scandal, Day 1080

IRS Logo 2Variety, Hollywood Conservative Organization Friends of Abe to Wind Down Current Structure:

Friends of Abe, the organization launched a decade ago as a fellowship for Hollywood conservatives, told members on Thursday that it would abandon its IRS 501(c)3 status, stop collecting sustaining membership dues and operating its website.

Instead, the organization will become a looser affiliation, although some of its founders denied that they are dissolving completely.

“The situation is we were always designed to be a fellowship and not an activist organization,” said writer-producer Lionel Chetwynd, one of the founders of the group. “But now is the time where everyone wants to do something. The community is aware of us. The town is aware of us. Every trade paper and news outlet is aware of us. We really don’t need to exist as a centrally focused private discreet organization. It is time to open the birdcage and fly.” ...

He said that discussions have been ongoing since last fall over the future of the organization, and costs have been a concern. Its profile has risen as a parade of nationally known GOP and conservative figures have addressed the group, including Cruz and Trump, as well as Supreme Court Justice Antonin Scalia and Paul Ryan. Its members have included Kelsey Grammer, Patricia Heaton and Jon Voight, and Gary Sinise was its chief founder.

The group, which does not endorse or fundraise for candidates, had a high-profile dispute in 2014 with the IRS as it sought to obtain 501(c)3 non profit status, as the IRS expressed concerns over the political nature of its activities. The organization also refused to give the agency access to the portion of its website that included a membership roster, which it protects. The IRS eventually granted the status.

But retaining that status comes with costs, along with the cost of maintaining its website and other administrative expenses, as well as lawyers and accountants. According to IRS disclosure forms, the group took in $284,985 in revenue in 2013, compared with $241,680 in expenses. Sinise stepped away from the group’s leadership several years ago to concentrate on his foundation, which supports military veterans.

Newsmax, Hollywood's Lone Conservative Group Closing Down

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April 23, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Friday, April 22, 2016

Weekly Tax Roundup

Weekly SSRN Tax Roundup

Weekly Student Tax Note Roundup

WSJ:  Goat Herd Helps Trump Lower Tax Bite

Wall Street Journal, Goat Herd Helps Trump Lower Tax Bite:

Donald Trump has found a solution that cuts both his grass and his tax bill: Goats.

The Republican presidential front-runner’s small goat herd, combined with hay farming and wood cutting, let him qualify for a New Jersey farmland tax break that saves him tens of thousands of dollars a year in property taxes on two golf courses, according to public records.

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April 22, 2016 in Political News, Tax | Permalink | Comments (1)

Smith:  The PACT Act And The Constitutionality Of The Marketplace Fairness Act

Florida Tax Review  (2015)Eric Smith (Weber State), The PACT Act as Indicium of the Due Process Validity of the Marketplace Fairness Act, 19 Fla. Tax Rev. ___ (2016):

If passed into law, the Marketplace Fairness Act would impose a federal duty on out-of-state sellers to collect a state-defined and state-benefitting use tax. This unique exercise of federal power implicates due process. The PACT Act represents the only other instance in which Congress has similarly compelled state law compliance. Two circuit courts of appeals have found the PACT Act vulnerable on concerns of due process. This Article relies on the PACT Act analogue to simulate how the Marketplace Fairness Act would fare under similar scrutiny. To this end and in this uncommon context, two novel constitutional questions are considered: 1) with which sovereign, the federal government or the state, are minimum contacts measured; and 2) if measured with the state, is a single sale sufficient to meet due process thresholds?

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April 22, 2016 in Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1079

IRS Logo 2New York Times, I.R.S. Fights Back Against House Republicans’ Attacks:

For five years, congressional Republicans have taken out their anti-tax wrath on the Internal Revenue Service, cutting its budget by nearly $1 billion, reducing its staff by about 17,000, and even threatening to impeach its chief.

Now they say no one at the agency receives a bonus until customer service improves. And that measure, which the Republican-controlled House easily passed Thursday, was just one of six anti-I.R.S. measures that it approved this week, mostly by party-line votes, to mark the annual tax-filing deadline.

To supporters of the agency — and there are some — years of such attacks have yielded exactly what Republicans seemed to want: a depleted, defanged tax collector.

“I’m appalled, that’s all I can say,” said Lawrence B. Gibbs, a tax lawyer at Miller & Chevalier who joined the I.R.S. during the Nixon administration and was President Ronald Reagan’s choice for commissioner in 1986. “It’s fine to demonize the I.R.S. It has always been a target. Listen, that goes with the job.”

But, he added, given the nation’s challenges, “the one thing people ought to agree on is that we should have a revenue system that works and works well.”

“And if we’re going to create a disrespect for our tax revenue system,” he continued, “I look at it and say I just don’t think it’s in our country’s best interest.”

House Republicans even gave this week a name, “I.R.S. Week,” though the lines of attack began last week, and were many. In debate, multiple hearings (the I.R.S. commissioner, John Koskinen, testified four times over eight days), news conferences and commentary in the news media, the agency even got the blame for the hated tax code, which Congress writes and Republicans have promised for five years to rewrite and simplify.

“Right now, we have a tax code that no one can understand being enforced by an agency that no one trusts,” said Speaker Paul D. Ryan, Republican of Wisconsin, who was the chairman of the tax-writing Ways and Means Committee before taking the House’s top job last fall.

As certain as death and taxes, tax season political attacks on the I.R.S. go back decades. But in recent years, the intensity has grown and the agency’s funding in turn shrank more than any other time in memory. The campaign gained strength in 2013, when Republicans seized on management failures to allege that I.R.S. employees had singled out conservative groups for greater scrutiny and delays in reviewing their applications for tax-exempt status as “social welfare” organizations, though liberal-leaning groups were examined as well, investigations showed.

The assaults and especially the funding cuts have reached a point that the agency’s defenders are speaking out.

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April 22, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (6)

Thursday, April 21, 2016

Delaney Thomas Reviews Weeks McCormack's The Childcare Tax Squeeze

Jotwell (Tax) (2016)Kathleen DeLaney Thomas (North Carolina), It's Time to Revisit the Tax Treatment of Working Childcare Costs (reviewing Shannon Weeks McCormack (University of Washington), Over-Taxing the Working Family: Uncle Sam and the Childcare Squeeze, 114 Mich. L. Rev. 559 (2015)):

Childcare costs have soared in recent years while wages remain stagnant. To make matters worse, relief by provided by the tax code is extremely limited. Parents may be able to claim a tax credit for a portion of their childcare costs and may be able to divert limited funds to a pretax flexible spending account. But in many cases, these tax benefits capture only a minor portion of parents’ costs. It is no surprise, then, that with an election year upon us, a number of proposals to expand the current childcare tax credit have resurfaced in recent months. These proposals echo years of debate over whether the tax system discourages work by secondary earners and treats working parents unfairly vis-à-vis their non-parent counterparts.

But current proposals to modestly expand the childcare credit will make only a small dent in working parents’ childcare costs. Recognizing the inadequacy of such an approach, Shannon Weeks McCormack proposes a more fundamental reform in her forthcoming article, Over-Taxing the Working Family: Uncle Sam and the Childcare Squeeze. The childcare tax credit, she argues, should be replaced with an above-the-line deduction for childcare expenses that is not subject to phase-outs or dollar limitations. In essence, Weeks McCormack calls for according childcare expenses the same treatment as deductible trade or business expenses.

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April 21, 2016 in Scholarship, Tax | Permalink | Comments (0)

Gergen:  How To Tax Capital

Mark P. Gergen (UC-Berkeley), How to Tax Capital, 69 Tax L. Rev. ___ (2016):

This paper proposes a new system for taxing capital that can collect the same amount of revenue as the existing system with much lower administrative and compliance costs, and with somewhat lower distortionary impact. Its pillar is a flat annual tax assessed on the market value of publicly traded securities paid by an issuer. Wealth represented by a string of publicly traded securities is taxed once by giving an issuer a credit for amounts remitted with respect to publicly traded securities it owns. The securities tax will cover around 75 to 80 percent of income producing capital that is presently subject to the individual and corporate income taxes.

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April 21, 2016 in Scholarship, Tax | Permalink | Comments (0)

NY Times:  $20 Billion In Tax Credits For College Fails To Increase College Attendance

New York Times:  $20 Billion in Tax Credits Fails to Increase College Attendance, by Susan Dynarski:

Taxpayers will file for $20 billion in tax credits for college expenses they paid in 2015, but while those who get them will no doubt be happy, new evidence shows they have no effect on encouraging people to attend college.

The federal government provides over $30 billion annually in tax benefits for college. In addition to the two tax credits — the American Opportunity Tax Credit and the Lifetime Learning Credit — benefits include a deduction for interest paid on student loans, a recently defunct deduction for tuition expenses, and the 529 and Coverdell tax-advantaged savings accounts.

That is a lot of money. It’s about half of what the federal government spends on elementary and secondary education and two-thirds of what it spends on Pell Grants, which subsidize costs for low-income college students. 

The tax benefits were created to get more people into and through college. But researchers at Stanford and the University of California, Santa Cruz, have now shown that the largest tax benefit, the tax credits, have no effect on increasing education [The Returns to the Federal Tax Credits for Higher Education].

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April 21, 2016 in Tax | Permalink | Comments (2)

Wells:  International Tax Reform By Means Of Corporate Integration

Florida Tax Review  (2015)Bret Wells (Houston), International Tax Reform By Means of Corporate Integration, 19 Fla. Tax Rev. ___ (2016):

This Article focuses on a single organizing question, namely how should a dividend paid deduction regime be designed so that it achieves acceptable international tax outcomes. By focusing on the international tax implications attendant with a dividend paid deduction regime, the author is not attempting to minimize the broader benefits of achieving shareholder-corporate integration. The dividend paid deduction proposal, as to distributed earnings, would equate the tax treatment of debt and equity, and in so doing it would reduce distortions that current law creates with respect to debt and equity in the corporate context. Furthermore, recent economic works suggest that the incidence of the corporate income tax burden is partially shifted to labor and away from shareholders whereas a properly designed integration proposal puts the incidence of business taxation squarely on shareholders. Furthermore, shareholder-corporate integration for C corporations harmonizes the divergent tax treatment that currently exists between C corporations and pass-through entities. Thus, a corporate integration proposal provides a broad spectrum of potential benefits, and so not surprisingly significant scholarship has been dedicated towards how to best achieve shareholder-corporate integration. But, in today’s era, the overwhelming tax policy problem that must be solved rests on finding a solution to the systemic international tax challenges that face the country, and so that is where this Article will focus.

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April 21, 2016 in Scholarship, Tax | Permalink | Comments (0)

Islamic State's Income Drops 30 Percent On Lower Oil, Tax Revenue

ISIS FlagReuters, Islamic State's Income Drops 30 Percent on Lower Oil, Tax Revenue:

Islamic State's income and the population under its control have both fallen by about a third, a U.S.-based analysis firm said, describing the declining revenue as a threat to its long-term rule over its self-proclaimed caliphate.

Revenue for the ultra-hardline Sunni Muslim group, also known as ISIS or ISIL, fell to $56 million a month in March from around $80 million a month in the middle of last year, the analysis company IHS said.

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April 21, 2016 in Tax | Permalink | Comments (1)

Pepperdine Symposium:  The Impact Of King v. Burwell On Judicial Deference To IRS Determinations

Pepperdine Law ReviewSymposium, The Impact of King v. Burwell on Judicial Deference to IRS Determinations, 2015 Pepp. L. Rev. 1-81:

I previously blogged the online version of the symposium, published  just four months after the decision in King v. Burwell.  The Pepperdine Law Review has now released a hard copy of the symposium, pictured on the right.  This is the third major tax symposium produced by the Pepperdine Law Review over the past three years:

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April 21, 2016 in Conferences, Scholarship, Tax | Permalink | Comments (1)

House Democrats Introduce Bill To Raise Estate Tax Rate

Accounting Today, House Democrats Introduce Bill to Raise Estate Tax Rate:

Rep. Sander Levin, D-Mich., the ranking member of the tax-writing House Ways and Means Committee, and other House Democrats introduced legislation Wednesday to restore the estate tax and gift tax rate and exemption level to the same amounts as in 2009.

At the beginning of January 2013, Congress passed legislation raising the estate tax rate to 40 percent (up from 35 percent), with an exemption for estates below $5 million, but indexed for inflation. Under current law, estates valued at or below $5.45 million ($10.9 million for a couple) are exempt from owing any estate tax.

The proposed legislation, The Sensible Estate Tax Act of 2016, would return the exemption and tax rate to 2009 levels, lowering the estate tax exemption to $3.5 million ($7 million jointly) and increasing the maximum tax rate to 45 percent. The bill would also restore the rates for the gift tax and generation-skipping transfer tax. It would reinstate the $1 million lifetime gift exemption and retain the annual $14,000 gift tax exclusion and unlimited spousal portability. A summary of the bill is available here.

Estate Tax

April 21, 2016 in Congressional News, Tax | Permalink | Comments (3)

The IRS Scandal, Day 1078

IRS Logo 2The Daily Signal, Jason Chaffetz Wants to Use ‘Atrophied’ Muscle of Impeachment Against IRS Commissioner:

The chairman of the House Oversight and Government Reform Committee wants Congress to impeach wayward government agents more often, and he’d like GOP leadership to start with Commissioner of Internal Revenue John Koskinen.

In an interview with The Daily Signal, Rep. Jason Chaffetz, R-Utah, likened impeachment “to a muscle that has atrophied over time,” and said he wants to “Get that muscle working again—this should be a common occurrence, this shouldn’t be once in a century.”

Chaffetz believes impeachment is within Congress’ Constitutional authority. “This was the safety valve,” he explained, “for somebody who’s not serving the best interest of the United States of America.”

Congress has only impeached

More recently Chaffetz has led the charge to impeach Koskinen, saying he obstructed the congressional investigation into the agency’s targeting of conservative groups. Chaffetz drew up impeachment articles for the taxman last October and directed his staff to hand deliver the papers to each member of Congress. Last year, the Treasury Department issued a statement backing Koskinen, saying that “Commissioner Koskinen is a man of the highest integrity with a steadfast commitment to public service during difficult times,” per the Associated Press.

But so far, House Speaker Paul Ryan, R-Wis., has hesitated to give Koskinen the boot. At a press conference last week, Ryan told reporters he’d rather wait until after the election to fire the top tax agent.

There’s always an election,” Chaffetz said, expressing frustration with Ryan’s decision to punt on the issue.

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April 21, 2016 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)